Microsoft’s (Bumpy) Road to Longhorn

Microsoft’s product roadmap for Longhorn has some potholes to navigate in the coming two years, according to research firm Directions on Microsoft.

In a new report, the Kirkland, Wash.-based research firm said Microsoft is facing a “product gap” over the next two years without a major new release regarding its flagship Windows operating system and Office productivity suite.

That’s great news for Microsoft customers, who are still digesting the last few upgrades, but it doesn’t bode well for Microsoft’s revenues, said Rob Helm, an analyst for the firm who worked on the report: “Microsoft Enterprise Software Roadmap.”

“Microsoft is entering a two-to-three year valley in which it has neither a new version of Windows nor a new Office suite to sell,” Helm said. He said this “product gap” will hit the company’s sales and profits, because the two flagship products, Windows and Office, account for a huge piece of its total business.

The next version of Microsoft’s OS, code named Longhorn, is expected in late 2005 or early 2006, with the next server OS release 18 months later. Longhorn will include a new graphics system, now called Avalon; a messaging protocol, which is code named Indigo, and WinFS, which enhances the NTFS file system with technology from SQL Server and Windows SharePoint Services.

Office 12, the next version due no earlier than 2006, will use the Avalon user interface, the WinFS database-driven file system and the WinFX API . It may also offer development APIs that are natively accessible to applications running on the .Net framework, according to the report.

It’s a big bet, but the Redmond, Wash.-based software vendor likes to roll the dice, Helm said. “Microsoft takes big bets. And, with its new philosophy of delivering integrated waves of products, those bets have gotten bigger.”

For example, the new version of SQL Server, code-named Yukon, is due at the end of this year. But it depends on the .Net Framework 2.0, which in turn supports Whidbey, the next-generation Visual Studio. Then, going forward, he said, virtually every single Microsoft server product will depend on components developed as part of Yukon— including Longhorn.

“There’s a big hole created by Longhorn. Office is dependent on it, and, since it’s a big release, there probably won’t be any major improvements to the Windows client OS until it ships.”

Because Microsoft is trying to bridge the revenue gap with annual service contracts, Helm said, deadlines become critical.

Despite the company’s $18.5 billion in revenue during the last quarter, analysts were concerned that Software Assurance licensing wasn’t as strong as the company hoped –and MSFT felt their pique.

But the company has had trouble shipping on time. For example, Yukon was originally supposed to ship in 2003. Customers who bought two-year service contracts in 2001 should have gotten the rights to it. If the date slips again, there will be a lot more people in that boat.

Helm speculated that, if Software Assurance doesn’t pick up, Microsoft might change its big bang theory. “Typically, when software vendors release a new product, you buy a year’s support and maintenance. Then the vendor dribbles out enhancements, which you pay for.” While some divisions of Microsoft operate this way, notably the Business Solutions division, Helm said that Microsoft loves to go out large with new products. “Maybe it releases some service packs, then you pay for the next big leap,” he said.

But the company may be reconsidering the strategy. For example, Windows XP Service Pack, expected mid-2004, will add not only new security. It may change the product so much, Helm said, that there could be software interoperability problems.

Similarly, the Windows Server division has been shipping little bits and pieces of the product ahead of the 2007/2008 release date. “What we describe as Longhorn today is a major release and that gives it lot of uncertainty in the schedule,” Helm said. But, since some parts seem better developed than
others, based on beta code released at the developers’ conference, Helm said the Longhorn group might adopt the feature pack strategy and release the OS in pieces.

“If that schedule starts to stretch,” he said, “the company may
have to re-think the big bang strategy.”

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