Leaked internal memos from Microsoft have warned that its business would be under threat if it failed to respond quckly and decisively to key technologies in which it lagged competitiors.

Ray Ozzie, chief technical officer and a newcomer to Microsoft, wrote in a memo to senior staff that the company had failed to achieve leadership in key internet technologies and its business would be under threat if it failed to respond quickly and decisively.

His memo suggested a shift in Microsoft’s technical leadership, with Bill Gates, chairman and chief software architect, passing on authority for its most significant strategic change in five years to his subordinate Ray Ozzie.

In an introduction to Mr Ozzie’s memo, Mr Gates said the “next sea change” was upon the company and “the coming services wave will be very disruptive.” He predicted Mr Ozzie's memo would be as critical as “The Internet Tidal Wave” one that he himself wrote 10 years ago when he belatedly issued a rallying cry to embrace the internet or risk drowning in its backwash.

The Ozzie memo outlines a similar challenge saying the growth of broadband, wireless networking and a new business model around advertising-supported Web services and software “has the potential to fundamentally impact how we and other developers build, deliver and monetise innovations.”

Mr Ozzie said Microsoft “must respond quickly and decisively.” “It's clear that if we fail to do so, our business as we know it is at risk,” he said.

He joined Microsoft in April when the software maker acquired his Groove Networks start-up. He is seen as an industry visionary and created the Lotus Notes e-mail program.

“He has a hard job, “ said Dave Winer, commentator on Microsoft, in a blog note. “Turning Microsoft in 2005 is going to be much harder than turning it in 1995. The company is much larger, and more set in its ways.”

The memo spells out where Microsoft has failed to lead in internet technologies it has pioneered.

It has lagged in developing the Ajax group of tools to allow live and dynamic updates of web pages, it has allowed Really Simple Syndication to become a dominant distribution method on the internet and Adobe's Portable Document Format to become more prevalent than its Office products.

“We knew search would be important, but through Google's focus they've gained a tremendously strong position,” the memo says.

“While we've lead with great capabilities in Messenger and Communicator, it was Skype, not us, who made VoIP [[voice over internet protocol] broadly popular and created a new category.”

The memo was written shortly before last week's launch of new web-based services Windows Live and Office Live. Your views: are rivals leaving Microsoft behind? Go there

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