To successfully compete with Web 2.0 rivals, Microsoft must develop an ecosystem of partners that uses its Web-based Windows Live services to develop and market new applications, according to a new report by Summit Strategies.

The report, published earlier this month and written by Summit President and Chief Research Officer Tom Kucharvy, posits that Microsoft must turn Windows Live into a Web-based platform that allows third parties to develop, build and sell applications, much like it did with the Windows operating system on the desktop.

"The key for Microsoft is one, to have a platform, and two, be able to use that environment to create demand for third-party applications written to that platform," Kucharvy said in an interview Wednesday. "The goal has to be to create the same type of APIs around [Windows Live] as Microsoft has around its Windows platform, so that developers can develop and deliver applications on it, and use it as a foundation for a marketing platform."

That strategy has its challenges, however, Kucharvy said. One problem is that Microsoft has not traditionally courted the kind of partners and customers that build applications that take advantage of the Web as the platform, he said.

"The types of applications that Microsoft currently has access to, the types of distribution channels, are not the types that will be effective in this new age," Kucharvy said.

In addition, Microsoft could face resistance from its customers and partners who may already be satisfied with Microsoft's desktop software and are reluctant to move forward with Web-based applications.

"If we have the hardware and the software licenses that we need to do all of the things the Internet-based software will do, why do we need it?" said Doug Wilhelm, vice president of information technology with Mortgage America Inc. in Birmingham, Alabama.

Microsoft's tradition of offering packaged software and the often complex licenses that accompany those products also may complicate matters when the company moves to offering more Web-based applications, Wilhelm said.

Because of Microsoft's software legacy, companies that started out offering Web-based applications and services, such as Google and Salesforce.com, may always have an edge over the Washington, software company in the Web 2.0 arena, observers have said.

Web 2.0 is a name given to the Web's transition from a collection of static Web sites to a computing platform providing Internet-based applications, or services, to end users. It also refers to the companies that are providing these services to customers and Web users.

Google and Salesforce.com also have a head start on Microsoft in using the Web as the basis for a larger platform that partner companies also can leverage, Kucharvy said.

For example, Google has released APIs (application programming interfaces) for its Google Maps service that allow third parties to build what are called "mashups," or new application functionality that can be directly incorporated into Google Maps, he said. Mashups have become a popular way of customizing Google Maps, and there are a number of Web sites devoted to listing and keeping tabs on these projects.

Salesforce.com -- while coming at it from the angle of enterprise software, not consumer services -- also is helping to encourage an ecosystem around its on demand CRM (customer relationship management) service, Kucharvy said. Its AppExchange feature, which will be a part of its Salesforce.com Winter '06 release due out in mid January, encourages partners to use the Salesforce.com service as a development and marketing platform by allowing ISVs (independent software vendors) to offer wares as tightly integrated, hosted CRM add-ons.

Its Web-savvy competitors may be ahead of them, but that's not to say Microsoft is oblivious to the need to take on partners to help drive its Windows Live strategy, Kucharvy said.

For example, the company recently launched Windows Live Local, a Web-based search tool previously called MSN Virtual Earth, and is allowing partners to incorporate the tool in new applications through the use of APIs it is making available to them.

That's a good start, Kucharvy said. But in the long run, to compete against Web 2.0 companies such as Google and Salesforce.com, Microsoft must offer a variety of business models for different types of partners -- whether they be advertising, independent software company or developer partners -- to take advantage of Windows Live and the larger value proposition of the Internet as a development and marketing platform.