Stephen Elop is the new president of Microsoft's $16.4 billion-a-year business division, and he understands as well as anyone that Microsoft may have its work cut out for it to keep Office's crown in the online era while continuing to grow the rest of the division (CRM, ERP, SharePoint, etc.). But that doesn't mean there's a sharp right turn for the powerful division's strategy any time soon.

Elop, who's recently taken over from outgoing Microsoft vet Jeff Raikes, appears at first blush the ultimate outsider replacement to Raikes' ultimate insider. Before joining the company, Elop was unconvinced of Microsoft's approach to services -- he thought it was "cheesy" and backwards-looking -- and accepted as fact that Microsoft wasn't an innovative company. His recent background at Macromedia and Juniper focused on the Internet and networks, not business software.

However, beneath that is a former CIO and engineer by trade who in a few short months has gone from skeptic to believer. "When you actually talk to customers, just about all are saying there are some things I need on premises, some things I need hosted entirely within the cloud, and by the way I want all of those things to work together," he said in an interview this week. That philosophy is the core of Microsoft's "software plus services" strategy: services are here to stay, but software isn't by any means dead.

It's clear, though, that while Elop buys the idea that customers want both choice and combination of software and services, the wind is blowing in the direction of services, and Elop wants Microsoft to accelerate its pace toward embracing them. Microsoft CEO Steve Ballmer recently asked Elop what he thought he should stand for at Microsoft, and Elop knew he had to stand for generational change, a transition into the software plus services era."There's very much a pressure that I'm applying that's like, 'Let's go'," he said. "All great companies, any great company you can name, has necessarily had to make those generational leaps."

Elop seems particularly excited about technologies like Live Mesh and other Web-based application platforms that Microsoft chief software architect Ray Ozzie and his secretive group of engineers have been working on for the last two years, and which will likely begin to finally see the light of day in October at Microsoft's Professional Developers Conference. He thinks they could transform Microsoft's business and productivity applications. "As the single largest application vendor in the world building on those platforms, that's something that we fully intend to embrace," he said.

The next versions of Office and SharePoint will have major services components, according to Elop. In an early nod to those plans, Ballmer on Wednesday said that both would have social networking components when they are released. Both Elop and Ballmer said the public should expect more news on the future of Office and SharePoint in coming months. Though it's not services related, Elop hinted that future versions of Office could also employ multi-touch, a feature shown off in recent early demonstrations of the next version of Windows, Windows 7.

So why haven't we seen a Web-based version of Office yet, while Google and others have already planted their own flags in the ground? "Microsoft does a pretty good job of trying to deliver the right things at the right times in ways that are capable of representing the brand appropriately," Elop said, making it clear that he wasn't about to announce anything. "I could go quickly out and do something cheesy or acquire something or whatever and say, hey, there you go, you've got a word processor on the Web or whatever, but we're taking care of a really, really important franchise and a really important brand. And so, if one were to see a product from us in the Web environment, if that were to happen, their expectations would be at a certain level that is higher than other companies would have."