Introduction

Despite the fact that it didn’t stir any large debates in the media, the fact that Microsoft is more or less abandoning its web service strategy (as reported by the New York Times on Aril 11, 2002) is a very significant event in this market.

Microsoft owes its overwhelming market position in part to its amazing capacity to recognize when it is headed in the wrong direction, and to change its corporate strategy accordingly, even if this means negating huge previous efforts on the side of the company. Most of us still remember how Bill Gates changed from a surprising “The Internet is nothing, we will provide something better” strategy to a more reasonable “the Internet is everything” attitude when the web was in its infancy. There are many similar examples in the company history.)

Microsoft’s quiet abandon of its initial .NET My Services (a.k.a. Hailstorm) strategy should command the full attention of any technology observer who considers the evolution of the web as essential to his business: when Microsoft announced Hailstorm, it very much considered it to be the centerpiece of its new business model. The announcement also held immense symbolic value: through its Hailstorm initiative, Microsoft was poised to proudly lead the next step in the evolution of the web-based economy and lay down the technological groundwork for a service-based computing environment.

What does this mean for the industry?

Microsoft’s loss of faith in this endeavor is significant. In the recent technology downturn, web-services have been the silver lining on the dark clouds of recession for many companies. For businesses, online services would create revenue where simple websites failed. Web services were (and still are) regarded as the unavoidable next step of evolution, the fulfillment of the carefree dreams of a web-centric business world, a technological environment where companies can finally start making serious money with their on-line efforts.

Now, let me just make one thing very clear. I think there is a lot to this vision: given the poor state of a vast number of business websites today, it is obvious that huge improvements can and will be made there. It is also obvious that this will improve business, just as a friendly and competent sales person does so over a grumpy and lazy one.

The common mistakes of the technology industry

So where is the concern? Well, while I have no problem viewing next generation web sites (which is what these services generally are, particularly in the eye of the average consumer) as a welcome improvement, I do not think that they solve the main underlying problem with business on the web which is an insufficient understanding of user needs and desires.

This is particularly true for the consumer market. In the B2B market place, web services will play an important role - but what about Joe and Jane Average?

One of the most engrained mistakes made by technology providers is the assumption that innovation necessarily sells. This may have been true in an emerging market, such as the PC in its infancy - but it certainly did not work for the first wave of overexcited dot-com startups. And today, as investor confidence slowly returns, the obvious risk for web-services is to revert to this assumption as a basis for business models.

Vast improvements can be made in web-based services through an acquired understanding of how the Internet works and what businesses attract on-line customers. By now developers should have an adept notion of what can and cannot be achieved in order to increase efficiency and consumer satisfaction. It is important to keep the scope of possibilities in perspective and not to get carried away and repeat past mistakes.


Understanding the user has become more vital than ever. Business models behind web services are as untested as most web strategies a few years ago. We do not yet know neither what consumers want, nor how much they are willing to pay for a service, and so we need to be careful. However, in the light of Microsoft’s recent strategic shift, it seems safe to assume that things are turning out to be not quite as simple as one might have hoped.

April 22, 2002

©2002 Pfeiffer Consulting