OfficeLive is a significant dilemma for one of the world’s greatest innovators.  I am specifically referring Ray Ozzie, http://www.microsoft.com/presspass/exec/ozzie/default.mspx

Chief Software Architect at Microsoft.  In the spirit of full disclosure I had the great pleasure of working for Ray for 3.5 years at Groove Networks.  I can tell you that he is an incredible human being on many levels – but even he has his hands full with the classic Christensen-style dilemma http://c2.com/cgi/wiki?InnovatorsDilemma posed by OfficeLive.

No where is the OfficeLive dilemma more obvious then in the public Q&A that occurred yesterday with equity investors at the Goldman Sachs conference in Las Vegas http://news.yahoo.com/s/nm/20070227/tc_nm/microsoft_ozzie_dc_3.  Not only does Ray have to explain how OfficeLive will help Microsoft counter the numerous competitive threats posed by Google, but, he also has to explain how OfficeLive will not accidentally cannibalize Microsoft’s  traditional (and very profitable) software licensing model.

Further complicating the dilemma is the fact that Ray and Microsoft have openly acknowledged that OfficeLive is designed to enable Microsoft to counter Google by directly owning the small business SaaS subscriber relationship.  So what does this mean for Microsoft’s traditional channel partners (telco carriers, hosters, and VARs)?  Clearly this is a significant dilemma for the channel which, ironically, creates a tremendous opportunity for service provides to move quickly to introduce their own SaaS offerings so they, themselves, can own the subscriber relationship.

In summary, OfficeLive at heart is a direct play for Microsoft.  OfficeLive is not currently available for redistribution through the channel.  The fact is that small business with limited IT expertise have a real need today for simple-to-use software applications delivered as a service.  Therefore, broadband providers, VARs, and hosters need to move quickly to capitalize on this demand.