Forrester Research analyst Charlene Li has some good insight into Microsoft's new Windows Live and Office Live strategy and how the new ad-supported model will work. The service may face some issues from privacy advocates if it plans to match up ads contextually based on what users are doing in the programs, but it's also possible that they simply plan to feed localized ads or general ads instead.

Li has a fairly extensive set of Q&A on her blog this week that looks to answer some of the more common questions that she's heard about how the new service might work.

From her post:

Q: Are ad supported services going to work? Will they be enough to support this strategy?

A: One of the biggest challenges – and unanswered questions -- to the whole Live strategy will what kind of ads will appear on Windows Live and Office Live. Microsoft could suffer a Google Gmail-like backlash if the ads are contextually keyed to personal information on Windows Live. Ads that key off of feeds and gadget settings like zip codes are probably OK. But advertising driven by my email or calendar entries will be a no-no. (The alternative view: Gmail users don't seem phased by it, or at the least, they trust Google – more on that below).

We'll see the inevitable list of complaints from developers who want nothing to do with Microsoft – in fact, Robert Scoble listed 12 reasons why this is the case.

This brings me to the issue of trust, on both the part of developers and end users. Both will have to trust that Microsoft understands their needs and won't abuse the relationship. What strikes me as ironic is that if you replaced "Microsoft" with "Google", an announcement like Live would have drawn universal praise. "Google creates home page that puts users at the center of the experience." "Google will power enterprise apps for small businesses." "Google builds open platform for developers within new services".