Microsoft says Google success a "wake-up call"

By Daisuke Wakabayashi

SEATTLE (Reuters) - The success of Google opened Microsoft's eyes to the riches available in Web advertising, the chief technologist for the world's largest software maker said on Tuesday.

"It was a wake-up call within Microsoft," company Chief Software Architect Ray Ozzie said at a Goldman Sachs investor conference in Las Vegas.

Google's success alerted Microsoft to the financial power of advertising and how it might complement revenue from subscriptions for its desktop software, he said.

"This very clearly caused an inflection point within our industry and within Microsoft of understanding advertising as an economic engine," Ozzie said in a question-and-answer session monitored online.

Ozzie stepped into the top technical position at Microsoft last year, replacing co-founder Bill Gates and spearheading an important transition for the $44 billion company to extend its reach beyond the computer desktop.

Google derives almost all of its $10.6 billion in annual revenue from advertising, while Microsoft's loss-making Internet arm generated $2.3 billion in sales last year. Microsoft makes most of its money from its dominant Windows operating system and Office software suite.

"It is critical for Ray Ozzie to rethink how Microsoft competes in the Web world, because it is a totally different landscape out there and if Microsoft doesn't adapt it will get left behind," said Morningstar analyst Toan Tran.

The challenge for Ozzie is to deliver a host of Web services alongside Microsoft's classic out-of-the-box software to remain competitive with online rivals like Salesforce.com, Yahoo Inc. and others without compromising its core business.