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Originally published October 26, 2008 at 12:00 AM | Page modified October 26, 2008 at 12:17 AM

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With Windows 7, Microsoft faces a future full of challenges

When the company divulges details of Windows 7, the successor to much-maligned Vista, it will do so against a backdrop of growing competition from Apple, a battered Windows brand and the global economic crisis.

Seattle Times technology reporter

For all of its astounding profitability and presence, Microsoft's most important product, Windows, has had a tough couple of years. And the path ahead, which Microsoft plans to lay out at a conference this week, is fraught with challenges.

When the company divulges details of Windows 7, the successor to much-maligned Vista, it will do so against a backdrop of growing competition from Apple, a battered Windows brand and the global economic crisis. Meanwhile, the company is positioning itself for the next big change in computing, which could undermine the importance of the traditional operating system as people use more programs through the Internet.

Today, Microsoft's operating-system software is thriving. It runs at least nine out of every 10 computers. Vista, for all the criticism, has sold more than 180 million copies since hitting the market Jan. 30, 2007. In the past quarter alone, Windows generated sales of $4.2 billion, 28 percent of Microsoft's revenue. As it has for years, Windows is fueling the company's expansion into newer businesses, including entertainment and Internet search.

Past the numbers, however, the Windows franchise, particularly Vista, has taken more than its share of hits. Vista was repeatedly delayed and stripped of features during a five-year development process that Microsoft has vowed not to repeat. When it finally arrived, the "ecosystem" of companies that make hardware and software for Windows wasn't ready, leading to months of compatibility problems that angered users.

Even though Microsoft and its partners have addressed these issues, and new computers handle Vista smoothly, the bad reputation has been tough to shake.

Some of the credit, or blame, goes to Apple. Microsoft's longtime rival has aired a series of biting commercials painting PCs as uncool and keeping Vista's faults in front of consumers, even after Microsoft fixed them.

"When I watch people leaving the Apple store, it's like a kid with a birthday present," said Michael Cherry, an analyst with Directions on Microsoft, an independent Kirkland research firm. Recent PC purchasers, on the other hand, often look nervous, as if they've overpaid or purchased the wrong machine, he said.

Microsoft's challenges don't stop there, and they're not lost on the executives and engineers in Redmond cranking out Windows 7, which one longtime company observer called Microsoft's "most secretive product ever."

Microsoft will talk about its plans for the new operating system at its Professional Developers Conference (PDC) in Los Angeles this week, but, already, it's clear that the company has made major changes in how it builds and markets Windows.

Avoid repeating mistakes

In addition to its high-profile "I'm a PC" advertising campaign — the one that started with Jerry Seinfeld and Bill Gates — Microsoft worked with some retailers to improve how Windows is presented in their stores. It also spent months with major PC manufacturers to test and fine-tune their computers for performance and reliability.

The effort is focused on Windows Vista, but it will carry over to Windows 7, too, executives have said.

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But in other ways, Microsoft has made big changes in how it builds Windows since releasing Vista, in part to avoid repeating past mistakes.

Many executives involved with Vista have moved elsewhere within Microsoft or left the company. Those in charge now include Steven Sinofsky, who earned a reputation for keeping big projects on schedule as the head of development for Microsoft Office, and Jon DeVaan, who also leads a companywide effort to improve engineering.

Sinofsky has reduced the Windows bureaucracy and given front-line developers more responsibility.

He also changed the rules for how new features can be added to early internal versions of Windows 7. Now, such features must be complete and tested before being added. That means the product essentially is ready to go, though perhaps with fewer features than envisioned, as it passes each internal milestone. That wasn't the case with Vista.

At the same time, Sinofsky has kept a tight lid on details about Windows 7. This helps Microsoft manage industry expectations: If the company doesn't promise specific features, it won't have to explain later if they are cut to stay on schedule.

And while Chief Executive Steve Ballmer declared recently that Windows 7 is "a lot more work than a minor release," Microsoft is not making the kind of major architectural changes it did with Windows Vista, which requires more powerful computers than many people and businesses had initially.

"The way I would characterize it, it's Windows Vista, a lot better," Ballmer said.

"They don't want to repeat a problem like we had with Vista, where Vista arrived and we just weren't capable of running it," said Lee Nicholls, global-solutions director with technology-services company Getronics.

Windows 7 is officially due out by January 2010, three years after Vista's release. But there is growing speculation that it could arrive in time for the 2009 holiday shopping season.

As Microsoft turns up the volume on Windows 7 this week, the company's marketers face a sticky problem: How do you talk about Windows 7 without ruining sales of Vista over the next year?

Many large corporations already are considering skipping Vista, according to Gartner analyst Neil MacDonald. The economic crisis that has companies and consumers tightening their belts may prompt more customers to wait.

Tim O'Brien, a top Microsoft platform strategist, acknowledged that the company will have to be clear in its communications, but he said both Windows 7 and Vista will get airtime at this week's conference.

Big computing changes

As it develops the next Windows, Microsoft also is addressing an accelerating change in computing — one that could jeopardize the famously profitable business model that has fueled Microsoft's growth and, by extension, the region's.

A growing share of computing today takes place not on the computer in front of you but in a distant data center. There, thousands of servers power applications such as e-mail or Internet search, as well as increasingly sophisticated business and entertainment programs.

People access these applications over the Internet and interact with them in Web browsers, potentially diminishing the importance of the operating system. The concept goes by names including "cloud computing" and "software as a service."

Ardent backers see a future when people use lightweight, low-cost laptops and cellphones to connect to their information and programs "in the cloud." And, in fact, sales of these "mini notebooks" or "netbooks" surged in the third quarter, contributing to slower growth in Microsoft's Windows business.

No one says this trend will undermine Windows in the next five years, but what happens after that is an open question.

"Microsoft is betting that you're still going to have Windows and you're still going to have a powerful computer, but you're going to want to connect that up [to the cloud]," said Kip Kniskern, a contributor to LiveSide.net, a Web site that tracks Microsoft's efforts in this arena.

Software plus

The company calls its strategy "software plus services," emphasizing its belief that people will use both computers (with Windows) and ubiquitous cloud services.

"Microsoft still gets to charge for the basic operating system, because it provides some absolutely fundamental tasks that you can't really get from anywhere else," said Nicholls of Getronics.

But that may mean a Windows with fewer features. Is Microsoft working toward a pared-down operating system for this future?

One well-traveled rumor about Windows 7 is that certain features, including a light-duty e-mail program and photo and video-editing software, will be removed and offered as separate services.

"I know somewhat where they're going," said Kniskern, "but I'm expecting a lot of questions to be answered at PDC [Professional Developers Conference]."

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2008 The Seattle Times Company

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