Yesterday, Microsoft Chief Software Architect Ray Ozzie described the software giant's most recent Internet-based competitor, Google, as a "wake-up call." Ozzie, who made the comments during a Goldman Sachs investor conference in Las Vegas, has been Microsoft's biggest proponent of its recent online initiatives.

The success of Google--which somehow managed to turn its Internet search service into a revenue-generating engine based on tiny, textual advertisements on Web pages--has caused Microsoft to reevaluate its competitive strategies, Ozzie said. "This very clearly caused an inflection point within our industry and within Microsoft of understanding advertising as an economic engine."

Despite Ozzie's internal efforts, Microsoft has floundered in the online space since Google's rise. Part of the reason is Microsoft's corporate inertia: The company's biggest businesses--Windows, Microsoft Office, and Windows Server--are traditional software products whose internal supporters have only recently realized the threat of Web-based software services. Microsoft fears that it will have to cannibalize its most successful products to effectively compete with companies such as Google.

"The services opportunity is ... really more than just taking what's on the PC and putting it up on the Web," Ozzie said yesterday, also noting the "tremendous business opportunities" of Web-based services. Publicly, Microsoft has pushed a complementary approach, continuing to offer its traditional cash cows, such as Windows Vista and the Office 2007 system, alongside new online services such as Windows Live and Microsoft Office Live. However, these initiatives have largely failed in the marketplace, despite often being superior to similar Google services.

Why that's so could be fodder for an interesting debate. One thing is pretty clear: A decade ago, Microsoft was willing to do whatever it took to take down Netscape, including bundling Microsoft Internet Explorer with Windows despite protestations about the technical and moral problems of such an approach. Stung by the innumerable antitrust battles that followed, today's Microsoft seems unwilling to change as dramatically. And the company's current complementary approach, from what I can see, has failed. Put simply, Microsoft might have gotten a wake-up call, but it's been punching the snooze button ever since.