Microsoft’s Jewels Ready for a Close-Up

Microsoft’s Professional Developers Conference taking place in Los Angeles between Oct.
26th-30th is considered one of its most important in close to a decade.

Not since the mid-1990s PDC, when Microsoft turned itself on a dime in order to catch the Internet/Web wave that followed the splashy IPO and launch of Netscape’s browser has a PDC been greeted with as much anticipation about Microsoft’s current and future product roadmaps.

After all, bolstering security across Microsoft’s core product base is now just one among a litany of challenges aligned against the company on the eve of the sold-out conference.

Analysts say Microsoft has to deal with the lingering effects of its “Licensing 6.0” program, which launched in 2001, which effectively increased many customers’ licensing costs for Windows products just as the technology recession was hammering their pocket books.

In addition, the open source movement continues to grow as a threat to the company’s Windows crown jewels at a time when customers are still annoyed with Microsoft about the 6.0 licensing program and virus/security issues with its operating system and Office productivity products.

Against this backdrop — and with customers pinching pennies by dragging their heels on upgrading to new versions of Windows’ key products — the PDC will unveil early pre-beta code of its next-generation Windows operating system (“Longhorn”), its Visual Studio developer tools (“Whidbey”) and SQL Server (“Yukon”).

Together, the early builds represent three of the largest products of the world’s largest software company, which revolve around its Windows product, whose own upgrade cycle drives the rest of the technology industry.

“Longhorn is about the next tech wave,” said Laura Didio, Yankee Group’s senior analyst for application infrastructure and software platforms, in a discussion about what the PDC represents this year.

“It’s about a Longhorn that is pure and simple, and about a more secure, more reliable, more manageable system, with a higher level development environment.”

The message for developers is to not hurry up and wait, she addded. If they are writing to the .NET framework and working with Visual Studio’s next-generation developer tools, “they will help build an evolutionary bridge for their companies’ software to move into the next generation of computing,” she said, describing a future that relies on Web Standards to deliver applications and information over the Internet.

PDC is a conference about pouring a strong foundation — integrity, security, reliability and manageability — into Longhorn and related products, she said.

“Longhorn represents a new model that uses managed code to help remove some of the security pitfalls that bedevil developers. They’re trying to make [developing applications] easier with Longhorn. It’s a new model, with managed code. They’re saying this is going to take a lot of pain away from pitfalls of writing code in C and C++.”

For an operating system originally planned as a routine off-year upgrade of its Windows XP operating system, Longhorn — now expected to be released by 2006 — has instead become a rallying point for a company moving to address security holes that have bedeviled its operating system and customers.

The technology bellwether’s fiscal first quarter results help explain the extent of the security issue alone. Although its profits rose by 28 percent during the quarter to $2.6 billion on revenues of $8.2 billion (up 15 percent), Microsoft’s deferred revenue, a measure of how much its enterprise customers are renewing licenses and upgrading products, told another story.

During the quarter it fell by $768 million to $8.24 billion, a decline of more than double the roughly $300 million drop in deferred revenue it had forecast.

Chief Financial Officer John Connors told analysts that weak billings for three or four weeks in the late summer following the Blaster virus that hampered Windows systems worldwide was one of the factors behind the slowdown in licensing renewals.

But the unearned revenue also pointed out that customers have been slow to upgrade from older versions of the company’s bread-and-butter Windows operating system and Office productivity suites.

“If you look at the near-term installed base, you’ve got a lot of NT workstations and earlier versions of Office 1997 still running. There are a lot of old machines” that remain deployed in the customer base, Connors said.

Connors urged analysts to not only look to the PDC for answers about how Microsoft is addressing security concerns in its next-generation Longhorn, Yukon and Whidbey products, but to understand how the current products and their launches will influence customers to upgrade to next-generation products.

In that regard, Microsoft has to face itself as another challenge because it is a victim of its own success, said Michael Gartenberg, research director of Jupiter Research (whose parent company also owns this publication).

“PDC is an opportunity to get people excited about their new stuff. But the trick is to do it in such a way that it doesn’t kill their market for existing products. The last thing they want to do is cause a slowdown of their XP deployments with people getting caught in the ‘waiting for Longhorn’ syndrome.”

It’s a vexing question for Microsoft, added Didio, who also said the company now must struggle with the additional challenge of fending off free software threats from the Linux operating system and free office productivity suites such as OpenOffice.

Some of its answer is already becoming apparent with the company’s increasing flexibility with licensing terms. That may help explain why Microsoft has made flexible licensing terms for customers among its major priorities — and it also explains why licensing will be the back story of Microsoft, both during and after the PDC.

But for now, the company is about to launch PDC in which Microsoft’s Chairman Bill Gates will deliver the keynote “back in the game” in his newer role as Chief Software Architect. He’ll be joined by executives such as Jim Allchin, group VP of the company’s Platforms Group; Eric Rudder, head of the developer teams; Gordon Mangione, who heads the SQL Server team; and Rick Rashid, senior vice president of research.

“Anybody who knows Gates and Allchin know they are two perfectionists,”
said Didio. “They’re very demanding of themselves and their team. PDC is about them beating the drum for developers, about telling developers, ‘We’re going to give you a rich development environment, built on standards and security,'” for making a new user interface in Windows.

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