Of course the simple reason why Yahoo! bought Oddpost is so that it can compete with Google Gmail. But notice how the competitive ground has subtly shifted here. It's not merely a question of offering 1GB storage space (well actually Yahoo! will be offering 2GB, according to Oddpost) along with virus protection and spam filtering. The big deal now is having a slick user interface on your online service.
"The mistake that Microsoft is making by pouring resources into Avalon is to focus on perfecting the user experience for solitary creative endeavours at the expense of enhancing good-enough access to the tremendously powerful collaborative resources of the Internet."
If Yahoo! buys Outpost to counter the competitive threat from Gmail, it signals that the mainstream market will be determined by whose application has the best browser-based interface (along with, behind the scenes, the best networked services infrastructure). An application that can only function outside of the browser suddenly becomes an irrelevance however superbly it performs.
The fact that Yahoo! has bought a browser-based Outlook clone illustrates how big the threat really is to Microsoft's most lucrative products. These rich-client technologies significantly narrow the gap between browser-based applications and their desktop-based rivals. By simultaneously taking advantage of the unique advantages of being net-native such as efficiencies of scale for information aggregation and analysis they can combine a good-enough user experience with capabilities that simply aren't available (except at second-hand) within a traditional desktop environment. That opens the way towards Windows-based Outlook becoming an unloved, legacy application and provides an opening for other good-enough alternatives to Word, Excel and Powerpoint to muscle their way in.
So Microsoft now faces a crucial decision. Does the company do likewise and bring out a rich-client interface for Hotmail so that its web-based email service begins to rival Gmail, Oddpost and, by implication, Outlook in functionality? Or does it continue to bury its head in the sand and put all its efforts into ensuring it delivers an all-new Windows architecture to a declining pool of desktop loyalists?