Why Microsoft can't afford Windows 7 to fail

By Tim Weber Business editor, BBC News website

On Thursday, Microsoft launches Windows 7, the latest version of its operating system. Its success or failure will determine the future of the world's biggest software company.

When talking about Microsoft, it is useful to remind yourself of the sheer scale of its reach. Windows powers about 90% of the world's computers; by the company's own reckoning more than one billion people use it.

Windows also powers Microsoft. During its last financial year, a $58.4bn (£35.7bn) turnover generated an operating profit of $20.3bn (net profit: $14.6bn). Windows accounted for well over half of that.

For years, critics have claimed that Microsoft's virtual monopoly is about to end.

They say it will be brought down by a resurgent Apple, insurgent open-source rival Linux or a revolution in how we use computers, when the actual computing moves from desktop machines to the "cloud" where software runs on remote servers.

Windows without a Vista

In reality, Microsoft has been its own worst enemy. Ruthless behaviour towards rivals earned it the attention of regulators such as the European Commission and the US Department of Justice.

More importantly, three years ago Microsoft botched the release of Vista, the operating system that preceded Windows 7.

Vista - a bloated, difficult to install operating system - left many early users with suddenly unusable hardware and software. The disaster badly undermined Microsoft's credibility with consumers and software developers.

Today, Vista is still outshone by its eight-year-old predecessor Windows XP. One (particularly low) estimate from web metrics firm Net Applications suggests Vista has a mere 18.6% share of the market. Others put it at just over 35%, which is still a poor figure.

Will Windows 7 allow users to forget Vista?

Among companies, "Vista is the worst-adopted operating system", according to Annette Jump, research director at Gartner, a technology research firm.

The president of Microsoft International, Jean-Philippe Courtois, opts for understatement: "We don't feel great about Vista adoption."

Windows reloaded

Windows 7 is Microsoft's one and maybe only chance to redeem itself. "We have learned a lot from what went wrong with Vista," is a mantra repeated by every Microsoft executive.

For starters, Windows 7 is on time, arriving less than three years after the launch of Vista, which was two years overdue.

The preparations for Windows 7 have been a remarkable step up from the days of dealing with Vista Alex Gruzen, Dell

Early users report it to be fast, reliable, secure and easy to use on the move.

Most importantly, Microsoft went out of its way to avoid a repeat of its biggest Vista mistake, when it failed to prepare its partners for the new system.

Windows 7 loves Windows 95

"The Windows ecosystem is the broadest in the world, and we have to take care of that," says Mr Courtois.

Microsoft's partners have noticed the change in tack. "The preparations for Windows 7 have been a remarkable step up from the days of dealing with Vista," says Alex Gruzen, the man in charge of consumer products at the computer giant Dell.

"Peek" helps users find their way around a crowded taskbar

"In the past, Microsoft looked at its operating system in isolation, and gave it to [manufacturers] to do whatever they wanted," he says. "Now they collaborate, help to figure out which third-party vendors are slowing down the system, help them improve their code."

Microsoft, promises Mr Courtois, has "worked very hard with Windows 7 to achieve applications compatibility." When it rolled out the first service pack for Vista, there were a mere 2,700 applications certified to work with the system.

We expect a tangible Windows 7 bounce [in PC sales] Richard Huddy, AMD

At launch, Windows 7 boasts 8,500 certified apps.

And if you want to use old software on your computer, Microsoft has built in a "compatibility tool" that allows you to run applications that were built for operating systems as old as Windows 95.

Windows 7 also has a smaller "footprint" than Vista. It needs less computing power so older PCs run it quite happily. "Our PCs have gained another two years lifetime," says Chris Page, who deployed Windows 7 on nearly 700 computers in schools run by Warwickshire County Council.

Just one five-year-old laptop refused to run the new operating system, he reports.

The best or worst of times?

But is this the right time to launch an operating system? Parts of the world may be out of recession, but investment remains low and consumers are facing the prospect of rising unemployment.

The timing, however, might actually be Microsoft's biggest asset.

The new Taskbar preview is popular with users

"Technology has always been leading economies out of recession," says George Colony, boss of tech research firm Forrester.

Despite the downturn, IT investment is growing three times faster than most economies, reports tech industry analyst IDC. Even among consumers there are still pockets of growth, especially small netbooks with their low-power processors, which cannot run Vista but deliver zippy performance under Windows 7.

The launch of the new operating system will produce "a tangible Windows 7 bounce", says Richard Huddy of chipmaker AMD.

"Along with that, we're also seeing evidence on a global scale that the recession is starting to lessen."

"The fact that Win 7 is more efficient than Windows Vista means that it's viable for lower-cost PCs, so I think we can safely say we're increasingly optimistic."

The bottom line

At Dell, Alex Gruzen sounds bullish too. Many companies have kept old computers running for at least a year longer than they would normally do. Now "there is some optimism that the refresh cycle will begin over the next year; Windows 7 certainly helps, it provides a good catalyst for it."

April 2014: the deadline for Windows XP

A changed digital world is also driving change. Consumers and corporate computer users are becoming more mobile and Windows XP simply was not built for that.

Forcing the issue, Microsoft has said it will stop supporting Windows XP in April 2014. And even if there is an extension, by then most makers of third-party software for XP will have phased out their support, says Steve Kleynhans, vice-president of research at Gartner, "which will increase the pressure to upgrade" to Windows 7.

Also, organisations testing Windows 7, such as the UK accounting firm Baker Tilly and the City of Miami, report sharply lower support and energy costs, and higher productivity, according to Stella Chernyak, the product manager for Windows 7 Enterprise.

Gartner's Steve Kleiynhans also counsels companies against the traditional wait for "Service Pack 1", because these days Microsoft rolls out upgrades and updates continuously. The service pack will be a mere catch-up for those who have failed to install them.

The bottom line for Mr Courtois: "We expect business to adopt Windows 7 much faster" than previous operating systems.

Watching rivals

Microsoft has tidied up Windows Explorer

At Gartner, Annette Jump is more cautious: "We don't expect that Windows 7 will drive PC shipments," although companies "really will have to" upgrade to Windows 7, because otherwise "the support costs for older PCs will be piling up".

Microsoft's timing has been helped by the fact that one of its arch rivals, Google, won't launch its lightweight operating system Chrome OS before the middle of next year, which will be plenty of time to establish Windows 7 firmly in the netbook market.

Also useful is the misstep of its other nemesis, Apple, which uncharacteristically botched its new operating system Snow Leopard, not anywhere near as badly as Vista, but enough to give Microsoft a clear run for its Windows 7 launch.

Windows' last hurrah?

"I really have to go back to Windows 95 to remember people being so excited about a new operating system," says Mr Courtois, a 25-year veteran of Microsoft.

"Windows 7 is everything that Vista promised to be and more," enthuses AMD's Richard Huddy. Dell's Alex Gruzen calls the software "outstanding."

This may be hyperbole. Gartner analyst Annette Jump, for one, calls Windows 7 "a polishing release of Windows Vista".

Windows 7 is much easier to install than its predecessor

But most reviews have been positive, even enthusiastic. "The fact it's an operating system I see nobody complaining about [suggests] you have something that's really good and solid," argues Mr Huddy.

That alone will not banish the fundamental threats to Microsoft's business model, though.

Over the next few years there will be "a big shift to [operating system] neutral applications like browser-based apps, Java, Silverlight, Flash, .Net", says Mr Kleynhans at Gartner.

"That will limit the dominance, the factors that drive people to have Windows."

Should Microsoft rest on its Windows 7 laurels, it might end up being its most, but also its last, successful operating system.

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