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Last Updated: Thursday, 30 November 2006, 08:17 GMT
Microsoft needs a Vista success
By Tim Weber
Business editor, BBC News Interactive

Microsoft has begun the roll-out of its new operating system, Windows Vista, and the latest version of its suite of productivity software, Office 2007. So what is at stake?

Vista logo
Founded: 1975
HQ: Redmond, Washington
Staff: 71,000
Sales: $44.3bn
Operating profit: $16.5bn
Windows sales: $13.2bn
Office sales: ~$10bn

Financial year to 30 June 2006
Source: annual report 2006

You run a company where two of your product lines account for more than 56% of your sales. They make enough profit to sustain losses in other divisions.

Would you worry about relaunching them at the same time?

We are not talking about pocket money here.

During the last financial year Microsoft's operating system and office software divisions made an operating profit of $18.5bn (9.5bn, 14.1bn euro) on a turnover of just under $25bn.

But is Microsoft really taking a gamble?

No Vista Christmas

Let's not forget that Vista is late. Very late.

Instead of three years, it has taken Microsoft five years and 10,000 workers to get Windows Vista ready for the big time.

Because last-minute delays pushed the launch to the end of the year, Microsoft had to settle for an awkward staged release.

Microsoft has given its Office 2007 software suite a new look

The new operating system will be sold to corporate customers first; consumers will not get their hands on Vista until 30 January 2007.

Logistically it would have been "just too difficult to make Vista broadly available to everyone," says Gordon Frazer, managing director of Microsoft UK.

That means that Microsoft and its hardware partners - computer makers including Dell and Hewlett-Packard - will be missing out on this year's Christmas business.

"It's no secret that [computer manufacturers] would have liked the launch in time for the holidays," says David Smith, a Vista expert at consulting firm Gartner.

Why upgrade?

To make things worse, many customers will ask why they should upgrade at all.

Yes, Microsoft's current operating system, Windows XP, does not look as pretty as rival offerings like Apple's OS X.

But it is stable, fairly secure, and compatible with tens of thousands of supporting hardware and computer programs. Why go through the cost and pain of buying, installing and learning a new operating system?

Many companies are wary. They run specialised software on Windows and use hundreds of different pieces of hardware. They will have to test each and every one of them to see whether they work under Vista.

And then there are those who wonder whether operating systems do matter at all.

Run a good browser on any old operating system, they say, and the majority of people can meet most of their software needs online and on demand.

The Vista wave

Vista screen shot
On new computers Vista promises to be much easier on the eye

That does not stop Microsoft from being bullish about the prospects for its new operating system. "Vista will be the fastest-selling Windows operating system," predicts Microsoft's Gordon Frazer.

He points to forecasts by technology consulting firms like IDC, who predict that within one year 100m computers will be running Vista.

David Smith at Gartner agrees: "In 18 months you will see the majority of [business] computers running on Vista."

The captive customer

In some ways, Vista's success is inevitable.

This is not a function of Vista's selling points - better security, entertainment and performance - but habit.

Only early adopters will upgrade to Vista straight away - for example avid gamers who want to play snazzy games that make use of Microsoft's new Vista-only DirectX 10 standard.

Vista start-up screenshot
Start: Vista users will not have to learn Windows from scratch

Most consumers will adopt Vista gradually, as they replace their old computers. From 30 January 2007 nearly every new Windows computer on every shelf will come either preloaded with Vista, or the promise of a free upgrade to the new operating system.

Traditionally this so-called OEM business (where the operating system is pre-installed on the computer) accounts for about 80% of Microsoft's Windows revenues.

After a couple of "tough months in December and January" computer makers will see "increased sales from consumers who waited to buy," predicts Gartner's David Smith.

And as Vista is much better than Microsoft's current offering, there is little reason to assume that customers will defect en masse to rivals like Apple or Linux. After all, they failed to do so when Windows XP was riddled with security holes.

It's not much different for large companies, who tend to be firmly wedded in the Microsoft universe.

Most corporate IT managers plan their computer replacement cycles around Windows upgrades.

It helps that Vista can adapt to the hardware capabilities of the computer it runs on.

Companies will take about 18 months to sort out compatibility problems, says Mr Smith. In 2008 at the latest we will see "massive numbers of upgrades".

The office software will follow a similar pattern, or be even more successful as it can run on both Windows Vista and XP.

"Office 2007 will find good acceptance," says Melissa Webster of IDC.

The last big Windows roll-out?

There are still pitfalls, though.

The European Commission is breathing down Microsoft's neck, pushing the software maker to give rivals better access to the inner workings of its operating system.

Many Vista testers reported compatibility issues; if they are not sorted in time for the consumer launch plenty of customers might stay away.

And if eager hackers find a way past Microsoft's new defences - "Vista is secure by design," says Microsoft's Gordon Frazer - then the new operating system could be in real trouble.

Microsoft, however, has an even bigger problem to solve: What will it do next?

I have been using both pieces of software in various beta forms, the progress is outstanding in each build
Darren Wilson, Huntingdon

Should the company really commit so many resources to yet another hugely complex software project?

Instead, says David Smith at Gartner, Microsoft may prefer to adopt a more modular approach and offer many smaller paid-for updates of its operating system.

Then it would not just be Vista's user interface that increasingly looks like something coming from Apple.

A look at Microsoft's newest operating system

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