According to Ray Ozzie, Microsoft's top technical executive, Google was a wake-up call within the company. However, he added that Microsoft plans to do more than simply mimic Google by rolling out Web-based versions of desktop programs or following its particular search and advertising model.

"There is a sea change going on in the industry," Ozzie added. He likened the change to the shift to PC era in 1980s. To give enthusiasts a peek of what is to come, Ozzie gave a little indication. Instead of jumping belatedly into the fray with Web-only programs, he said Microsoft will pursue a mix of software loaded on PCs and Internet services that also work with the growing array of mobile devices, a strategy called "software-plus-service." Ozzie said he sees free, Web-based, ad-supported software as a way to extend Microsoft Office's reach, but gave no specifics. He noted that this solution wasn't likely to appeal to the company's big business customers.

Sid Parakh, an analyst with McAdams Wright Ragen in Seattle, said that "what he's trying to say is that even though we are behind, we are not going to necessarily copy a model that's out there." Parakh added that the Medstory acquisition by Google was solid. "Advertisers do want a targeted audience," he said. If Microsoft can deliver it, "I don't see a reason why advertisers won't move."