Microsoft muses on free desktop apps

Even as Microsoft readies a host of new ad-supported online services to battle rivals, the software maker has been mulling a plan to offer free, ad-supported versions of some of its desktop products, ZDNet UK sister site CNET News.com has learned.

Although no specific plans have been made, executives within Microsoft are examining whether it makes sense to release ad-supported versions of products such as Works, Money, or even the Windows operating system itself, according to internal documents seen by ZDNet UK sister site CNET News.com.

"As Web advertising grows and consumer revenues shrink, we need to consider creating ad-supported versions of our software," two Microsoft researchers and an MSN employee wrote in a paper presented to company executives earlier this year. The document was prepared for one of Microsoft's twice-yearly Thinkweek exercises, in which chairman Bill Gates and other top executives gather to consider potential new avenues for the company to follow.

Microsoft officials confirmed the authenticity of the paper, dated winter 2005, but declined to comment on its contents. However, a Microsoft source characterised the paper as an internal brainstorming exercise.

"It is simply an exploration of different models of delivering software to customers," the source said. "It is not policy, it is not a plan, and no decisions have been made — it's just some thoughts from our research and business units."

In recent weeks, Microsoft has identified a number of ways to increase its online advertising business as it seeks to fend off rivals such as Google. A move to bring ads into its desktop software, though risky, would offer the company an ability to move the battle on to its home turf.

The document also sheds light on Microsoft's concerns over the erosion of revenue from shrink-wrapped software, particularly in the consumer market.

Chief technical officer Ray Ozzie and chairman Bill Gates outlined some of the opportunities and the challenges Microsoft faces in a series of October memos. In the more blunt of the two missives, Ozzie said Microsoft had an obligation to act on the shift to ad-supported software.

"It's clear that if we fail to do so, our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

Already, the company has announced plans for Office Live and Windows Live, two products that are ad-supported complements to its existing desktop software. But in the internal documents, Microsoft workers maintain that the software maker may be forced to go further if rivals launch ad-supported versions of programs that would compete with programs such as PowerPoint.

"If our competitors release free, advertising-supported versions of these programs, we may need to do the same," the two researchers and John Skovron, who works...

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