updated 11/9/2005 1:28:37 PM ET 2005-11-09T18:28:37

Microsoft Chairman Bill Gates wants his managers to “act quickly and decisively” to offer more Internet-based software and services so the computer giant can beat its competition.

(MSNBC is a Microsoft-NBC joint venture.)

Gates compares the push toward such services — ranging from online business software offerings to free Web-based e-mail — to the changes he saw nearly a decade ago. Then, he wrote a now-famous memo, called “The Internet Tidal Wave,” that prompted a massive shift at Microsoft toward Internet-based technology.

“The next sea change is upon us,” Gates wrote in an e-mail to top executives, dated Oct. 30 and obtained late Tuesday by The Associated Press.

Gates also warned the company must be thoughtful in building the right technology to serve the right audience.

“This coming ’services wave’ will be very disruptive,” he wrote. “We have competitors who will seize on these approaches and challenge us — still, the opportunity to lead is very clear.”

Gates included a memo from Ray Ozzie, one of Microsoft’s three chief technical officers, which outlined ideas for broad companywide changes that can address the growing competitive threat.

Ozzie concedes in the memo dated Oct. 28 that Microsoft has not led the pack on Internet-based software and services, and now faces intense competition from companies like Google Inc. Ozzie said Microsoft needs to focus on key tenets of the new model, including a shift toward offering free, advertising-supported offerings and more sophisticated, Internet-based methods of delivering products.

“I believe at this juncture it’s generally very clear to each of us why we need to transform — the competitors, the challenges, and the opportunities,” Ozzie wrote.

Last week, Microsoft announced plans for Windows Live and Office Live, two Web-based offerings that aim to help the company compete with Google, Yahoo Inc., Salesforce.com and other companies that are already seeing success with such Web-based offerings.

Microsoft has recently faced criticism that its model, which still relies mostly on delivering software in traditional packaging, could grow antiquated. The concern is that, as more companies offer online services for everything from word processing to storing photos, there will be less of a need for Microsoft’s lucrative Windows operating system and Office business software.

Microsoft’s nascent Windows Live and Office Live efforts aim to complement its valuable software franchises with online products that build on what people find on their desktop computers.

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