Microsoft Corp. expects a "substantial portion" of revenue from its core business services division to come from online applications in the next few years, the new head of that division, Stephen Elop, said Wednesday.

 

Elop, who runs the Redmond, Wash.-based software giant's business applications division, wants to "aggressively facilitate" the re-engineering of Microsoft's Office division for a world where business applications increasingly are stored off-premise, a development known as "cloud computing." This is a critical shift for Microsoft, most of whose software is stored on customers' desktop computers.

 

Elop made the comments ahead of a crucial analyst meeting to be held on Thursday and shortly after the unexpected announcement that Kevin Johnson, head of the company's platforms-and-services division, was leaving Microsoft as part of a sweeping reorganization. Johnson will become head of Juniper Networks Inc. (JNPR).

 

The departure of Johnson, who was responsible for both the Windows operating system and Microsoft's Internet business, follows the company's recent bid to acquire portal Yahoo Inc. (YHOO). That effort, which Johnson helped orchestrate, stalled after the two sides failed to agree on price.

 

The loss of a key architect of Microsoft's Internet strategy is certain to raise questions about how the company will manage its transition to a hybrid model that gets significant revenue from both its traditional software business and its online operations, which are not profitable.

 

Elop, a former Adobe Systems Inc. (ADBE) executive and chief operating officer of Juniper Networks, says the company has time to manage this transition because few of its big corporate customers currently are looking for hosted services, preferring to manage their data in-house.

 

"They are beginning to pilot and experiment," Elop said of Microsoft's big corporate customers. "But in terms of committing their infrastructure, it's very small."

 

As such, Microsoft has so far only dipped a toe in the online business applications market. At the moment services offered are largely limited to email and collaborative software tools, such as Microsoft Exchange and Sharepoint.

 

But, Elop says, there will come a time when large corporate customers demand online and hosted versions of core Office products, such as Word and Excel. Those products currently make up almost three quarters of the revenue of the division.

 

In its last fiscal year, the business services division generated almost $19 billion, roughly one-third of Microsoft's revenue. "We will be doing everything we can to give our customers the power of choice between on-premise deployments, hosted, fully in the cloud and different business models."