How Office got its groove

REDMOND, Wash. -- With the sun rising over the Cascade Mountains, the Massachusetts technology sage tasked with refocusing Microsoft Corp. for a new era was pondering his assignment.

''The biggest threat for Microsoft or for any technology company is if you stand still," Ray Ozzie said. ''You have to reflect on the environment and how you shift your business strategy."

Ozzie, at age 50, has embarked on the most formidable challenge of his storied career, and the results could determine the shape of the technology landscape for years to come. He is leading Microsoft's push to blend Internet-based software and services with traditional desktop offerings at a time when new delivery models and a new crop of rivals, from Google Inc. to Salesforce.com, are making the most serious run at Microsoft's dominance in more than a decade.

But to succeed, Ozzie's new ''live services" strategy may require a change in the DNA of a company that still makes the bulk of its money from products, like Windows and Office, that come preinstalled on personal computers in tens of millions of homes and workplaces.

Best known as the creator of Lotus Notes, the popular e-mail and calendar program, Ozzie joined Microsoft a year ago this week when the high-tech behemoth agreed to buy his most recent start-up, Groove Networks of Beverly, Mass., for $120 million. In that deal, Microsoft acquired Groove's collaboration software, which it plans to feature in a new premium version of its Office suite for businesses.

More important, it acquired Ozzie, who moved into a condominium in downtown Seattle and an office on Microsoft's suburban campus, just down the hall from longtime acquaintances Bill Gates and Steve Ballmer, the top two company executives.

''I had said to Steve for a long time that Ray was the best guy in the industry who didn't work for us," Gates, the Microsoft cofounder, chairman, and chief software architect, said in an e-mail. ''And Steve would always respond, 'Well, let's get him.' "

One year later, Ozzie's portfolio extends far beyond the Groove integration. His title is chief technical officer. And he is part of a Microsoft senior leadership team that is scrambling to find a viable new business model as software innovation migrates away from Microsoft's desktop stronghold and competitors offer services, from searching the web to managing business tasks, over the Internet. This seismic shift in the software industry, which Ozzie recognized and helped drive when he launched Groove in 1998, is now forcing even companies as powerful and successful as Microsoft to change.

While ordinary computer users may not be aware of it, they use two kinds of software in their daily lives: proprietary programs that reside on their desktops, including word-processing, spreadsheet, and presentation software, and web files that reside freely on the Internet, such as e-commerce websites or search engines. A decade ago, web files were largely static and limited, but today many are as robust and interactive as desktop programs. And firms like Google are ringing up profits from advertisers cashing in on the rush of traffic to the Internet.

All of which creates a predicament for Microsoft, which sells its software through subscriptions and licenses. Ozzie threw down the gauntlet in a 5,000-word e-mail to his new colleagues last fall urging them to ''respond quickly and decisively" to the changing technology. His kicker: ''If we fail to do so, our business as we know it is at risk."

''They're under siege," said John B. Landry, chairman of the Boston software firm Adesso Systems, who had breakfast with Ozzie on a recent visit to the West Coast and warned him about the attention and expectations that accompany his high-profile role. ''We talked about it bluntly. I said, 'Ray, you've got a 5,000-watt spotlight on your head.' "

Ozzie is working for a company that has played catch-up before and remains highly profitable, though its stock price advance has slowed over the past three years. And it's the right time in his life for a challenge and a transition. With both children now in college, he and his wife, Dawna Bousquet, can embrace a bicoastal lifestyle, commuting between Seattle and their home in Manchester-by-the-Sea on Cape Ann.

In Redmond, Ozzie looks less like a New England-minted change agent than a Northwest-style technology geek with open-collar shirt, Starbucks espresso drink, and sunny disposition. ''You can actually see some blue under those clouds," he said, gesturing out his window at clear sky in a winter that brought 27 straight days of rain.

Sharing the transition with Ozzie are about 10 other Groove expatriates newly arrived in Redmond. Several, including his younger brother Jack, a software engineer, are clustered in offices around the corner from Ozzie and are working on his team with Microsoft veterans, who sometimes struggle to decipher the dropped r's (soft-wayh) of the Boston dialect.

''They bring a different set of perspectives," said Jesse Bornfreund, a Microsoft manager who joined the Groove team.

One example: When some Office veterans mused about ways to draw crowds to retail stores for their next release, Groove team members argued it would be preferable to create excitement online.

Gates and Ozzie have known each other since the early 1980s and, though working in different companies and time zones, they have stayed in touch, bonded in their shared love for software code.

''Even when he was developing Notes," said Gates, ''he was helping us improve Windows" as an outside developer. While many are intimidated talking with Gates, Ozzie banters easily with his new boss about arcane technology issues, say Microsoft employees, who marvel at how quickly Ozzie has ''grokked" Microsoft's engineering culture.

Ozzie has long advocated technology that ''just works" for users averse to heavy computing. Shortly after joining Microsoft, he waded into a brainstorming session on how to change calendar and contact information in a way that let people easily synchronize the data on their cellphones, computers, and hand-held devices. With more complicated options on the table, Ozzie proposed the technology that was ultimately adopted: SSE, or simple sharing extensions, based on an existing file format that could be implemented readily both inside and outside the company.

''He's a grand simplifier," said Blake Irving, vice president at Microsoft's MSN unit. ''He doesn't try to architect a complex solution."

Ozzie made his public debut as a Microsoft strategist at the company's annual financial meeting in July. There he joined Gates in a dialogue on the changing high-tech environment that foreshadowed the strategy Microsoft soon would unveil. In September, company chief executive Ballmer announced a restructuring and an expanded role for Ozzie in driving Microsoft's new software-based services strategy.

Gates and Ozzie launched Microsoft's new ''Live" services initiative at a Nov. 1 event in San Francisco's historic Palace Hotel, unveiling plans for Windows Live and Office Live products that will let some customers go online for e-mail, business automation tasks, and other services. In many cases, these services will be offered free and supported by advertising, Google-style, extending Microsoft's reach to local consumers and businesses with fewer than 10 employees. At the same time, Microsoft will continue to offer established customers its flagship programs on the desktop through upgraded releases of Office and the forthcoming Vista version of its Windows operating system.

For industry veterans, Microsoft's new Internet campaign carries an echo of battles past. Where it was slow to respond to the World Wide Web, it launched its Internet Explorer browser in 1995 and soon vanquished technology upstart Netscape Communications Corp.

''They were late, but they were able to respond masterfully," said Newton technologist Bob Frankston, cocreator of the first electronic spreadsheet, VisiCalc, who hired Ozzie at Software Arts in the early 1980s and worked for Microsoft himself in the 1990s.

Today, Microsoft faces an arguably tougher challenge. The stakes couldn't be higher, and its new chief technical officer knows it.

''I enjoy substantial challenges," Ozzie said. ''And the ability to use the skills that I've been given to have a broad impact, and get the feedback that comes along with having my work in the hands of millions of people, it's gratifying and addicting, frankly."

Robert Weisman can be reached at weisman@globe.com.

FROM THE MAN HIMSELF

Read the text of Bill Gates's e-mail to Globe reporter Robert Weisman about Ray Ozzie, and internal strategy memos from Gates and Ozzie, at boston.com/business.