econman - 12:55 pm on May 15, 2006 (gmt 0)

Ballmer's focus is clearly far broader than Search, hence the reference to "advertising market" rather than "search."

My impression is that MS is in the midst of a fundamental shift in its business strategy, away from licensing software toward selling advertising.

This is a logical response to Google's growth and tactical manuevers (Firefox, OpenOffice), as well as the broader pressures created by the increasing popularity of open source software. The key problem for MS is that open source software tends to be given away "free" -- just like Google's "maps" and many other beta "products" which Google is giving away free -- so MS can't necessarily succeed by simply adding "free" features and products to its core/monopoly products.

I think MS may finally be realizing that their monopoly position will be eroded if they continue to sell their software in a market which is trending toward "free" products. The solution is to find an alternative source of revenue which enables them to continue to benefit from their existing monopoly position.

If MS can navigate this transition successfully, they will retain their dominant position on computer "desktops" but they will no longer rely on software licensing revenue; instead they will make their money selling advertising shown to every "windows" user.

Note these portions of the Reuters article:

"At the core of this plan is Windows Live, an advertising-funded, one-stop shop for services from e-mail, to instant messaging, to blogs that targets the fast-growing online ad market.

...Ballmer said Microsoft would seek to create a marketplace where consumers want to spend their time and advertisers want to spend their money. It also plans to leverage the popularity of its MSN, Hotmail and Instant Messaging products, he said.