In my Internet Strategy Class I walk through the 2005 Internet Services Disruption memo from Ray Ozzie. The takeaway is that Microsoft realized services have become strategically crucial but that the company has significant organizational obstacles in the way of making the transition from installed software.
So it’s not terribly surprising when they start buying up companies like Avenue A/Razorfish and now an offer for Yahoo. They need to add this capability and revenue stream, and it’s extraordinarily difficult to turn the Microsoft ship around fast enough.