I know that our readers by no means come to us for advice on where to put their 401k – nor should they. But the point of this article is not to suggest that you should buy MSFT, rather I want to point out the reasons why Microsoft is a good investment and what all of us little guys can learn from them.

For months now my Fa-in-law, an outstanding investor and strategic thinker, has been telling me about the merits of investing in MSFT. I have always seen the stock as a sleeper, and the company as a giant monolith that steals and cheats to keep the little guy down, but on my father-in-law’s recommendation I have been keeping my eye on the company. Now with the release of Office 2010 and some of the shifts that the company is potentially making, I think it might be time to pull the trigger.

Below are 4 reasons why I think MSFT has good potential and what we can learn from it:

Reason #1: Softy is finally getting into the cloud.
The world of software has changed and for quite some time Microsoft has been reluctant to change with it. Only recently has the term “Cloud Computing” become a buzzword amongst businesspeople, but smart and innovative software companies like 37signals have been running software in the cloud for quite some time.

For those of you unfamiliar with the concept of cloud computing, just replace the word cloud with the word datacenter – datacenter computing.  Essentially it means that rather than operating your software and storing your data on a bulky machine (laptop , desktop, or server) that is ultimately susceptible to everything from fires to coffee spills, you are operating your software in a datacenter that is protected through redundant backups and top notch security. Furthermore, because this software is not operated on an individual device, it is not as limited by the capabilities of that device and it can also be synced across devices. Bottom line, cloud computing is what will allow you to locate important data such as your contacts on your mobile phone, laptop, and desktop and all in perfect sync because you are accessing them on a web browser and the data is stored in the cloud.

Welcome to the future Microsoft. This transition, for a company whose basic business has been built on the bedrock of local machine based computing, shows that Microsoft is willing to grow and reinvent in the face of changes in the business environment in which they operate.

Reason #2: Softy is starting to give away software for free.
I know what you are thinking, “how can Microsoft make money if they are giving away software for free?” It is actually simple and companies are doing it all over the web. Think about the websites you visit and the apps that you use on a daily basis – Google, Facebook, Twitter perhaps, maybe even CNN.com. All of these sites listed give away a service for free and still manage to make money, gobs of money. They do this by getting such an unbelievable amount of traffic (because they are free) that they can make money on alternative models such as advertising, rather than charging the consumer directly.

The future is free, especially in the world of online software. It is always going to be easier to get a nickel out of a customer than it is a thousand dollars. With large amounts of traffic that are possible over the web, companies like Google are making billions of dollars a nickel at a time simply because they are not too greedy to prevent the masses from using their service by charging for it. Think of what might have happened if this garage based company called Google decided to charge a fee to use their wonderful search engine — we might have added the phrase Alta-Vistaed to our search vernacular because we would have used something else.

Making money on the web is about developing a critical mass of activity and traffic that can later be leveraged into dollars. Short sighted companies are killing their own ideas by trying to make immediate dollars when they should be thinking about getting immediate traffic. This also applies to service businesses. There are independent bloggers out there that make a killing by giving away free information about a particular topic because they are driving scads of traffic.

Lesson – as my uncle used to always tell me about the real estate business, “activity breeds activity.” Businesses on the web today must think bigger than immediate profits, and start thinking about creating a critical mass of activity around their brand.

Reason #3 Softy is getting back to their roots and continuing to do what they do best.
“What does Microsoft do best?” you ask. The answer is that it continues to steal great ideas from its creative competitors and then make them better and more acceptable to the general public. Google Apps, yet another one of Google’s brilliant innovations, is a great example of a game changing idea that posed a serious threat to Microsoft’s business. It is really better than Office, has more features, offers better data security (because data is not stored on a machine susceptible to coffee spills), and best of all it is free. However, fortunately for the people over at Microsoft, Google has a long track record of introducing brilliant ideas and then flopping when it comes to execution and FOLLOW-THROUGH. This has opened the door for Microsoft to do what it has always done best… R&D – Rip off and Duplicate.

Lesson for us little guys – innovation is only of use to a company if it is accompanied by execution and follow-through.

Reason #4: Softy is fundamentally a strong company.
This is a lesson to all of us wannabies trying to grow our small businesses. Ultimately, the reason Microsoft is going to be a good investment for the future is because it has a strong core business, good cash flow and tons of cash on the books (about 30 billion last I looked). Lesson, businesses will grow, and always have grown, through fundamental strength not choking debt combined with fleeting ideas.