In a two-page note that accompanied the Ozzie memo, Mr. Gates compared it to one he wrote in 1995, "The Internet Tidal Wave," which assessed the Internet challenge of a decade ago. Microsoft, he wrote in the introduction to the Ozzie memo, was at similar crossroads. "This coming 'services wave' will be very disruptive," Mr. Gates wrote, and later emphasized, "The next sea change is upon us."

The Ozzie memo analyzes the Internet services trend, the competition and Microsoft's strengths and shortcomings, and it suggests how the company must change. The document is also a call to action: "It's clear that if we fail to do so, our business as we know it is at risk," Mr. Ozzie wrote. "We must respond quickly and decisively."

The memo is peppered with technical acronyms, and rivals are named. While Microsoft is progressing on several fronts, Mr. Ozzie wrote, "a set of very strong and determined competitors is laser-focused on Internet services and service-enabled software."

"Google is obviously the most visible here," he added.

There is an implicit critique of Microsoft's software-building practice of relying so much on product cycles measured in years. The last major release of Windows -- XP -- was in 2001, while the next one, Vista, has been scheduled for next year after repeated delays. The memo chastises no product by name, but it extols the virtues of speed and simplicity in software design.

"Complexity kills," Mr. Ozzie wrote. "It sucks the life out of developers, it makes products difficult to plan, build and test, it introduces security challenges, and it causes end-user and administrator frustration."

HIS comments all but echo those of some estranged engineers who have left Microsoft recently. Mark Lucovsky, a former senior engineer at Microsoft who joined Google, wrote in his blog earlier this year, "Microsoft used to know how to ship software, but the world has changed." The companies to watch, Mr. Lucovsky wrote, have "embraced the network, deeply understand the concept of 'software as a service' and know how to deliver incredible value to their customers efficiently and quickly."

Mr. Ozzie is understandably careful in what he writes and says; his role at Microsoft is mainly to lead and encourage rather than to criticize. He emphasizes the importance of Microsoft's big desktop products like Windows and Office, and he says that Internet services should be seen primarily as a way to continually update and improve its offerings. Those updates and improvements, he said, should make Microsoft software teams happier by moving their work into the marketplace faster.