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Microsoft kicks off online services

Faced with growing competition, Microsoft kicked off on Monday its online services aimed at businesses with more than 5,000 employees.

The program includes a Web-based version of Outlook e-mail that’s administered by Microsoft, which declined to provide prices. The move came as the threats to Microsoft’s franchises multiply, market analysts said. Microsoft executives stressed that they were shifting the entire company to focus on selling both traditional software and “software as a service” - that is, using the Internet to deliver what people need, when they need it. “This transformation from software to software-plus-services is a very, very big deal for our company,” said Ray Ozzie, who succeeded co-founder Bill Gates as Microsoft’s chief software architect in June 2006. “It’ll be a very critical aspect of all of our offerings over the next few years,” he said.

But investors are grumbling that their company has already poured too much money into online efforts with few rewards. The online division’s annual operating losses top $700 million, and revenue has increased little in two years. The pressure to produce or walk away from Web services is making the next year a crucial test for the company. “There are some big technology and business problems we’re continuing to chew on, but we’re making progress,” Microsoft spokesman Adam Sohn said. “We’ve turned the strategy corner, and we’re in execution mode. In the next one to two years, you’re going to see it come to life. “

Windows and Office have been the pillars of Microsoft’s financial performance for more than a decade and generated more than $22 billion in profit last year. Other divisions have had mixed results. Server software produced earnings of $3.9 billion last year and online services and entertainment posted a combined loss of about $2.6 billion. The company has pumped much of that profit into new products on many fronts. It has courted consumers with the family of MSN services, spending a fortune on search technology to compete with Google. Its Xbox console and video game titles have eaten up more than $6 billion. It also developed the Zune media player. (