Microsoft's Big Bet: Win With the Web

Bill Gates is revamping Microsoft's core product with a souped-up, Web-linked version dubbed Windows Vista. Due later this year, it's the biggest rollout in a decade, with high-stakes implications for the company's dominance.

Although the latest version of Microsoft Windows is more than six months from shipping, company brass already have christened Vista as the best and biggest Windows release since Windows 95. The company is making bold predictions, claiming Vista will be preloaded on as many as 200 million new personal computers in the first 24 months that the product is available. Windows 95 shipped on a mere 67 million new PCs during its first two years. These numbers are important. The prospects of nearly every product Microsoft makes ride on maintaining the ubiquity of Windows, which has in excess of 90 percent of the PC operating system market. It's been five years since the current Windows version was released, and Windows XP now is looking rather dated.

Development of Vista has been slow, and some significant planned features have been put aside to keep the massive effort on track. The company is in a race to release Vista in time for the holiday PC-selling season, and the new operating system must stand out to entice consumers to upgrade their present computers. More importantly, Vista needs to impress the big corporations that spend so much money on software. This Windows overhaul, so long in coming, may indeed be a bigger deal than Windows 95. If Redmond-based Microsoft is overstating Vista's prospects for success, it's hard to overstate the importance of that success to the future of Microsoft.

Complicating predictions, Vista will be more than an upgraded desktop operating system. Microsoft marketers claim Vista will be more secure, more reliable, and more just plain fun than older versions of Windows. But the real action is in less-obvious functionality that will enable a growing stable of Web-based Microsoft services to seamlessly hook into Windows. The software marketplace is changing, with tools migrating from the static realm of the PC hard drive to the Internet. Microsoft helped pioneer the business of shrink-wrapped software and became dominant, but computer tools these days increasingly are services you use, not things you buy. Web-based companies like Google are offering free services online and even installed desktop tools that tread on Microsoft's turf. So Microsoft plans to use Windows Vista as base camp to begin a new assault on the Web, where rebranded and brand-new products will be popping up in the months to come. It's an ambitious plan, but the world has changed since Windows 95.

It turns out this Web integration might provide a side benefit for Microsoft by helping to tamp down the company's pesky antitrust problems. But an assessment of Vista begins on the desktop.

No Desktop Revolution


Vista got its start as "Longhorn," a code name that can be traced to a saloon near Whistler in British Columbia. Testers have been dabbling with early iterations of Vista since 2003. In 2005, it became clear that development was taking too long, and Microsoft yanked from the product the most touted feature, a new file system called WinFS. (The plan now is to add WinFS to a later version.) Microsoft has been cranking out test releases of Vista since July, when it issued the first full-fledged beta release.

Above all else, Microsoft is betting on souped-up features to sell Vista. Thousands of testers inside and outside Microsoft have been using the beta version. Feedback has been mixed. Some testers have complained about "feature bloat"—more can be less if software gets overly complicated for hardware and users. Some claim Vista runs like a dream on their existing PCs. Some testers claim Microsoft is doing little more than trying to make Windows more like Apple's Macintosh operating system by introducing 3-D rendering of the user interface. Others say the new interface is distracting eye candy that could hamper users with older, slower machines.

"Vista doesn't have the killer feature that will make everyone want Vista the day it comes out," says one tester, Sandro Villinger, webmaster of the Windows Tweaks Web site ( "It has great features, a new and sleek user interface, and some nice foundations that people will love. But I am not seeing the advantage of Windows Vista yet. It's not the revolution I hoped it would be."

Another tester, Brandon LeBlanc of Longhorn Blogs (, agrees. "Many people expected Windows Vista to be this giant leap and an enormously innovative operating system with a complete overhaul," says LeBlanc. "Unfortunately, those who expected that will be disappointed. While Microsoft has indeed innovated several key areas of Windows, they focused on fixing the problems that plague users today using Windows, which is very admirable."

The many Windows features and services that Microsoft will tout as new to Vista can be grouped into four buckets: safety and security improvements; user interface changes; better support for mobile devices; and Internet advances.

Of these, safety and security is the change Microsoft is planning to push hardest. Microsoft is bundling its new Windows Defender anti-spyware product into Vista. And the new Windows will have a "protected mode" to keep Internet Explorer users from downloading potentially dangerous files and content. It also will include new anti-phishing software, firewall, parental controls, and encryption technology to help protect lost or stolen computers.

Safety and security might be an uphill battle, however. Even though the company has sunk millions of dollars into improving PC security, Microsoft products continue to be hacked and patched at an alarming rate. Why should users be expected to pay Microsoft for software and services that are meant to undo the risks which many feel were enabled by Microsoft in the first place?

Vista doesn't have the killer feature that will make everyone want Vista the day it comes out. It has great features, and some nice foundations that people will love. — Sandro Villinger, Windows Tweaks Webmaster

In spite of this paradox, many Microsoft watchers are cautiously upbeat. "Vista has potential to ramp up even faster than Windows XP," says Peter O'Kelly, a Microsoft watcher with the Burton Group, "with features ranging from security and reliability improvements to new capabilities that more effectively exploit modern PC capabilities.

"I think the biggest assumption about Vista that will likely be untrue is that it will be dull/dowdy and/or fail to effectively compete, at least for objective customers, with Mac OS," O'Kelly claims. "Revitalized competition in the OS space is going to be great for all customers, in any case."

Even at this relatively late date, however, a number of questions about Vista remain unanswered. It's possible Microsoft will cut more features to ship the product on time. The degree to which Vista will run existing Windows software without modification is still not known. Microsoft has yet to release final specifications as to what kinds of PC hardware will be required to run Vista, a failure that has raised the hackles of customers and partners alike.

"The biggest issue still surrounds hardware," points out Michael Cherry, an analyst with Directions on Microsoft, an independent research firm. "To get all the benefits of Vista, you will need a high-end graphics card," and to take advantage of better security features, you really should have a machine with a Trusted Processing Module (TPM), a secure computer chip. "I'm not sure whether people realize that Microsoft typically designs for the hardware that is coming, not the hardware we have," Cherry says.

Alive on the Web

Ray Ozzie


But there is another set of features that could affect the way Windows users perform tasks, far more than anything baked directly into Vista. Under the direction of new Chief Technology Officer Ray Ozzie, Microsoft is thinking outside the shrink-wrapped software box by developing a set of add-on services designed to extend Windows and other Microsoft products. This strategy, known as Windows Live, comes after the latest of Microsoft's frequent corporate reorganizations, last September. Microsoft merged the division that runs the MSN Web portal and the Windows platform team into a single Platform Products and Services division, laying the groundwork for Windows-Web integration. To make the connection in the public mind, some of MSN's online services have been rebranded as Windows Live services. Windows Live services are patterned after the Xbox Live gaming services that Microsoft sells as add-ons to Xbox gaming consoles.

Examples of Windows Live services include the next versions of the Hotmail Web e-mail service, which will be called Windows Live Mail; consumer instant- messaging (Windows Live Messenger); and Web search (Windows Live Search). There are other wide-ranging Windows Live services in the works, too, such as Windows Live Expo, a classified advertising service similar to Craigslist; Windows Live Family Safety Settings, a parental- controls service; an as-yet-unnamed TV recommendation service; Windows Live Local, a mapping tool; and Windows One-Care Live, a security/backup service. Microsoft is thought to have as many as 50 of these up its sleeve, though company officials won't corroborate that figure.

Many of these services are expected to debut this year. Microsoft has said that most will be free and advertising-supported, at least to start. Over time, Microsoft could begin charging, as well as add new, paid offerings to the Windows Live stable.

"Windows Live is targeted primarily at an individual we call an 'Internet optimizer,'" says Blake Irving, a corporate vice president with Microsoft's MSN unit. "Internet optimizers live in enterprises, small- and medium-sized businesses, homes, and yes, they're all consumers.

"But if you think about the value that Windows Live will offer, for things like protecting you and your PC, or keeping in touch with the folks you care about, or finding the information you care about, or simply personalizing your entire Internet experience, this transcends the 'consumer,'" Irving says. "Many of the capabilities we're building into Windows Live, like our Windows Live Custom Domains or Windows Live Mail, or even a particular feature like sharing folders in Windows Live Messenger, have a bunch of appeal and utility for business users," as well.

Sidebars, Gadgets, Widgets

The Sidebar, at right, could be the sleeper hit of Windows Vista.


While few outside the software development community realize it yet, Microsoft is building a variety of hooks into Vista to support these and future Windows Live services.

"Increasingly, you'll see packaged software that's 'Live-Ready,'" says Microsoft's Irving. "This means software that is designed to work in concert with an Internet service. To deliver these experiences, Live-Ready client-side software must be capable of connecting to the Windows Live 'cloud' and must have the necessary plumbing and infrastructure."

While Windows Live services won't require Vista to run, nor will Vista be dependent on Live Services, the two will definitely work better together. In addition, Windows Live services will be more readily accessible to Vista users running a new Windows feature called the Sidebar. This Vista feature hasn't grabbed a lot of headlines outside beta testing circles, but it could prove to be one of Vista's biggest sleeper hits. It's a task pane on a desktop window that displays applets—small applications—known in Microsoft parlance as Gadgets.


Increasingly, you'll see packaged software that's "Live-Ready." This means software that is designed to work in concert with an Internet service. —Blake Irving Corporate Vice President, MSN

"Gadgets can be dragged from a Web page and onto the Sidebar and off the Sidebar and onto the rest of the desktop," says Nathan Weinberg, a Vista tester and senior editor of the InsideMicrosoft blog ( Both Microsoft and third-party developers will create Gadgets. The ultimate goal: "Since Gadgets are a part of Windows Live, Microsoft can deliver any of its Live properties as a new part of Windows, with a simple drag and drop," says Weinberg.

That's significant for the software business, for users, and for antitrust lawyers alike. "Since various legal issues prevent Microsoft from bundling more into the operating system, Sidebar allows Microsoft to expand horizontally, instead of vertically," Weinberg notes. "Microsoft can throw in all sorts of new features through Gadgets and the Sidebar. Of course, any other developers can design Gadgets that might be better than Microsoft's own, and there is a project under way to bring Google's own 'widgets' over to Windows Live." Even if those developers are building better features, "as long as Microsoft owns the platform, they win."

Antitrust Buster?

Whether Vista is considered evolutionary or revolutionary is the least of Microsoft's problems. There are ongoing skirmishes over Windows involving antitrust regulators in the U.S., the European Union, and South Korea over the present system, Windows XP, and whether its features and programming code unfairly favor Microsoft products, making it harder for other software companies to sell competing programs that run on Windows.

Microsoft has been building more and more functionality into Windows, instead of offering add-on programs. For instance, Windows Media Player, a subsystem that handles streaming audio and video content, used to be an add-on but now is integrated into Windows XP. That makes it hard for RealNetworks' RealPlayer, for example, to compete—consumers are less likely to bother considering and installing another product, even though they can. This increased functionality in Windows has not sat well with competitors like Seattle-based RealNetworks, Sun Microsystems, Novell, and others, who have brought their grievances to government watchdogs. Microsoft got its knuckles rapped recently for bundling into Windows the Internet Explorer browser and Windows Media Player. In the EU, Microsoft is now required to offer PC makers a version of Windows that does not include Media Player.

The U.S. government continues to monitor Microsoft's compliance with a 2001 antitrust settlement as the company moves toward Vista. Already there are signs that Vista won't be immune from similar antitrust scrutiny. In early February, PC makers Dell, Hewlett-Packard, and possibly others reportedly were seeking ways to get non-Microsoft software from rivals such as Google and Symantec preloaded on Vista PCs. And the Department of Justice received a complaint from at least one unspecified PC maker claiming that Microsoft was obstructing PC makers' rights to customize the Windows setup process on that manufacturer's new PCs.

Adding fuel to the potential antitrust fire, Microsoft is bundling into Vista new versions of Internet Explorer—neglected by Microsoft developers in recent years—and Windows Media Player. It also is integrating a new calendar application; a photo- management applet called Photo Gallery; the Windows Defender anti-spyware program; a backup subsystem; and a peer-to-peer collaboration application. So far, there haven't been public complaints about these features.

"I don't think Microsoft is feeling substantively constrained in terms of what it's adding to Windows these days, nor do I think the reduced-functionality versions of Windows created to comply with assorted government edicts will sell in meaningful volume," says the Burton Group's O'Kelly.

The Upgrade Decision

What's New in Vista

User interface: "Aero Glass" and a revamped Start menu.

Security: Built-in anti-spyware; new anti-phishing feature, user account lockdown.

Search and organization: Souped-up desktop search called QuickSearch.

Internet Explorer 7: Updated version of Microsoft's browser is integrated.

Sidebar and Gadgets: New task pane and software services.

Sideshow: Support for external, auxiliary display panels on new portable PCs.

Speech recognition: Dictate documents and e-mails; fill out forms without a mouse or keyboard.

Help and feedback: New diagnostic and remote assistance tools.

Sync Center: Synchronize data between PCs, networks, and mobile devices.


The debate continues to rage as to whether Vista will include enough new features to persuade home and business users to upgrade. Will customers kick the tires for a couple of years, making sure all their existing software works perfectly, before taking the upgrade plunge? Maybe Windows 98 and Windows 2000 users will feel compelled to upgrade from those older systems, but will those running Windows XP bother?

Microsoft's fiercest Vista competitors are not Mac OS X or the open-source Linux operating system. The biggest competitors Vista faces are older versions of Windows.

Microsoft is counting on a few factors aside from Vista itself to drive sales. The software giant is in the midst of a major anti-piracy crackdown. That initiative requires users to prove they are running legal copies of Windows, via a Web-authentication mechanism, before they are allowed to download utilities and other Windows-specific content from Microsoft's Web site. Those running pirated copies will be encouraged to upgrade to the latest version of Windows.

At the same time, Microsoft is looking to new markets it has yet to tap for future Windows sales. Emerging PC markets outside the U.S. are growing at a rapid clip and will be another area for Microsoft to plumb for Vista sales. The company is looking beyond the Windows XP Starter Edition—a cut-rate, stripped-down version of Windows sold in developing countries—to attracting affluent customers in emerging markets.

To keep the Windows coffers full, Microsoft also is going to put a lot of energy into convincing customers who do buy the new operating system that there is more value in higher-end versions of Vista than in the basic editions. As with Windows XP, there will be six versions of Vista: Business, Enterprise, Home Basic, Home Premium, Ultimate, and Windows Vista Starter.

Will users deem Vista and Windows Live products ahead of their time, improvements that can wait? Or will they snap up the software-services combo as soon as it becomes available? The answer is six months or so away.

Mary Jo Foley writes the Microsoft Watch blog ( and newsletter for Ziff Davis Media ( in New York. She has been a tech journalist for 23 years and interviewed Bill Gates for the first time in 1984, when Microsoft was micro-sized. Foley has dedicated her career to covering Microsoft for a variety of publications and Web sites, including ZDNet/CNet on the Web, the corporate computing magazine eWeek, and others. She moved to Seattle in 1993 to better stalk the company, but after a particularly rainy year, she decided in 1998 to move back to the East Coast.

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