As Vista Arrives, Questions Start Anew

As he took the stage to usher Windows Vista to market, Microsoft CEO Steve Ballmer last week tried to put the software's laborious birth behind him. The company's 71,000 employees--the entire PC industry, for that matter--could be excused for breathing a sigh of relief, too.

"It's an exciting thing to finally be here, and that's probably all I'll say about the past," Ballmer said at the unveiling at Nasdaq's cylindrical high-tech building in New York's Times Square. Office 2007 and Exchange Server 2007 also were introduced, and 30 more products will follow over the next year, all part of the same technology wave. "This is the biggest launch we've ever done," Ballmer said. Microsoft will spend $450 million marketing it all.

Yet for all the design missteps, overly ambitious plans, and personnel changes that led to a five-year lag between versions of Windows, questions about the future of Microsoft's software are top of mind for customers and partners. Ballmer swears to never let as much time elapse between Windows versions; the question now is how the company can keep churning out innovative products on a compressed timetable.

"Vista is the last of the Big Bang operating system releases from Microsoft," Credit Suisse research analyst Jason Maynard wrote in a report last month, the same day he forecast that the company's share price would rise 20%, from $29 to $35, within a year. That's partly on account of Vista. Microsoft is introducing higher-priced, feature-laden editions, which could help revenue from desktop Windows grow 9% to 10% during the fiscal year.

Others question Microsoft's ability to tap into the fast-growing market for Web-delivered software. Windows and Office are Microsoft's most lucrative products, accounting for more than 60% of the company's $10.8 billion in revenue during the first quarter, ended Sept. 30. "They're really tied to the fat-client model," says Gartner analyst Michael Silver.

Despite forays into Web software with Windows Live and Office Live--collections of e-mail, instant messaging, and Web publishing apps--Microsoft's core franchises remain wedded to the PC. Big gaps between new versions don't sit well with business customers who pay annual fees for the right to upgrade. Balancing speed with quality will be key.

Now could be the time for a new approach. Two of the principal architects of Windows Vista--co-president Jim Allchin and chairman Bill Gates--have assumed diminished roles, while a third, former VP Brian Valentine, has left the company. The future of Windows is in the hands of chief software architect Ray Ozzie and senior VP Steven Sinofsky, who Microsoft put in charge of Windows development last spring. Web-centric technologies like Windows Presentation Foundation Everywhere and a new Windows Live layer of APIs show where the company is headed.

But don't count desktop Windows out. "We will continue to do exciting new releases," Ballmer said. On the docket for the next version of Windows: support for higher-bandwidth networks, improved graphics and video playback, a long-awaited update to the Windows file system, and apps that take better advantage of the power of multicore processors.

By several accounts, demand for Vista, Office 2007, and Exchange Server 2007 looks promising. In an October survey of 672 business technology pros by InformationWeek Research, 39% said their companies would install Vista within a year of its release. Verizon Communications and Viacom's MTV Networks plan to install Vista on thousands of new PCs in short order, and Microsoft expects 200 million PC users to have one of its three new products installed by the end of 2007. Microsoft is touting the products' ability to let workers communicate and find information more efficiently, while helping IT departments keep PCs more secure, deal with government regulations, and lower support costs.

Microsoft plans to deliver 30 additional business products in the next year that add even more capabilities to Windows, Office, and Exchange. Those include add-ons to Office for data mining and real-time communications, and Internet phone calling and videoconferencing within Vista.

THE UPGRADE QUESTION

Vista and Office won't come preloaded on new PCs till Jan. 30, the date of Vista's big consumer launch. Companies that want them now must upgrade their PCs, never an easy task. Vista is "going to want better-performance processors, more memory, and newer configurations," says Margaret Lewis, director of commercial ISV marketing at Advanced Micro Devices.

Vista will run on underpowered hardware, but only with its new Aero graphical user interface and other features disabled. How can IT departments know whether PC hardware is up to the task? "That's the $64,000 question," says Lewis.

Microsoft, of course, wants customers to adopt its new products quickly. Last week's demos included the newly designed Windows Start menu, which consolidates commands and incorporates desktop and network search-engine software, and features the ability to use an on-screen calendar to graphically search for documents based on when they were created. An Office add-on called Outlook Voice Access lets users check voice mail and e-mail using verbal commands, hear an e-mail read by the computer, or manage a calendar by voice.

Such features will be key, Ballmer suggests, in helping workers deal with information overload, companies become more distributed, and business managers deal with Sarbanes-Oxley and other regulations related to data storage. "The world's changing," he said. The software business is also in flux, and Microsoft has its work cut out there as well.