Bill Gates on Tuesday laid out what he described as Microsoft's most important new technology vision for five years as he outlined a plan to move more aggressively into developing new internet services, in competition with companies like Google and Yahoo!

The shift would affect all users of software, and will lead to the availability of many more advertising-supported “free” services over the internet for both individuals and businesses, the Microsoft chairman predicted. Microsoft also announced plans for new online services to accompany its core Windows and Office software products in what amounted to one of its most aggressive pushes yet into internet services.

While Microsoft executives have talked openly for several months about the growing importance of services, Tuesday's announcement marked a watershed moment for the company in its growing battle with Google. Besides stealing a march on Microsoft in the search business, Google has steadily built its internet service into a broader “platform” to deliver more services, some in competition with Microsoft.

“Microsoft ‘gets it' - these should be great new applications for them,” Rick Sherlund, software analyst at Goldman Sachs, said of the planned new Windows Live and Office Live services. He added, though, that while these services were unlikely to “cannibalise” Microsoft's sales of its core desktop computer software, the new technology strategy raised some fundamental questions for the company, such as where the line lay between desktop software and internet services.

Google recently cast a cloud over Microsoft when it said that, with Sun Microsystems, it was exploring ways of delivering some of the functions in OpenOffice - a rival to Microsoft's software applications - over the internet. The prospect of an online version of Word, the widely-used word processing software, raised the spectre of users increasingly away from software that runs on their own PCs, a market dominated by Microsoft.

“It's a revolution in how we think about software,” Mr Gates said of the Microsoft's new focus on services. “Every five years or so, we look at our strategy and make these big bets.” He compared the new direction to the company's decision in 1995 to focus much of its development effort around the internet - a change in direction that led it quickly to overhaul Netscape Communications, the first company to popularise the web browser.

Mr Gates said that the planned new services would not replace existing Microsoft software, but would complement it. Users of Office Live, an advertising-supported website aimed at small businesses that will have its first limited trial early next year, will be able to share Word and other documents more easily over the internet. Windows Live, aimed at individuals, will offer a new version of many of the email, messaging and organisational tools that are currently available on Microsoft's MSN service, the company said.

In an apparent attempt to head off suggestions that Microsoft planned to use its Windows operating system to dominate the market for internet services, Mr Gates said that the company would disclose all the necessary technical interfaces to make it possible for others to develop their own services on Windows. “The advertising model has emerged as a very important thing,” said Mr Gates. “We want all software developers to be able to tap into that.”

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