Brain Food: Behind the spin

THE DILEMMA

by
Last Updated: 31 Aug 2010

Microsoft, the $281 billion, 61,000-strong global computing powerhouse, celebrated its 30th birthday last year. But what next for Bill Gates' and Paul Allen's ageing love child? A certain amount of reinvention is planned - but is it a botox job or drastic surgery that's needed? Its problems centre on the much-delayed release of Vista, a radical new version of the Windows operating system (OS). Keen to exploit the consumer appetite for all things digital, Microsoft is shifting its focus from office applications to home entertainment in Windows' biggest strategic change for more than 20 years. But in developing its highly complex OS, Microsoft may have bitten off more than it can chew - it has had to sub-contract vast amounts of development work. And will the end product live up to the hype? Microsoft now has to contend with a sluggish share price and dwindling growth, though it remains fantastically profitable. With Windows at the heart of the business - generating close to a third of revenues and two-thirds of operating profit - a lot is riding on Vista taking off.

THE SPIN

Earlier this year, Microsoft insisted: 'We remain on track to deliver the final product to volume-licence customers in November and to other businesses and consumers in January 2007' - despite having missed its own deadlines six times. A recent report from IT consultancy Gartner predicted that Microsoft would miss its latest shipping dates again.

THE STRAIGHT TALK

Gates' vision of our digital future centres on three things: the PC, Vista and the software that runs on it. Why? That's the way Microsoft has always done things and selling Windows licences brings in a lot of cash. But this business model is under challenge. Take open-source Linux, a simpler OS backed by Microsoft's rivals. This can be downloaded free of charge, obviating the need for pricy Microsoft licences and powerful desktop PCs. Or there's 'on-demand' or 'utility' computing, which also threatens Windows' market dominance. Improvements to the very fast internet connections on which this technology relies could give it the critical mass it needs.

THE VERDICT

The world awaits Vista with bated breath. For Microsoft, the stakes are high. Its reputation has already been dented by delays to Vista's release: it can't afford further embarrassment. But will Microsoft's vision of the future come true? 'I would never underestimate that team,' Dick Lampman, head of HP's research, told Fortune magazine. 'But right now the rate of change seems to be moving against them.'

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