We are moving into the area when lot of  consumer software is gonna be distributed as services  over the net and it’s gonna be much more like a media business than like a package software business.

So, for company like Microsoft which is package software business. It has to build up it’s capabilities in the media areas  and importantly in the advertising area, because that’s what’s gonna support lot of these programs. Microsoft has trouble doing that on its own and it’s hoping to jump start the process by buying Yahoo which despite its troubles has lot of strengths as a media platform and as advertising platform.

Microsoft realises that  it needs: both buy and built, that just one or the other isn’t gonna get it where it wants to be. Particularly in terms of competing with Google as fast as it needs to.

Microsoft, Bill Gates said, will have "many millions" of servers in a network of data centers. Those centers will ultimately provide as utility services everything done today by traditional Microsoft software installed on local servers.

The design of massive data centers, said Gates, is one of the key areas of innovation in computing today.

Services will be offered through three different business models, said Gates: "Some of these will be free, some will be ad-supported. A number, the ones that provide rich [service] guarantees, will be provided on a commercial basis [ie, through subscription or other fees]."

Gates also suggested that different kinds of services would be provided in different locations, depending on the capacity of local networks.

Microsoft  is  late !

What Google is building is a vast computing centre, by all accounts the largest and most sophisticated on
 the planet. Designed to house tens of thousands of PCs, all wired together to work as a single supercomputer, it is, indeed, the information-processing equivalent of a nuclear power station, able to pump data and software into millions of homes and businesses.

The Oregon centre, now largely complete, is just one of dozens of “server farms” that the company has built around the world, holding an estimated 500,000 computers.

But Google is not just using its computing grid to process web searches. It is also supplying services such as word processing, spreadsheets, and e-mail – programs that have long been the mainstays of Microsoft’s profitability.

No corporate computing system, not even those operated by big companies, can match the efficiency, speed, and flexibility of plants such as Google’s. One analyst estimates that Google can carry out a computing task for one-tenth of what it costs a typical company.

That is why the big data centres & package software business make Microsoft’s investors so nervous.

Google data center under construction in The Dalles, Ore.