Microsoft recently made mini-headlines in the IT world when it announced that it would "launch" Windows Server 2008, SQL Server 2008, and Visual Studio 2008 together in late February 2008. Of course, in this case, the word launch is simply used to denote a chance to celebrate the release of these products, which aren't in fact being launched to customers concurrently. Visual Studio 2008 will ship by the end of 2007, and SQL Server 2008 won't ship until the second quarter of 2008. Apparently, only Windows 2008 will ship in February.

OK, no big deal. But Microsoft's misguided attempt to generate a bit of excitement for its new enterprise products is perhaps emblematic of a wider issue at the company, which seems more than a bit preoccupied with thus-far unsuccessful side projects, such as the Xbox 360 and Zune, that don't matter in the slightest to its enterprise customers. But one of these side projects, Microsoft's LIVE service, has been lingering on the periphery of the enterprise since the company introduced its plans for Office Live in late 2005. Thanks to a recent and long-overdue change in direction, however, LIVE is going to be invading Microsoft shops everywhere over the next few years. That means your relationship with the software giant might be getting an overhaul as well.

Today, LIVE consists of a few core components. Xbox Live, the initial offering, serves Microsoft's video game customers, and it was recently augmented with the related Games for Windows LIVE offering, which brings a subset of the Xbox 360's online prowess to Windows gamers. Office Live is a set of subscription services aimed at individuals and small businesses that provides Web hosting, Hotmail-based email, document sharing, and other similar features. Windows Live, to date, has been purely on the consumer side, with a wide range of products and services that run the gamut from Hotmail, Live Search, and MSN Spaces (blogging) to Windows Messenger (IM), OneCare (PC security and maintenance), and Windows Live Mail (client email access).

Despite the branding, Windows Live and Office Live have had little to do with Microsoft's similarly named and dominant software products, but that's all going to change. As companies like Google, Yahoo, and a host of smaller, fast-moving startups that few have ever heard of raced to push key PC-based functionality to the Web, Microsoft resisted this trend and instead fortified its strategy around its key, traditional success stories: Windows, Office, and Windows Server. As a result, Microsoft was in danger of being left behind and perceived as the new IBM, a company that would no doubt remain huge and profitable but would forever surrender its innovation crown.

Apparently, the software giant isn't ready for that to happen. This month, it finally began detailing plans to move key functionality to the Web when appropriate. So it will offer even its business-oriented functionality via Web services as well as more traditional software packages over time. This transition will take years, of course, and no doubt Microsoft will stumble a bit while it finds its footing in this brave new world. But the transition is as important to Microsoft as it is to its customers, who increasingly expect to access their email, documents, voice mail, and other critical data at any time, from any location, using whatever device they may have. Chairman Gates, it's time to tear down those walls around Windows and Office.

Microsoft's evolving strategy is called "software + services" to highlight the fact that it will continue shipping new versions of Windows, Office, and other traditional products even as it transforms into a different kind of company. Nearly every application it sells will be bolstered with a wide array of functionality provided by Web services. And all of its existing and upcoming Web services--yes, including Hotmail, Messenger, and whatever else you can think of--will be opened up in dramatic fashion with public APIs that third-party developers can access to extend and build on top of Microsoft's offerings. That's right: LIVE is evolving into a platform just like Windows and Office. The only question is whether it will be as successful.

I think it will be. Though Microsoft was late to the Internet, the Web, and now to pervasive Web applications, the company's greatest strength is its ability to create and support popular platforms. We're going to see the start of this shift later this year when Microsoft ships its initial offering, called Windows Live Core. But one thing is already clear: The mix of functionality that Microsoft's customers receive is going to be rejiggered pretty dramatically in the coming months and years. And it's going to be a wild ride.