The excellent Mary Jo Foley has a key quote from Microsoft’s Steve Berkowitz, VP of online services, speaking at the Search Engine Strategies conference in New York yesterday:

Basically, we’re moving the server from your office to cloud,” Berkowitz said

This is the right strategy; but I have not heard it before from Microsoft. At one briefing a year or so ago I asked how Microsoft was positioning its Live products versus its Small Business Server (SBS) offerings, and got no kind of answer worth reporting. The problem is that those SBS customers are exactly the ones who will be moving first to cloud-based services, yet they also form an important and highly successful market for old-style Windows servers. Microsoft cannot create a new market without cannibalising its old one. Another factor is that when a business adopts SBS, they are hooked into Microsoft Office as well; SBS includes Sharepoint and Exchange, both of which link directly to Office applications on the clients. Disrupting this cosy cash-cow is dangerous; yet it is being disrupted anyway, by the likes of Google and Saleforce.com, so in reality Microsoft has no choice.

The opportunity for Microsoft is offer its lan-based customers a smooth transition to on-demand services, maintaining features that work best with Microsoft Office without losing the benefits of zero maintenance and anywhere access to data.

Has it got the vision and courage to pursue such as strategy? Is its Live technology even up to the job? Or will it continue to focus on servers for your LAN and watch its business slowly but surely erode?