The company already has begun building out and testing an infrastructure that will let it deliver a hybrid of the on-demand model that connects full-featured Windows clients with additional information and functionality from free or subscription-based services.
At Microsoft's annual Financial Analysts Meeting on Thursday, Chairman and Chief Software Architect Bill Gates and CEO Steve Ballmer said new revenue opportunities will come through adding services to software.
''We're moving from a world where we deliver bits to one where we deliver bits and services across the Internet,'' Ballmer said.
In a demonstration of Windows Vista, executives showed an application for physicians that pulled down information from diagnostic equipment connected via Web services to create 3D charts and analysis tools. The rich application ran locally on the client while including data from other systems.
This software-and-services strategy is permeating many Microsoft initiatives, from MSN's consumer services like Hotmail and MSN Spaces to Office, SharePoint and InfoPath. Execs are calling these ''cloud-based services''.
''Think of our architecture as deliverable in two forms, as a piece of software and as a service we offer to [customers],'' Gates told financial analysts at the meeting. ''We'll have storage in the cloud, so you can connect with different devices. Instead of syncing devices, you connect to the cloud storage we've created and sync there.''