At an analyst’s briefing this past October, Adobe’s then-CEO Bruce Chizen was asked about Adobe’s “complex” relationship with Microsoft as both a partner and a competitor. Chizen indicated that although the two companies “have no choice but to cooperate in order to serve customer needs…by no means is Microsoft a partner…. That’s not a word I would use.” When the questioner followed up by asking,”So everything’s fair game?” Chizen responded, “Everything is fair game.”

That game is now on, as evidenced by recent announcements that move each company into more direct competition with the other on several fronts.

At Microsoft’s MIX08 web developer’s conference in Las Vegas the second week in March, the software giant unveiled the first beta, or test, version of Silverlight 2, a web development platform designed to advance Microsoft’s push into the arena of rich Internet applications (or, as many at Microsoft choose to term it, rich “interactive” applications) of the type often built around Adobe’s Flash technology today. Both companies are hoping to establish their software as the foundation of a more interactive web, one that combines video and enhanced interactivity to create rich “desktop-like” software applications that are delivered inside the web browser.

One week earlier, Adobe Systems shipped version 1.0 of its “Adobe Integrated Runtime,” or AIR, that allows programmers to move web-based applications outside of the browser to create desktop software applications similar to those traditionally created using Microsoft’s .NET development tools. Unlike the desktop software built with Microsoft’s technology, which typically run on Microsoft’s Windows operating system, a single AIR application can run on Windows, Macintosh OS, and, according to Adobe, soon on Linux as well. The cross-platform capability lets software developers create one application that can be deployed on multiple operating systems.

Although both companies believe their products provide benefits to both consumers and businesses by enabling richer and more flexible online experiences, the immediate competition is for the hearts and minds of developers, who will choose which platform and tools are best suited to build this next generation of Internet-connected applications. As Adobe CEO Shantanu Narayen stated when his company launched AIR, “AIR is only going be successful as developers use AIR to build some great applications.”

Demonstrations at the MIX08 conference from Microsoft and partner companies sought to show how Silverlight 2 can outshine Adobe’s Flash. Representatives from Hard Rock International showed Silverlight’s “Deep Zoom” feature to rapidly display a sequence of images at varying resolutions. A demo of an Aston Martin website rotated three dimensional images of the company’s cars which, with Deep Zoom, let a consumer inspect minute details down to the stitching on the leather interior. Other Silverlight-based demonstrations included NBC Sports’ Olympics.com, AOL’s next generation email client, and even online advertising support from DoubleClick, which was recently acquired by Microsoft competitor Google.

Just before the start of the MIX08 conference, Nokia announced plans to make Silverlight available on the company’s Series 60 smartphone, as well as Series 40 devices and Nokia Internet tablets. At the conference, interactive media company Stimulant and the weather information service WeatherBug showed Silverlight applications running on mobile phones. With Adobe’s Flash nearly ubiquitous on desktop systems, if either company establishes its product as the dominant platform for next-generation mobile applications, it could gain the advantage in the race to become the leading solution for cross-device software development. As Bruce Chizen told Knowledge at Wharton two years ago, Adobe’s goal is “to become the ubiquitous client on mobile phones and non-PC devices.” As evidenced at MIX08, Microsoft has the same goal.

Spearheading Microsoft’s efforts to compete with Adobe in the arena of rich Internet applications is developer division corporate vice president Scott Guthrie. Guthrie interned at Microsoft while earning his bachelor’s degree in computer science from Duke University, and joined the company after graduating in 1997.

Knowledge at Wharton spoke with Guthrie in Las Vegas during the MIX08 conference where he talked about the company’s aspirations for Silverlight, how it compares with Adobe’s Flash, why he doesn’t believe Adobe’s AIR addresses a significant market need, and the future of connected software applications. An edited version of that conversation follows.

Knowledge at Wharton: Microsoft just launched the first beta of Silverlight 2. Why is this important?

Guthrie: From a business perspective, it’s important in that it offers ways that companies can connect with customers better, both in terms of a richer media experience that lets you blend video in a richer way onto your sites, as well as a much richer user experience online. We’ve found that if you can establish a better emotional connection with your customers and you can present your products better, that this translates into higher revenue for you and better customer satisfaction.

Knowledge at Wharton: Speaking of revenue, what’s Microsoft’s revenue model for Silverlight?

Guthrie: There are three ways that Microsoft will end up monetizing Silverlight.

The first is: We sell developer tools and servers. Silverlight does not require those and they’re fairly reasonably priced, but we will see some monetization through those businesses as people who are building Silverlight [applications] decide to buy Visual Studio or higher versions of Visual Studio than the free versions.

The second way we will monetize is by having a connection with customers who are building these types of experiences. At the platform and tools layer, it offers us an opportunity to engage with them on advertising. That doesn’t mean they have to use our advertising system. At the [MIX08] keynote [[presentation]], we specifically had DoubleClick — soon to be Google — on stage showing off their SDK [software development kit] for how you can integrate Silverlight with DoubleClick’s ad system.

By having a conversation with customers and giving them great tools and power with Silverlight, we expect that some proportion will say, “Hey, we’ll also enroll in the Microsoft ad system.” And that kind of advertising monetization is a two-way street: The sites doing the advertising get the bulk of the money, but we get a percentage by helping with the ad network.

And then the third way that Microsoft is going to monetize Silverlight is through our own apps and our own sites, in terms of what we sometimes call “first-party applications” that we build on top of it. Obviously, we have a lot of apps that we build, not just in the developer’s space, but in the knowledge productivity space and the enterprise space. I think that a lot of them will benefit from Silverlight as well. So we are going to be using the technology to build better apps for our existing product lines.

Knowledge at Wharton: You now have web sites with AJAX [Asynchronous JavaScript and XML] interfaces and even a lot of Flash. How will you decide when to go with Silverlight versus other web technologies?

Guthrie: In general, we leave it up to individual teams what technology they choose — whether they want to use AJAX, a desktop client or Silverlight. Right now you are seeing a pretty widespread conversion from where we are using Flash to Silverlight. We’re finding that the performance is better and the capabilities are richer. I expect to see that continue.

There will absolutely still be places where we are going to use AJAX. One of the messages that we are trying to send at conferences like [MIX08] is that there’s not one and only one way to build websites. “MIX” [means] both a mix of technologies as well as a mix of different developer and designer bases. We sell development tools specifically for AJAX with Visual Studio, and we have our own AJAX framework. So, we’re definitely not saying that AJAX isn’t appropriate.

There are certain things that AJAX is very appropriate for and there are things for which AJAX, frankly, doesn’t work as well. Where we see Silverlight fitting in is specifically with media scenarios and what we call rich Internet application scenarios that push the edge a little bit more. Those are things that you can’t do with pure AJAX.

Knowledge at Wharton: I note you’ve adopted the term “rich Internet application” rather than “rich interactive application” — you’re not going to fight that battle?

Guthrie: [Laughs.] We use each kind of interchangeably. Mostly we just call them “RIAs” [“ree-ahs”] now.

Knowledge at Wharton: Many people have observed that a Silverlight 2 application is very similar in the look and feel you get with Adobe’s Flash. How do you differentiate yourself from Flash? Why is Silverlight something that we need? Why not just use Flash if you’re building an interactive web app?

Guthrie: In the [MIX08] keynote we were careful in showing specific examples that you can’t build with Flash. You couldn’t do the Olympics [Silverlight-based website] with Flash. It doesn’t have the media capabilities; it doesn’t have the adaptive streaming capabilities to host that type of experience.

The kind of performance that was shown with the AOL mail reader as you…scrolled up and down — the Flash Player would not be able to handle that many million emails inside an Inbox without choking. If you look at the Hard Rock example of zooming in and out with the Deep Zoom technology — you can’t do that with Flash. If you look at the Aston Martin experience, where they were showing both the Deep Zoom, where you can see the stitches in the [car’s leather interior], but also the 3D rotation of the car inside the browser — Flash today doesn’t have the graphics power to do that on typical hardware.

Are there types of experiences in terms of rich interactive, or Internet, experiences inside the browser that you can do with Flash? Absolutely. We were there with Silverlight 1 in terms of video support, but with Silverlight 2 we’re now there not just with video but also with a host of non-video scenarios. If you compare [what] Silverlight [can do] versus what you can do with Flash, the Silverlight experience is much richer. 

Knowledge at Wharton: How committed are you to cross platform? Will the Mac and other platforms have the same feature set and the same performance that we’ll see in the Windows environment with Silverlight 2 and 3 and 4?

Guthrie: That’s certainly our plan. From a feature-set perspective, all of the features that are on the Silverlight 2 that we’re shipping this week — all of the features are equivalent on all platforms and all browsers. We very explicitly designed our feature set to make sure that that’s the case.

For example, in a previous alpha last year we did not have East Asian font support, we didn’t have a text box, and people would say “How hard is it to add that?” Well, it turns out that if you want to add it in a cross platform, a cross browser way, it’s actually really hard. We now have those in the Silverlight beta that we shipped this week. We could have added it in the alpha to work on Windows first and then caught up with the Mac. But we explicitly said no, we are going to wait until we have the features everywhere because we want to make sure that there’s no ambiguity about the importance of having a consistent API and a consistent set of features that run in all places.

Knowledge at Wharton: On the Linux platform, however, you’ve outsourced the development to Novell. Why did you do that? Isn’t that going make it difficult to maintain feature parity with the other versions in a timely fashion?

Guthrie: We actually deliver the media graphics stack to Novell, so we use the same video pipeline and same media pipeline on the Linux version as on the Windows and Mac versions.

Right now on the Internet, Linux is obviously very big on the server side. On the client side, it’s at about a 0.3% [or] 0.4% share. So it’s a fairly small market. And that encompasses a lot of unique versions of Linux, about 70 or 80 different distributions. At the same time, it’s a veryvocal community and they obviously want to be able to use any website.

The challenge that a lot of companies have gone through in terms of targeting Linux is that they either don’t support all of the distros [distribution variants]or it’s not as up to date as the versions of the [other] platforms. Certainly if you look at Adobe, they took a tremendous amount of heat because Flash 9 took forever to come out in Linux. And, they’re taking heat today because AIR doesn’t exist right now in Linux.

We certainly recognize that if Microsoft was supporting Linux and we had the same delays that Adobe did, a lot of people would question our commitment to cross platform.

So, part of our goal with partnering with Novell was to have someone who owns a Linux distribution and who is very, very committed to Linux where people won’t question, “Is there some subtle thing that they are trying to do to slow [things] down?” — someone whose whole business is predicated around having a successful Linux client world.

That has actually worked well for us because people in the Linux community are much more likely to trust Novell and, specifically, Miguel [de Icaza] and the Mono Project and feel like, “Okay — if it is open source, I can get access to all the source [code]. You’re telling me that I can snap the source and build it myself if you’re not doing a good job? Okay, that’s interesting.” The higher level libraries that we are distributing — our controls and things like that — those will just work on the Linux version of Silverlight. They can take our source and use them for that. But, I think that this gives us much more credibility in the Linux community.

Knowledge at Wharton: How about Silverlight support in the handheld space? You did some demos at the MIX08 keynote although it wasn’t clear: Were we looking at Silverlight 1 or Silverlight 2 in those demos?

Guthrie: I don’t think that we explicitly called out which version we were looking at on each one. Our plan is to support both on mobile devices. So eventually you will have the Silverlight 2 feature set running across all mobile devices. We are also looking at potentially shipping a Silverlight 1 implementation sooner on certain devices. But basically the plan is that you can use the same code and run it on both desktop and mobile.

Knowledge at Wharton: Traditionally the handheld platforms have been fairly fragmented. You can do Java development now with J2ME, but it’s not consistent across different implementations. How optimistic are you that Silverlight is not going to fall into that same situation — where to get it to work on different devices, you’ll have to be cognizant of what platform or what device your code is running on?

Guthrie: Our goal is that we will have a version of Silverlight for mobile and then we’ll have different versions. We’ll have version 1, version 2, version 3 and version 4. As a developer, if you target Silverlight version 2, it will work on every mobile device that has Silverlight version 2 on it. So, you shouldn’t have to “special case” a mobile device implementation.

Knowledge at Wharton: How will the Silverlight runtime be deployed on these handhelds? Will it be something users have to download or will you be making deals with device manufacturers to include it pre-installed out of the box?

Guthrie: The mobile space is interesting [in that] there’s the technical [issue] of how you get the software built for it, and there’s the business aspect of how do you actually engage with not just the manufacturers, but also the carriers, to control what is pre-installed and what isn’t.

We showed a preview of something running on a mobile device at MIX last year just to show that we could do it. Part of [why] we waited to roll out our mobile strategy was to sign deals with some handset manufacturers that are working on non-Windows mobile devices. Obviously, Windows mobile devices will just have them built in, but [on] non-Windows mobile devices [we want to] show that “Hey, this isn’t just us putting a Symbian port out. This is someone like Nokia getting behind it.”

That’s why I think the Nokia announcement was so significant. It’s less that “Oh it will work on a Nokia device.” It’s Nokia getting behind it and they will be pre-installing it on devices.

Knowledge at Wharton: In cases like that where a third-party is shipping the Silverlight runtime on the device, is that something that you give them for free or is this a revenue model for Microsoft?

Guthrie: There is a licensing model for mobile device manufacturers. We’re very open to working with any mobile device manufacturer. Certainly, our plan is to partner with as many mobile device manufacturers as we can. And we have a good set of terms and engagement for doing that.

Knowledge at Wharton: So, when will we see Silverlight on the iPhone?

Guthrie: You know, it’s something that we’re going to be looking at. Apple is having  a conference today, so we’re all going to learn a lot more [from] both a technical and a business model perspective to understand what their terms are for getting software running on it.

Technically, we feel pretty good with Silverlight. Because we have a good platform abstraction layer, we can port it to almost any device. The business model aspect is, frankly, the harder part in the mobile business in terms of understanding what is required from a terms-condition perspective with some of the different manufacturers and carriers. This is certainly something that we are open to doing and we’ll be looking at doing.

A lot of people have focused very heavily on the iPhone, partly because if you look at a conference like [MIX08], there’s a much higher percentage of iPhone users here than most places. One of the reasons why the Nokia announcement is so interesting is that if you look at unit share, Nokia probably ships as many units in a week as Apple does in a year. They are the number one manufacturer out there. There’s at least a number two and three before Apple. Our goal is going to be to partner with as many as possible and Apple is certainly one that we’d like to partner with. But, it’s not just going to be like, “Oh, once we get Nokia and we get Apple, we’re done.” There are lots of other important manufacturers that we’re going to be working with.

Knowledge at Wharton: Adobe just launched version 1.0 of its AIR platform. Although, in some ways, Silverlight has similarities to Flash, Microsoft really doesn’t have anything in the space that AIR is targeting.

Guthrie: You know, Adobe has sort of said that [but] Microsoft has been in the desktop applications business actually for quite a while….

We’ve been building desktop applications with Visual Studio for, I think, 27 years. A lot of people are [saying], “Wow, now you can build desktop applications.” We do that with the .NET framework today — we have a very, very rich desktop application model and a very rich offline story — where we have full sync replication across machines, across protocols.

We have rich integration where you can build desktop applications that integrate with Office, can do interchange with Office, that do 3D hardware acceleration. You can’t do that sync, replication, graphics or Office integration with AIR.

Knowledge at Wharton: A key difference is that AIR is running at an abstraction layer above the operating system and that once you develop an AIR app, you have an app that instantly runs Mac, Windows, and, soon, Linux — which is different than your architecture.

Guthrie: It is. When we talk to customers, we see a lot of interest in going to a web-based model for applications. This is certainly true for business-to-consumer applications, as well as in the enterprise in many cases. Partly it’s for deployment, partly it’s for security. People want to know that if they type in a URL and visit a website, that it can’t access their local documents, it can’t steal content from their file system.

And in cases where people are comfortable running a desktop application and giving it full trust, people want richness. That’s where, right now, AIR has challenges. It does not have a security trust model. If you install an AIR app, it has full access to your documents.

Yet it can’t provide some of the value in terms of rich offline support. It can’t integrate with knowledge productivity applications, like Outlook or Excel or Word, or with your knowledge-based workflow. It can’t do the rich graphic visualization that you would like to have. It lets you host JavaScript and HTML offline. But most applications need to be significantly richer than what they have right now.

Especially in the enterprise space today, where Mac penetration is not as high, I think that the limited capabilities and the limited deployment options are going to be issues. And in the business-to-consumer space, if you start listing how many sites you are comfortable giving access to your local, private data — I’m not sure that it’s a long list.

Knowledge at Wharton: Stepping back from specific products, it sounds like you see a sharper dividing line between the web experience and the desktop software experience. While AIR seeks to bridge that gap and operate in an abstraction layer that blends those two, you seem to see a sharper cut between what you do on the web and what you do on your desktop.

Guthrie: I do see a sharper cut between what you do inside a browser and what you do inside a dedicated Windows or Mac application shell. We have, with the .NET framework, WPF [Windows Presentation Foundation], which lets you use the same code that you can use with Silverlight to run a full desktop application that’s hardware accelerated, with sync, that integrates with Office, and lets you do a heck of a lot more. We’re certainly very focused on how you can build the richest possible desktop application experience.

Where there is a middle ground that I do see a lot of scenarios for, is if I could take experiences from my website and run them in a secure trust boundary that isn’t a dedicated desktop application in most cases. It’s more like, say, a Sidebar gadget, or in the Mac world a Dashboard gadget, where it’s still running trusted and it’s providing some kind of persistent functionality outside of the browser. There, I think, is where there’s an interesting potential market. AIR is not going after that and doesn’t support that today. Downloading an application and running it fully trusted for business-to-consumers scenarios — I just don’t see as big an opportunity for it.

There will certainly be some places where you do it. Instant messaging is certainly going to be one, offline email might be another. But I don’t see a market where there are tens of thousands of sites where you’re going to feel comfortable running untrusted code on your system. And in the enterprise space where people are much more willing to run desktop applications, I think that they’re going to want the richest possible experience they can get.

Knowledge at Wharton: Paint a broader picture of where things are going. The slogan for MIX08 is “The Next Web Now.” In five years or so, what kinds of things will we be doing with software that we are not doing now?

Guthrie: [What] is exciting is: [We are] starting to see experiences that run on the web [where] you can type in a URL to a remote site and have much richer visualizations of data and of experiences, be able to aggregate information from lots of different places around the Internet, and be able to provide user experiences that give you access to that information in a super clean way, very crisply with a great kind of experience. And be able to do it not just inside the browser, but on a mobile device, from a variety of different devices.

That is a pretty exciting place to be. To know that you can come to a conference or go to a hotel or be on a plane and get access to all of that information in real time. For consumers, that’s going to be information Nirvana. For businesses, it’s a powerful thing because it is going to lubricate the information flows between organizations, between decisions, between information and data. For businesses, that is going to lead to better productivity and ultimately, hopefully, better business.