SEATTLE, WA – In an email to top Microsoft executives acquired by the Associated Press, company chairman Bill Gates warned that the technology industry’s shift towards internet-based software and services represented a major challenge for the software giant, and urged the company leaders to “act quickly and decisively” to further the company’s efforts in these areas.“This coming ‘services wave’ will be very disruptive,” Gates wrote in the memo dated October 30th. “We have competitors who will seize on these approaches and challenge us – still, the opportunity to lead is very clear.”

Gates compared the current trends to changes he saw 10 years ago, which prompted a similar memo rallying the company to action, and sweeping changes in its internet related products.

“Ten years ago this December, I wrote a memo entitled ‘The Internet Tidal Wave’ which described how the internet was going to forever change the landscape of computing,” Gates wrote. “Our products could either prepare for the magnitude of what was to come or risk being swept away. We dedicated ourselves to innovating rapidly and lead the way much to the surprise of many industry pundits who questioned our ability to reinvent our approach of delivering software breakthroughs.”

Gates struck an upbeat tone, writing that Microsoft “more than any other company” has the “vision, assets, experience, and aspirations to deliver,” and does not shirk what he acknowledges will be stiff competition from other leaders in the tech sector.

“We must reflect upon what and for whom we are building,” said Gates, “how best to deliver new functionality given the internet services model, what kind of a platform in this new context might enable partners to build great profitable businesses, and how our applications might be reshaped to create service-enabled experiences uniquely compelling to both users and businesses alike.”

The email is not the only forum in which Gates has made use of the “sea change” turn of phrase recently. At a press conference in San Francisco on November 1st, Gates spoke about the new wave of “live software” his company was developing, intended to combine the functionality of its software for PCs with new internet capabilities. In noting that the new products were designed to capitalize on the growth in online ad revenues, Gates said, “This affects everybody who uses software. It’s a dramatic sea change.”

Windows Live and Office Live, two offerings from the live software line Microsoft has in development, are clearly an effort to compete with the likes of Google, Yahoo, and other companies that are already proving successful driving ad revenues through free online applications.

Attached to his own memo, Gates included a memo scribed by Ray Ozzie, one of Microsoft’s chief technical officers, outlining ideas for sweeping changes within the company in order to address the growing threat from competitors who have taken the early lead in online-based services.

In his memo, dated October 28th, Ozzie concedes that Microsoft has not led the way in Web-based services and software, and faces potent competition from the likes of Google. Ozzie wrote that the company needs to focus on key aspects of the new model, including offering free tools supported by advertising revenues, and more sophisticated online methods for delivering their products.