I think the failure of the "Online Services" division is - in part - tied to the huge profits that the "Office" division generate. It's difficult to build a business in one area that might cannibalize one of your core businesses. This year should see greater focus on the online version of Office - particularly with the release of Office 2010, but I'm not clear on Microsoft's business strategy here. Is the online version a full-featured replacement for desktop Office? Or is online Office a complement to the desktop version. I've used the online version of Excel and Powerpoint. They are much richer and more 'Office"-like than any of their competitors (Google, Zoho, etc), but is there a compelling reason to use Microsoft's online Office? We should start to get some answers this year.
In Case You Had Any Doubts About Where Microsoft's Profit Comes From
Microsoft is the largest, most profitable software company in the world.
And its profits are still being generated by the same engines that have driven Microsoft for years: Office, Windows, and its server division. (Meanwhile, its entertainment and devices division is only recently profitable again, and its online division is a money pit.)