Microsoft's grip on users is being lost in the cloud

The other day I had a vision of the death of Microsoft.

It came just hours after I placed a curse upon the huge company for, oh, the ten-thousandth time.

The occasion for my latest malediction was the discovery that Microsoft had dispensed with the "backward compatibility" of its Word application. As a result, a document created in, say, Office 2007 and e-mailed for my perusal won't open in the Word 97 program on my home computer as anything but gibberish.

Microsoft's goal obviously is to coerce me to upgrade to the new version of Office, which would cost me as much as $400, take up an enormous amount of my hard drive space and undoubtedly consume obscene quantities of my computing power.

It would also provide me with dozens of features I don't need and will never use (in the same sense that I can't buy ESPN from my cable service without also getting Lifetime). But let that go.

By sheer serendipity, I shortly discovered that if I tried opening that same illegible document via my Google Gmail account, Gmail could open it just fine. It was then an easy matter to transfer its contents to a Word document that my computer could read.

And that pointed to the question: Why should I, or anyone, spend another dime on a Microsoft Office upgrade?

For Microsoft this is a nontrivial issue, as an engineer might put it. Office accounted for nearly 30% of its revenue and more than half its operating income in its most recent fiscal year, which ended June 30.

Of course, not all of its Office revenue is at risk. Plenty of customers have reasons to license the most up-to-date iterations of Microsoft applications, including business users who need to standardize software for their entire workforce. Presumably there also exist retail consumers with specialized needs who can put Word 2007's more arcane features to use better than I. And not everyone owns a vintage Office 97 disc, as I do, to transfer trusty old Word 97 to new computers when they upgrade their hardware.

Moreover, the alternatives to many Microsoft products aren't so great. Google offers a suite of Office-like applications such as a word processor, spreadsheet and presentation program similar to Word, Excel and PowerPoint for free use online. Although none is as oppressively overstuffed as their Microsoft analogues, none is quite as serviceable as even the decade-old versions on my computer. But what's the over/under on how long it will take Google to polish them to the point of adequacy? A year? Six months?

Microsoft acknowledges that its consumer sales of Office have slipped, in part because retail buyers are shifting to "lower-priced products" -- with Google's zero-priced offerings presumably high on the list.

So what does it say about the company's future if it's beginning to lose control of its cash cow? It wasn't so long ago that the prevailing image of Microsoft was as a juggernaut on its way to world domination, like a James Bond villain. The fear that it might become unstoppable is what provoked the U.S. and European governments to spend many years and millions of dollars and euros pursuing it in court

Yet it now looks as though the Internet has accomplished something that antitrust regulators failed to do -- break Microsoft's ability to monopolize software markets.

Microsoft exercised its dominance in part by bundling applications with its Windows operating system on new PCs, making it hard for competing software to get a foothold. Its crushing of Netscape in the 1990s browser wars was the signature exhibit of this tendency. (Netscape has since risen from the dead in the form of Mozilla's free Firefox browser, developed from its old code.)

But as applications move up to the network and the need to keep them on one's own computer ebbs, so does Microsoft's power to dictate what its customers use. This undoubtedly contributed to Google's strategy of challenging Microsoft with its own stripped-down Chrome operating system and Web browser.

All this leads us to another phenomenon you will be hearing a lot more about: "cloud computing," which signifies the network of big computers where your software applications and, increasingly, your data, will reside rather than on your home or office hardware. It's already where your Google documents and e-mail are found, for example.

Cloud computing will make those files and data more accessible -- you can open them anywhere you have an Internet connection while reducing the demand on your own computer storage space and computing power -- but it raises issues of privacy and ownership that we haven't begun to resolve.

We've already seen a few examples of how the cloud's technological capability is outpacing corporate practice and legal precedent. Earlier this year, Amazon.com reached into its customers' Kindle e-books without their permission and removed versions of George Orwell's "1984" that turned out to have been unauthorized for electronic sale. Only then did many users discover that their "purchased" books resided in the cloud, and what they had bought was only a license to read them on the Kindle -- evidently a revocable license.

And the social-networking site Facebook has been caught keeping its users' personal information in its cloud, even after people cancel their memberships. (Facebook has promised Canadian authorities, who identified the problem, that it will upgrade its privacy policies.) The cloud may enable law enforcement agencies, creditors, marketers and hackers to gain access to your personal information behind your back, unless legal rights and responsibilities become better defined for the new world.

Still, the cloud is opening the playing field for sellers of what's known as "software as a service" -- instead of buying a program and managing it in your home or office, you pay these guys a subscription fee to maintain the program and hold your data on their computers. (What happens to your data if your subscription lapses or the servicer goes out of business is another issue still lost in the, er, clouds.)

No one should bet that Microsoft will let the cloud develop without staking out a role for itself. The company announced in July that it would offer free online versions of its Office programs starting next year -- plainly a counterstrike at Google Docs. It is investing billions in a cloud strategy and placed it directly under its chief software architect, the master programmer Ray Ozzie. Ozzie is already designing a cloud operating system dubbed Azure.

But Microsoft plainly knows the ground has shifted under its feet. It may yet manage to hold on to its dominant position in operating systems and Web and office software; it survived the earthquake known as the World Wide Web, thanks to Bill Gates' aggressive leadership. But history is littered with the carcasses of companies once thought impregnable in their core businesses, only to be undone by technological change. (Are you listening, Google?) The software and network businesses are about to become a lot more interesting.

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Michael Hiltzik's column appears Mondays and Thursdays.

Reach him at michael.hiltzik@latimes.com, read previous columns at www.latimes.com/hiltzik, and follow @latimeshiltzik on Twitter.

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