Tuesday, January 30, 2007

Vista Arrives in Changed Landscape
Microsoft Faces Web Competitors

By Alan Sipress
Washington Post Staff Writer
Tuesday, January 30, 2007; D01

About a decade ago, Microsoft's Windows made up the brains of nearly every computer. It trounced the competition, and people lined up to buy the latest version of the signature software.

Microsoft now stands in a different place. Its release today of its Windows Vista operating system for consumers comes at a time when it is losing ground to Web-based competitors like Google. Moreover, the company faces a multi-front war on games, search and Internet advertising, as well as for its core Windows products.

So much rides on the release of Vista that Microsoft has launched an unprecedented global campaign estimated at up to half a billion dollars to market a product that has lost much of its sex appeal but remains essential to the company's financial well-being and its strategy for countering the challenge from Internet companies offering competing services over the Web.

In China, Microsoft is promoting Vista with a laser display along the Shanghai waterfront while a huge, interactive laptop computer has been erected in Germany. Closer to home, Microsoft has signed such celebrities as NBA star LeBron James to appear in Vista advertisements. Chairman Bill Gates took to the television airwaves yesterday, pitching Vista on the "Today" show by morning and on the "Daily Show With Jon Stewart" by night.

All told, Vista hits shelves this week at more than 39,000 retail locations in more than 30 countries. About 55 hardware and software vendors are marketing the operating system with Microsoft, and some retail chains are offering hourly giveaways for such items as Microsoft's Xbox 360 game console.

Vista's release, which coincides with the consumer debut of Microsoft's latest version of its Office software, is among the most fateful in the company's storied history. These two products represent an overwhelming share of the company's profit and an estimated $12.5 billion in revenue over the past six months.

"Windows and Office are at the heart of the company," said Brad Goldberg, general manager of Windows products. Vista's main selling points include more security features, including encryption and tighter controls on access to the computer, as well as greater flexibility for use on laptops and mobile devices. The software also makes the computer more entertaining by including features to create and play videos and better manage photographs, the company said.

Success defending its flagship products is crucial for Microsoft at a time when relative newcomers, particularly Google, lead with newer consumer services such as search engines and command more Internet advertising revenue.

Microsoft's browser, Internet Explorer, for instance, is losing ground to Mozilla's Firefox. Google has introduced Web-based spreadsheets and word-processing services that challenge the core features of Microsoft Office, while Microsoft's free e-mail service, Hotmail, is feeling pressured by similar services such as Yahoo Mail and Google's Gmail. Windows products are used by 96 percent of computers, according to research firm Gartner, but consumers increasingly are adopting Apple's software or Linux's open-source software.

All of this is happening as Microsoft, based in the Seattle suburb of Redmond, Wash., struggles with the existential question of whether it needs to focus less on selling shrink-wrapped products in retail stores and more on free software that can be delivered as a service via the Web. In the past year, Microsoft has tried to push a hybrid approach that doesn't cannibalize its Windows sales but encourages people to also use its free Web services.

Microsoft initially intended to release a new Windows operating system five years ago. But massive development efforts stumbled. Executives acknowledged in 2004 that the problems had become too complicated and restarted the project from scratch. The company repeatedly postponed Vista's debut, much to Wall Street's chagrin. The business version of the software launched in November, but the consumer version was delayed until this month, costing the company potential sales.

"It's incredibly unfortunate that Microsoft missed the holiday shopping season," said Michael Cherry, lead Windows analyst at independent research firm Directions on Microsoft. Now, there will be fiercer competition for consumers with less disposable income, who might have to choose among Vista-equipped computers or high-definition televisions and game consoles, he said.

Though dozens of people lined up in Tokyo yesterday ahead of the midnight release, long gone are the days when a Windows debut engendered the kind of excitement that prompted crowds of buyers across the United States to queue up 12 years ago for a first crack at Windows 95.

Christopher Liddell, Microsoft's chief financial officer, told analysts last week that the company did not anticipate an immediate spike but expects healthy sales over the next few years.

"This is different from . . . the Windows 95 impact," he said in the quarterly earnings conference call. "We certainly see it being positive but more gradual as it rolls into the marketplace."

Starting today, Vista will come loaded on most personal computers sold by major retailers. And with the personal computer market expanding at about 10 percent a year, Microsoft will probably sell about 75 million copies of Vista in the first year, overwhelmingly to consumers rather than businesses, according to Steve Kleynhans, vice president for client platforms at Gartner. His research firm projected that more than four-fifths of new personal computers worldwide will ship with Vista by next year and more than half of all PCs in use will run Vista by 2009.

"In sheer numbers, this is going to be biggest version of Windows ever. But that's just inertia," because of its built-in base, Kleynhans said. "Will it really dominate the market or change the market in the way earlier versions of Windows did? It remains to be seen."

Most of the advances are "under the covers," or not immediately obvious to users, though these will allow them to run myriad new programs over the Web. As a result, some analysts say, the new operating system is less likely to elicit a cheer of elation than a nod of approval.