2007: The Vista From Here

Looking Back

When Microsoft shipped Windows Vista this time last year –

November 30, 2006 for enterprise customers and

January 29, 2007 for consumers – the company’s minions had no idea what a long bumpy year it would be.

To start with, Vista arrived too late for the crucial 2006 Christmas selling season. In an effort to avoid a sales slump during the hottest shopping period of the year, Microsoft cooked up a logo program for new PCs to indicate the level of compatibility with Vista. The idea was that users could buy a new PC with Windows XP pre-installed and later upgrade to Vista, assured it would run on the new hardware.

Unfortunately, the logo program defined minimum hardware criteria for running two very different editions of Vista – one labeled “Vista Capable” and the other “Vista Premium Ready.”

PCs labeled “Vista Capable” could only run the lowest-cost edition – Home Basic, which lacks Vista’s signature Aero Glass interface. That ultimately led to a consumer lawsuit that promises to dog the company into 2008.

Were consumers duped into mistakenly buying PCs that could not run the higher-end editions of Vista? The judge is currently considering whether or not to grant the plaintiffs class action status, but a trial is not due until late October 2008.

More Vista Hassles

Vista’s Troubles didn’t stop there

Early user complaints included a shortage of device drivers for third-party hardware as well as slow performance copying files. Things have been slowly improving.

Since the launch, Microsoft has released a slew of bug patches and compatibility updates, in addition to a handful of security fixes. Additionally, over time, third-parties have expanded driver support for Vista.

However, sales of Vista did not ramp up as quickly as some analysts had initially expected, leading to dire predictions that the system could bomb – despite consistent claims by Microsoft officials that sales have been strong.

For example, the company announced in late March that, in the first month of consumer sales, it had sold more than double the number of units of Vista (20 million) as compared with the number of Windows XP units shipped (17 million) in that system’s first two months on the market.

In addition, Microsoft officials stated that strong Vista sales helped drive fiscal 2007 revenues to $51 billion – a new record. Not too much of a surprise then that, when it announced results for the September quarter of fiscal 2008 in late October, the company reported its best fiscal first quarter since 1999.

As of the end of September, Microsoft officials said the company had sold 88 million copies of Vista at retail, and, via enterprise contracts, they have also sold some 42 million “options” to corporate customers to deploy the system.

All that said, recent surveys show that serious corporate uptake of Vista is still pending, and appears to hinge upon release of Vista Service Pack 1 (SP1) – which is pending for the first calendar quarter of 2008. For instance, a Forrester Research report released in mid-November found that nearly half of corporate customers have plans to deploy Vista, but that only a small percentage – three percent — have deployed it so far. A significant number – 32 percent – plan to have the move well underway by the end of 2008, however.

For those enterprise IT shops thinking of skipping Vista altogether and instead waiting for the next major release of Windows – currently codenamed Windows 7 – don’t forget that it’s not due until 2009 or later. Additionally, who could forget that Vista itself arrived two years late?

In early December, Microsoft released the second “release candidate,” or RC, of SP1, and broadened testing to all comers – prompting analysts to predict an on time delivery. At nearly the same time, the company also commercially released SP1 for Office 2007.

Looking Back

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Yes, Your Honor

On the legal front, Vista SP1 also adds a feature to let users easily designate Google as the default desktop search engine under Vista – a compromise that Microsoft agreed to with the U.S. Department of Justice (DoJ) this summer regarding its antitrust consent decree.

In fact, most of the oversight conditions under Microsoft’s consent decree were set to expire last month. At nearly the last minute, though, two groups of states attorneys general petitioned the judge to extend oversight for another five years, claiming that the original five years specified in the settlement agreement had not had the desired effect of restoring competition in the marketplace.

Both Microsoft and the DoJ disagreed, arguing that the marketplace has changed dramatically since the company signed the consent decree in 2002. The judge said she would take more time – conceivably until the end of January – to consider all the filings and make her decision as to whether the restrictions will expire or be continued.

In terms of sheer dramatic impact, however, it would be hard to beat Microsoft’s devastating loss in its antitrust appeal to the European Union’s Court of First Instance (CFI) in mid-September.

The company had appealed a 2004 ruling by the European Commission (EC) that found Microsoft in violation of European competition laws through the abuse of its dominant market position. The CFI’s decision resoundingly upheld the EC’s original ruling.

While the case was clearly a defeat for Microsoft’s legal team, costing more than $600 million and forcing the company to provide technology as well as technical information to competitors which it argued was proprietary, many analysts were encouraged that the company was able to put another big legal hassle to rest.

In October, Microsoft decided to drop further appeals in the EC case and, almost simultaneously, dropped its appeals in a similar case in South Korea. However, there may have been more method than madness in the company’s turn towards acquiescence.

“This is the latest in a long-term trend toward getting out of the legal tussle business,” Dana Gardner, principal analyst at Interarbor Solutions, told InternetNews.com.

However, Gardner views the deal as a potential boon for Microsoft: Having been frustrated in its efforts to alter its negative image for some time, Microsoft gained some ground in the public arena by giving in.

Going ‘Live’

If you didn’t know better, you might assume that the aging Microsoft out hustling the latest version of Windows and trying to get the lawyers off its back, couldn’t possibly be the same company struggling to survive in the new global economy where everything that can be monetized comes to the user via the Web.

Microsoft’s competitors refer to this approach as “software as a service” (SaaS), meaning that much or most of the application or service exists “in the cloud” – on the network rather than on the client device.

Microsoft has much to lose if users switch en masse to browser-based applications where processing, storage, communications, and other key functions are all provided from the network. So it worked hard in 2007 to flesh out its version of services in the cloud.

The company describes its approach as “software-plus-services.” The idea is, for the most part, to provide services from the cloud that tie into and complement Microsoft’s existing systems and applications. There are good reasons to worry. If applications largely migrate to services delivered via a browser interface, two of Microsoft’s biggest cash cows – the desktop operating system and Office – could become irrelevant to users.

One way the company has been approaching the cloud services trend for the past two years is to provide hosted services for consumers as well as small businesses. This year, it broadened that view to include medium and enterprise-sized businesses as well with Microsoft-hosted services offerings.

The company is using two different monetization models. One group of services will be free – you just have to put up with the ads. These are primarily consumer services. The other will be “charge for” services and are targeted at business users.

In September, Microsoft debuted its Online Services for Business, fee-based cloud services that are available to large businesses with 5,000 or more seats and feature hosted versions of Exchange e-mail, SharePoint collaboration server, and Office Communications.

In July, the company began previews of Dynamics Live CRM, the fee-based, Microsoft-hosted version of its Dynamics CRM offering for both large and mid-size customers. The service is due next year.

The company also unveiled Office Live Workspace, a free hosted storage and sharing service in the cloud that synchs up with Office on the user’s PC. Live Workspace officially began beta testing in December.

This fall, Microsoft also launched the latest versions of its expanding suite of free Windows Live Services.

The updated suite includes Microsoft-hosted online applications such as e-mail, calendaring, instant messaging, social networking, event planning, photo sharing, and blogging, along with a unified installer for them all. Two other services, a highly awaited calendaring service and an online storage service – named Windows Live Calendar and Windows Live SkyDrive respectively — both remain in beta testing.

Finally, the company jumped into healthcare services this fall when it launched HealthVault and the HealthVault Search engine. HealthVault will provide consumers with services in the cloud to help them collect and manage their own medical records. Meanwhile HealthVault Search will let users search for the latest medical and healthcare information online.

Both services, which are in beta testing, are free. The company aims to pay for both services by running ads in HealthVault Search windows, but not in HealthVault.

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