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12/1/2006
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As Vista Arrives, Questions Start Anew

Microsoft CEO Steve Ballmer doesn't dwell on what it took to get here. Windows' future requires his full attention.

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.


Enthusiasm has limits: Microsoft stock declined on the day

Enthusiasm has limits: Microsoft stock declined on the day
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.

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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.

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