The impact of the internet has been spectacular to date, but the pace of innovation will accelerate over the next five years.

Bill Gates

Also planned are changes to the way people interact, use software with talking and writing replacing keyboards.

But the ambitious plans could fail if Microsoft loses its battle with the US Department of Justice. The announcement of the new strategy was delayed until Microsoft heard it had received a postponement of the legal sanctions imposed on it for anti-trust violations.

The new initiative goes by the name "dot.net" rather than the cumbersome Next Generation Windows Services title it acquired before the launch.

Unveiling the initiative, Mr Gates said: "The impact of the internet has been spectacular to date, but the pace of innovation will accelerate over the next five years."

Network wise

To illustrate the potential, Microsoft showed a smart phone using a wireless network to gather information about its owner. Address books, calendars and preferences were automatically loaded once the device knew who was using it.

Any updates were automatically distributed to every other device that person owns.

Also shown off was a tablet-like pad with a screen that acts as a magazine, book and e-mail reader or TV as required.

Mr Gates introducing the dot.net initiative

Documents sent to the tablet could be annotated by writing on the screen with a pen.

Microsoft wants to replace single function applications like spreadsheets with a set of services that can be called up when needed.

Instead of starting and switching between programs, users will do everything from one screen that Microsoft calls the "universal canvas".

Programs will have a common interface and common commands.

The computer will also know more about the information typed, spoken or sent to this canvas thanks to an add-on to the HTML language of the web called XML or Extensible Markup Language.

XML is a universal language that allows information in spreadsheets and other "structured" documents to be read by any and every device or program.

Using it should make it much easier to create programs that work across any kind of network.

Internet ready

The dot.net services are Microsoft's way of ensuring its products work across networks and with other programs.

But in other respects they mark Microsoft's attempt to catch up with the rest of the computer world which is already adopting a web-based approach to business.

This atmosphere stresses the open exchange of information that could be a culture shock for Microsoft which likes to dictate standards rather than reach a consensus.

Its dominance in desktop operating systems means that it rarely has to accommodate software made by other companies.

In embracing the web, it will have to work with companies, such as Oracle, that before now it has been at odds with.

One of the biggest changes brought about the adoption of dot.net might be the end of programs arriving on a CD. Instead, users are expected to pay for a service like they pay for a telephone service now.

Legal doubts

Consumers will not own the software but will merely rent it. In return, the user will get regular upgrades and better customer service.

But it remains to be seen if this proves popular and whether people are happy to rely on network links for software rather than have it fully installed on their own PC.

Microsoft's legal problems may stop it completing the vision of service-based software.

The US Department of Justice launched its legal action partly because it feared that Microsoft was unfairly using its dominance in one software arena to create success elsewhere.

The dot.net services tie almost all of Microsoft's products together and significantly extends its influence and would fall foul of any Department of Justice plans for reforming the company.