Microsoft: Free desktop apps for you?

Microsoft has been mulling a plan to offer free, ad-supported versions of some of its desktop products.

Although no specific plans have been made, executives within Microsoft are examining whether it makes sense to release ad-supported versions of products such as Works, Money, or even the Windows operating system itself, according to internal documents.

In a paper presented to company executives earlier this year two Microsoft researchers and an MSN employee wrote: "As web advertising grows and consumer revenues shrink, we need to consider creating ad-supported versions of our software."

The document was prepared for one of Microsoft's twice-yearly Thinkweek exercises, in which chairman Bill Gates and other top executives gather to consider potential new avenues for the company to follow.

Microsoft officials confirmed the authenticity of the paper, dated winter 2005, but declined to comment on its contents. However, a Microsoft source characterised the paper as an internal brainstorming exercise.

The source said: "It is simply an exploration of different models of delivering software to customers. It is not policy, it is not a plan, and no decisions have been made - it's just some thoughts from our research and business units."

In recent weeks, Microsoft has identified a number of ways to increase its online advertising business as it seeks to fend off rivals such as Google. A move to bring ads into its desktop software, though risky, would offer the company an ability to move the battle on to its home turf.

The document also sheds light on Microsoft's concerns over the erosion of revenue from shrink-wrapped software, particularly in the consumer market.

Already, the company has announced plans for Office Live and Windows Live, two products that are ad-supported complements to its existing desktop software. But in the internal documents, Microsoft workers maintain that the software maker may be forced to go further if rivals launch ad-supported versions of popular programs such as PowerPoint.

The two researchers and John Skovron, who works in MSN's Money unit, wrote in the winter 2005 paper: "If our competitors release free, advertising-supported versions of these programs, we may need to do the same."

The company's exploration of ad-supported software extends even to Windows, its most important product. An ad-supported version of the operating system could make some sense, the Microsoft researchers argue in their Thinkweek piece, noting that the product reportedly earns $9 per year per user.

The Microsoft workers said in the paper: "It seems possible that we could match that revenue via ads but there are difficult UI [user interface] issues to solve, since the OS does not have a natural way to display ads that does not annoy users." One suggestion is a low-end version of the operating system that comes bundled with other ad-supported programs, such as Works, Outlook Express and Windows Media Player.

However, the writers point out that "it's not clear how to prevent these elements from being replaced". The key is creating a robust enough advertising business to pay for more expensive content than what has been traditionally offered for free on the internet.

Ina Fried writes for CNET News.com