Microsoft must change its business to better deliver software and services over the Internet to compete against new technology upstarts, chairman Bill Gates said in a recent memo to executives.
Mr Gates' memo acknowledged that Microsoft, which became the world's largest software maker by developing programs to be installed on personal computers, is facing increased heat from rivals such as Google, Salesforce.com, Yahoo and Skype that have built businesses by delivering such services over the Internet.
"We have competitors who will seize on these approaches and challenge us," Mr Gates said.
"The broad and rich foundation of the Internet will unleash a 'services wave' of applications and experiences available instantly over the Internet to millions of users," Mr Gates said in the memo, which was sent to senior Microsoft executives in late October and obtained by media outlets this week.
"The next sea change is upon us," Mr Gates said, evoking his famous memo a decade ago calling for Microsoft to shift its focus to the Internet, which resulted in a company-wide effort to develop the Internet Explorer browser and unseat market leader Netscape - and which also led to the landmark antitrust trial with the US government.
Microsoft announced last week that it would offer some of the basic features of Windows and Office over the Internet, without the complexity of installing and maintaining the software in computer hard drives.
While Mr Gates' memo may mark a major strategy shift for Microsoft, the company has been working for a while toward adopting a new strategy.
Ray Ozzie, a longtime software services pioneer who sold his company Groove Networks to Microsoft in April and joined as one of Microsoft's chief technical officers, complained in a separate memo sent in October that Microsoft had moved too slowly to recognise industry trends and to use its technology to fend off new rivals.
Microsoft is offering its own search engine to compete against Google and has also begun selling advertisements that will be displayed alongside search results, which has fuelled profits at Google.