Windows 7 uncertain big bet for Microsoft

With Windows 7, Microsoft may have found its mojo again. Reviewers are giving the new operating system the thumbs up, this after the technical and marketing blunders the company was unable to shake with the predecessor, Vista.

Still, even though Windows 7 has been lauded as everything Vista should have been, Microsoft is launching its flagship product Thursday into a vastly different and more uncertain technology landscape. While a billion people still use Windows today, the personal computer no longer reigns supreme as computing migrates to different devices and platforms.

Where people once relied on PCs for e-mail, for instance, many now get their messages on smartphones and Web browsers through services like Hotmail or Gmail. Developers are putting their juice into making iPhone apps rather than PC software, or into so-called cloud applications, which run online instead of in Windows.

Has Microsoft built a faster train while the rest of the industry is making planes and automobiles?

"Right now, the market is going through an awful lot of change," said industry analyst Rob Enderle, of the Silicon Valley-based Enderle Group.

"The potential market for personal computers is being challenged by other platforms; set-top boxes, connected TVs, smartphones, even game systems are all taking some of the emphasis away from personal computers," he said. "With that emphasis, Windows as we have always known it, a PC operating system, doesn't get the attention it once did."

For Microsoft, the stakes couldn't be higher. Not only does Windows contribute half of Microsoft's operating profit, it has an outsize role in the company's zeitgeist.

Windows in a launch year is like Ohio in a presidential election. As Windows goes, so goes the rest of Microsoft.

Deadline met

To the company's credit, Windows 7 has so far shown that Microsoft can again deliver an operating system on time.

When Vista launched in 2007, years late by some accounts, the operating system was plagued by compatibility problems with other devices.

Apple saw an opening and launched its "I'm a Mac" television ads, hammering on Microsoft as glitchy and bloated.

While Microsoft fixed most of the problems through software updates, the image was indelible. The ads defined Microsoft as a sad sack played by "The Daily Show" reporter John Hodgman in a bad suit, even though the typical Microsoft employee looks as unpressed and floppy-haired as actor Justin Long, who plays Mac.

As the company began building Windows 7, Microsoft went on a listening tour. CEO Steve Ballmer took the reins of the Windows group, running it through three senior vice presidents.

The result was an operating system focused on making the technology reliable, trimmer and easier to use.

"We did over 15,000 individual user sessions where we had people come in and use their Windows experience and used XP and Vista," said Brad Brooks, corporate vice president for Windows consumer marketing.

"We also talked to a lot of partners, our PC partners, OEM [computer-maker] partners, device manufacturers. It led to a lot of insights that then our engineering team took and put into practice and created new features around."

Users typically have five to 15 windows open at any one time, and Microsoft has built features to make managing them easier.

"Snap" resizes two windows with two mouse swipes so that they equally fill the screen.

"Aero Shake" allows the user to close all but one window by wiggling the mouse back and forth. When the mouse hovers over the taskbar, small preview screens of each window pop up.

HomeGroup, another feature, simplifies connecting computers at home through a wireless network and makes it easy to access photos, video and other files stored on different computers.

A Windows 7 user also can stream video and music to other devices with a feature called "Play To." Videos can be played on television, for instance, if the TV is connected to the Internet via an Xbox 360.

"It's really going to drive innovation not only in the PC ecosystem, but also in the entertainment-devices ecosystem," Brooks said. "This is where it really breaks through to next level."

Brooks and Bill Veghte, former senior vice president for Windows marketing, laid down a series of bets over which features will appeal most to buyers.

Veghte bet on Snap, Aero Shake and the taskbar. Brooks bet on networking and entertainment features. The loser buys the winner a fat dinner, maybe at Woodinville's Herbfarm.

Vital unit

The work of the Windows team is a linchpin of Microsoft's health, both financial and emotional. In fiscal year 2009, which ended in June, the Windows group accounted for $14.7 billion in sales, 28 percent of Microsoft's total sales of $58 billion.

It produced an operating profit of $10.9 billion, or about half the total.

Although the group responsible for Windows accounts for only about 6,000 of the company's 90,000 employees, their successes or shortcomings cast a wide shadow on the rest of Microsoft, people at the company say.

Then there's the economy.

Research firm Gartner says it expects worldwide PC shipments to decline 2 percent in 2009 to 285 million units. The release of a new version of Windows used to be a stimulus for businesses and consumers to buy a new computer. This time around, Gartner does not expect the release to influence the demand for computers.

Regardless of how well the new operating system sells, Windows is facing more uncertainty as computing moves to other devices and to platforms where Microsoft is not dominant.

For instance, sales of smartphones — mobile phones that can surf the Web, send e-mail and take photos — grew 13 percent in the past year, even during a recession, according to research firm Canalys.

But in this period of growth, market share of Microsoft's operating systems for phones, Windows Mobile, fell 28.7 percent. Apple, with its popular iPhone, saw its share grow 627 percent.

Ballmer has indicated Windows Mobile 6.5 was not what the company had hoped for when the software was released this month, but he signaled that Windows Mobile 7.0 is a priority.

The loss extends beyond market share to mind share of developers. Windows rose to dominance because it attracted the most developers to build software on its platform.

"An operating system is really defined around the ecosystem that chooses to work with it," Brooks said. "That is the strength of Windows — our partner ecosystem."

In the smartphone industry, Microsoft has already lost mobile developers in droves to Apple's iPhone, which boasts 2 billion application downloads and 85,000 apps in its App Store.

The software developers who used to build programs to run in Windows also are building software for the cloud. In cloud computing, software lives on Internet servers rather than being stored on a PC.

One example is Google Docs — spreadsheets and word-processing documents that can be accessed through the Web rather than using Microsoft Word or Excel on the computer.

With cloud computing, it would not matter whether the browser is running on Windows, Linux or another operating system. Microsoft is developing a cloud platform called Azure, but it faces major competitors in IBM, Amazon.com and Google.

Microsoft's Web browser, Internet Explorer, also has lost its share of users. In 2004, it had 90 percent of the browser market. That number has fallen to 65.7 percent with the growth of competitors, especially Mozilla's Firefox, according to research firm Net Applications.

Bruce Francis, vice president of corporate strategy for SalesForce.com, which has invested heavily in cloud computing, said operating systems still enable the plain-vanilla functions of PCs. "But the operating system as something that shapes my experience, that defines what I will actually be able to do with my device, is really irrelevant to those things, " he said.

Further in the future, the television set-top box is forecast to take over more tasks that people now expect from computers. In September, Intel announced a new chip that would be installed on boxes and allow people to connect to the Internet and stream only videos onto their TVs. The chip runs with Linux, the open-source rival to Windows.

It knows the score

Microsoft is aware of the threats to its core business and has teams working on mobile devices, television and cloud computing, the last of which is led by Chief Software Architect Ray Ozzie.

Ballmer likes to say Microsoft's philosophy is about "long term, long term, long term."

"We don't go home," he said in a speech earlier this year. "We just keep coming and coming and coming. Tenacious, tenacious, tenacious, tenacious."

If recent history is any indicator, the industry can look to how Microsoft has come back and gained a bigger toehold in search, an area where it had come to be known as a fading also-ran. The company launched Bing after years of going nowhere, and now it has gained some share in search and secured a Yahoo partnership to expand further, even though Google still owns the market.

Ballmer looks at Bing as a success story.

"It's as good a demonstration of our tenacity and commitment as anything you've seen, including Windows 1.0," he said.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com