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December 17, 2005

Next challenges for Microsoft in 2006



Take Vista into the Boardroom

Windows Vista could offer large organizations improvements in software development, security, reliability, systems management, and user interface. However, public demonstrations have been full of cool graphics effects and consumer features that probably turn off more IT staff than they attract, and sales of Windows upgrade rights to corporations have been disappointing. In 2006, Microsoft has to settle on a feature set for Vista that appeals to enterprises, explain clearly what that feature set is, and reveal what PC hardware and other infrastructure corporations require to reap the benefits.

"The Windows Client division has to tell corporate customers why they want Windows Vista, and why they shouldn't wait until they buy new hardware."
—Rob Helm, Director of Research

Lead on Application Security and Reliability

Microsoft has always offered guidelines for how to develop secure, reliable applications on Windows, but the company rarely had the discipline to enforce them, even with its own applications. The result has been a treadmill: developers inside and outside of Microsoft continue to write applications that fail or require unsafe levels of privilege to run, while the Windows team develops increasingly complex workarounds (such as the User Account Protection mechanism of Windows Vista) to keep these applications going. Meanwhile, Microsoft's antispyware team hesitates to say whether clearly malicious software, such as a recent digital rights management tool that shipped on some Sony CDs and that observers deemed a "rootkit," violates its guidelines. The run-up to Vista in 2006 could be Microsoft's last chance to stop badly behaved Windows applications by publishing a definitive set of guidelines, and enforcing the guidelines in its logo programs and malicious software protection products—even against its own developers.

"The time has come for Microsoft to show discipline in dealing with bad applications, and to lead in the war on spyware and other malicious software."
—Michael Cherry, lead analyst, Windows

Deliver Clarity on Managed Solutions

In 2005 Microsoft began to directly deploy and manage PC software for customers like Energizer Holdings. If expanded, this "managed solutions" business could be profitable in its own right, but could also boost the Windows and Office franchises, which together generate 50% of Microsoft's revenues and the bulk of its profits. However, expansion could also hurt the loyal systems integrator partners who not only move thousands of units of Windows and Office onto PCs, but also push the company's increasingly important server products. In 2006, Microsoft has to clarify how far it will go into managed solutions, and what parts of that business it will leave on the table for partners.

"Microsoft needs to map out where its managed solutions effort is going, how it will differ from what partners are doing today, and how it will kick-start financial growth."
—Paul DeGroot, lead analyst, sales and support

Get Going on Tools

Microsoft lavishly supports software developers with low-cost development tools and technical information, making developers some of the strongest advocates for Windows and other strategic products. However, the company's Developer Division just completed a difficult product cycle for Visual Studio 2005, and time is short to deliver the tools that corporate developers will need to take advantage of Windows Vista. In 2006, the division needs to get going on the next generation of basic tools to support Vista, so that companies start to see payoffs in the applications they develop.

"Parts of Vista like the Web services framework cry out for tools. Microsoft needs to get Vista tools out to developers, particularly to Visual Basic developers who are less comfortable programming to a raw API."
—Greg DeMichillie, lead analyst, developer

Refresh the Online Strategy, Again

Microsoft’s latest online strategy is to match Google’s every move in hopes of raking in more advertising dollars, while taking yet another stab at subscription services. 2005 saw a lot of motion—leaked memos, blog buzz, reorgs, and a new "Live" brand—but little progress in terms of service improvements, audience share, or dollars. So Microsoft’s online strategy must start to gel in 2006, or the company will find Google continuing to steal headlines and rake in the advertising bucks—or worse, building online services that begin to compete with Microsoft's core software franchises.

"Microsoft's online strategy has had more facelifts than an aging movie star. The latest strategy could deal with the Google threat, but Microsoft must get its new advertising platform up and running and clarify its offerings for small businesses."
—Matt Rosoff, lead analyst, consumer and corporate

Xbox 360 Final Death Match Challenge

Microsoft executives have promised that the Xbox business would become profitable by FY'07, which begins in July 2006. Many of the pieces are in place: Microsoft beat Sony and Nintendo to market with an impressive piece of hardware, has enlisted many new third-party publishers and developers (particularly important in Japan, where the first Xbox was a dud), and has more than two million paying customers for Xbox Live where its competitors are still figuring out their online strategies. Most important, Microsoft is committed to breaking even on the console over its lifecycle, leaving plenty of room to profit from games, Live subscriptions, hardware peripherals, and downloads. In 2006 Microsoft will have to justify the console's high price (or lower it to put price pressure on Sony), come up with the "must have" game title that was missing at launch, and prove that early shortages and glitches are temporary and solvable problems.

"Getting to profitability will require a big-name software launch while withstanding a concentrated marketing blitz from Sony. Anything less could mean years of red ink ahead."
—Matt Rosoff, lead analyst, consumer and corporate

Microsoft’s Top 10 Challenges for 2006

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