Microsoft is finally recognizing the fundamental ways in which people’s lives and work-styles are changing, and it as a company and its technologies must respond to these changes.

Welcome to the world of Software-as-a-Service (SaaS)!

Live Mesh is Microsoft’s attempt to catch up to the Web 2.0 movement which has quickly evolved into an Enterprise 2.0 migration process in which a rapidly growing number of companies of all sizes are shifting their IT strategies from on-premise products to on-demand services.

This trend is being led by Salesforce.com and Google, and being supported by hundreds of other start-ups and established vendors, including Cisco Systems, Dell and EMC.

Salesforce.com and Google’s alliance which produced a new set of integrated services last week is the most recent challenge to Microsoft’s dominance in the workplace.

Cisco Systems has been talking about the melding together of network-centric business processes for years, and has elevated its vision of the market to include new collaboration opportunities to showcase its WebEx acquisition.

Dell is seeking to redefine how companies will manage their servers, desktops and other devices by leveraging web-based managed services.

EMC is repackaging its storage systems into SaaS solutions, led by its Mozy acquisition.

By coincidence, I attended Salesforce.com’s Tour de Force roadshow in Boston yesterday where Marc Benioff and a series of guest speakers spoke persuasively about the power of its Force.com platform. In order to make the point that its platform capabilities can appeal to any software developer in any type of business, the event speakers included:

• Cheryl O’Connor, Worldwide CRM strategy manager of Analog Devices.
• Narinder Singh, Co-Founder and CTO, Appirio
• Jeremy Roche, CEO, CODA

Microsoft is now trying to define this trend in its own terms. Conceptually, it is hard to argue with the company’s view that the world is changing. Its latest initiative goes beyone the “Software Plus Services” ideas it has been promoting for the past two years. Practically speaking, it will be interesting to see how far Microsoft is willing to go to respond to these changes, and how successful it will be convincing corporate and consumer customers that it has the right portfolio of web-based services to satisfy their changing requirements and preferences.