This paragraph is immensely powerful in its implications. I am reading Ray Ozzie’s financial analysts speech. I have been critical before of Ray, and his impact on Microsoft. I have moved to “on the fence”. This is an analyst speech, and I don’t know yet who wrote it. But if 50% of this makes its way into the Microsoft DNA, then that can only be good for the company.

MSFT Financial Analyst Meeting: Ray Ozzie

As an industry we’ve talked about the power of massive centralized data centers as long as I can remember, from Ted Nelson’s Xanadu to all the talk in more recent years about the potential of thin client computing. These visions highlighted the many benefits of having a vast array of scalable centralized services available to us anywhere, anytime. But these early visions all presume that the communications channel would be very narrow between end user and the centralized service.Given the assumption of low bandwidth, it seemed very natural that the limited desktop terminal model, like that of a browser, would be required if centralized services were to broadly succeed. But today for many of us, and certainly for most businesses, the availability of inexpensive, high-bandwidth, always-on communications has become the norm.

Our world has evolved into one with amazingly powerful “edge” devices, amazingly powerful centralized services, and high-bandwidth pipes connecting the two. And so rather than having to have a limited client and needing to put all the intelligence onto the service, we can for the first time consider how to intentionally balance where to put the application, where to put the data, and how rich to make the user experience based on factors such as mobility or the nature of the device, the nature of the Internet connection to that device and so on.

Some applications or data are best kept on the centralized service—projecting their user experience through a browser or through software that’s temporarily downloaded onto a client. Other applications or data are best kept on a PC or mobile device, projecting subsets of that data to other users by temporarily uploading it onto a centralized service as a cache. That architectural choice is now ours, and I can’t sufficiently emphasize the importance and significance of this architectural choice that we now have.

In laymans terms, this means that whatever you need is available to you, no matter whcih device (phone, PC, laptop, blackberry, etc) you choose to use. Its a browser centric world, yet we expect the rich functionality that we are used to in full applications, such as Microsoft Office.

Individuals on the Web, armed with nothing more than a browser and a search engine and word of mouth, discover new products and services of all kinds. They try them, they buy them, they experience them, recommend them, they maintain their vendor relationships online. Neither stand-alone products nor stand-alone marketing and sales models are quite as relevant in this new world. Whether it’s a product targeting the consumer, the enterprise, or any other customer in between, the user is now in control on the Net. And so, regardless of where we came from as an industry or as a company, moving forward we must frame all our products and services from an online connected end-user perspective.

One flaw in the speech thqt is important, because he is speaking to analysts, is that he portrays software as a service as “additive” to the current revenue model. This says that Microsoft will make money on software as a service in addition to current revenue. I don’t buy that. I see the changes taking place as disruptive, and replacing the current business models. Zero sum theory suggests a finite amount of money available, and why would we buy web based Office in addition to CD based Office?

For all these reasons, I believe that the overall services opportunity is largely additive, increasing revenue opportunities for both our existing software licensing model as well as for our services business model.

But the speech otherwise sums up nicely how Microsoft understands how the world has moved, and how they must keep pace.

So let me summarize the three things that I’ve told you today. First, I believe that a fundamental transformational shift toward services is a necessary and appropriate course of action for all technology companies at this juncture.Second, I believe there’s a very specific service-centric, common-sense, conceptual model that brings together both our new and existing desktop and server offerings in all our markets around Windows Live as a services platform and as an experience hub.

And finally, even though there’s some level of entropy in any fundamental technology and market share, there are some very solid metrics that we can and will use to measure our progress and to intelligently manage our investments.

Relevance to Bankwatch:
As Microsoft evolves we all evolve to a certain extent. In addition the gernal move to web based applications takes us all to a new world that doesn’t exist today. We don’t have online banking inside Micrsoft Office, yet we might well see online banking as a gadget inside Office Live, becuase its an internet based serice. Food for thought.