Over time, virtually every piece of Microsoft's software lineup will be offered as a server or a service, according to Microsoft Chairman Bill Gates.

Unveiling a new strategic vision dubbed “live software,” Gates previewed Microsoft’s first moves into the space with Windows Live and Office Live on Tuesday at a press conference in San Francisco.

Focused on the individual user, Windows Live is an advertising-supported service that lets users customize their own home pages with search content, RSS feeds, workspaces, applications and a new AJAX-based mail system called Live Mail and Live Messenger, an updated version of Microsoft’s MSN Messenger. The free service is not designed to replace the company’s MSN.com, which will continue to feature programmed content.

Office Live, previewed by Microsoft General Manager of Information Worker Services Rajesh Jha, is a set of free and subscription-based services for small businesses with fewer than 10 employees.

The base-level Office Live lets small businesses sign up for a free domain registration and a free web site, plus multiple Live Mail accounts with up to 2 Mbytes of storage, free online collaboration to enable ad hoc file sharing a la Groove Networks, code-named Mojo. The subscription-based service is designed for fuller-function business portals that might enable a company to set up a secure space to communicate with an accountant or for various workgroups.

Microsoft's top worldwide channel executive says the company's upcoming Office Live will jump-start business for a variety of solution providers targeting very small businesses. The service will start rolling out next year.

"This will, for the first time, widely open up a segment of the market that has been underserved by technology, said Allison Watson, vice president of Microsoft's worldwide partner and small business group.

She estimates the potential market to be about 5.2 million businesses that are currently PC-based, not server-based.

While the service emanates from Microsoft, third-party partners--ISVs in particular--can build vertical applications atop the collaboration and mail infrastructure. RE3W, a Santa Ana, Calif.-based ISV specializing in Web-based applications for the real-estate industry, demonstrated its application on stage with Microsoft in San Francisco, although not without glitches.

Watson said most of the Office Live infrastructure would go to beta early next year. Some of the foundational Windows Live services demonstrated are in beta now, she said.

While the services previewed Tuesday did not focus on hosted applications, Gates said applications such as CRM could be added to the Office Live service at a premium subscriber level sometime in the future.

Gates and Ray Ozzie, one of Microsoft's three CTOs, are using the event to outline the company's strategic push into “Live software,” a catchall term covering software, services and software as a service. The Redmond, Wash.-based software giant plans to offer hosted collaboration and business applications such as CRM and ERP via its own hosting services or via partners.

Sources inside and close to Microsoft have likened the company’s software-as-a-service push to its belated discovery of the Internet after Netscape's Navigator browser threatened to make Windows irrelevant several years ago. Ozzie, who joined Microsoft last year when it acquired Groove Networks, is driving this strategy.