Internet Marketing Specialist, SEO

Back in March, I heard Microsoft was going to replace some of the applications it traditionally has bundled with Windows subsystems  with Windows Live services in Windows 7.

No one on the Windows team would confirm my tip. But on September 22, the Windows Live team admitted — not to me, but to News.com’s Ina Fried — that this is, indeed, the plan.

Windows 7’s mail, photo-management and movie-maker subsystems applets are all being replaced by optionally installable Windows Live equivalents. This is good news for users, as services are easier to update more frequently than software. It’s also good news for Microsoft, a company that has come under increasing attack by antitrust regulators for bundling more and more previously discrete features into its operating system.

Microsoft Windows chief Steven Sinofsky recently poured cold water (in a long and complex post to the “Engineering Windows 7″ blog) on the idea that Microsoft was moving to decouple any of the bundled features/functionality from Windows 7. But Windows Live General Manager Brian Hall was more direct and forthcoming. From News.com’s latest report:

“In a follow-up interview on Monday, Windows Vista general manager Brian Hall said Microsoft made the decision to remove the tools from Windows for several reasons, including a desire to issue new operating system releases more quickly than it has in the past. The move also removes the confusion of offering and supporting two different programs that perform essentially similar functions.”

(Thanks to LiveSide for helping me connect the dots regarding the specifics as to  Microsoft planned to do to more tightly integrate Windows 7 and Windows Live.)

Any other Windows features and/or bundled applications you think Microsoft should turn into optionally-installable services?

The report shows that Microsoft is aware of its own important balancing act as the company strives to maintain its relevance and dominance in the services era.

Microsoft (NSDQ: MSFT) always paints a picture of the competitive landscape in when it files its annual 10-K report to the Securities and Exchange Commission. In a sign of the times, there are a few new clouds when this year’s report was filed Thursday, including a Web browser’s first appearance as a threat to Windows, Microsoft’s biggest cash cow.

“The Windows operating system faces competition from alternative platforms and new devices that may reduce consumer demand for traditional personal computers,” the report warns, noting the possibility that software as a service and mobile devices could decrease the relevance of traditional PC operating systems. “Competitors such as Mozilla offer software that competes with the Internet Explorer Web browsing capabilities of Windows products. User and usage volumes on mobile devices are increasing around the world relative to the PC.”

Firefox has been a success story against Internet Explorer, continually increasing its share against Microsoft’s market browser for the last few years. But the fact that it’s now seen as a threat to Windows is more evidence than ever that Firefox has made it. More importantly, it shows that Microsoft is aware of its own important balancing act as the company strives to maintain its relevance and dominance in the services era.

Microsoft has been spending billions on huge new data centers around the world, as recently as last month announcing a new one in Iowa. It’s making major investments in search and advertising, has expanded consumer services, and has begun rolling out business services and will likely announce plans later this fall to compete with companies like Amazon (NSDQ: AMZN).com in utility computing services.

“The ability to combine the power of desktop and server software with the reach of the Internet represents an opportunity across every one of our businesses,” the company said. “As we continue to build out our services platform, we will bring a broad range of new products and service offerings to market that target the needs of large enterprises, small and medium-sized businesses, and consumers.”

Still, Microsoft makes it clear in its report that much of the increase in revenue the company has seen in the last two years has continued to come from Windows. Preinstalled Windows copies account for more than 80% of Microsoft’s client division’s revenues, and more PCs sold around the world means more Windows copies sold as well. Microsoft characterized Windows Vista adoption in the last year as “widespread.”

Whether that means Microsoft’s operating systems are continuing to be well accepted is another matter entirely. Microsoft has begun embarking on a new marketing strategy for Vista 18 months after it was released, trying to convince people that they should buy it despite early criticism. It also recently lashed out at Forrester Research for what it said were “schizophrenic” reports on Vista’s adoption rate.

In other competitive notes, Microsoft leaves Citrix off a long list of competitors to its server and tools business, which includes both Windows Server and Microsoft’s Visual Studio development tools. Citrix increasingly competes with the group’s virtualization products and isn’t listed despite VMware’s presence. Microsoft and Citrix have had a long partnership around Citrix Presentation Server, which is now known as XenApp.

Microsoft continues to up the ante in research and development, spending $8.2 billion in fiscal 2008. That’s a 14% increase over the previous year’s $7.1 billion investment, which itself represented 14% more than 2006. Still, all that spending doesn’t represent all of Microsoft’s investment in new technology, as the company spent $8.8 billion in 21 acquisitions last year, including $5.9 billion on advertising giant aQuantive and $1.3 billion on enterprise search company Fast Search & Transfer.

Redesign might give Live.com’s home page more aesthetic appeal, but it doesn’t address the problem of Microsoft’s confusing online branding.

A redesign of the Live.com home page may not be quite what analysts had in mind last week when they asked Microsoft CEO Steve Ballmer about how the software giant plans to streamline its online presence .

Starting Wednesday, visitors in the U.S. are being shown a new Live.com page — although they may not notice it’s new. The page looks mostly the same as before, except it now features a background photo that apparently will change periodically.

The photo features a few blurry squares that show up when a mouse passes over them. If the user hovers for an extra second, a box pops up with a message that, when clicked, brings them to a page with additional information, including maps and photos.

The current photo features a man on a long boat on an African river. The information squares point to photos of animals that live in Botswana and other facts about the country’s natural features.

The design was well-received among customers trialing it last month, according to a blog post by Chris Rayner, senior product manager, and Zach Gutt, senior program manager, both of Microsoft’s Live search user experience team.

Like the previous design, the page predominantly features the search bar and lets users choose to search images and videos. Links point to Web pages for Live maps, news and other Microsoft offerings.

“We think the new design is a great start, but there’s more to come, with lots of interesting directions that we’ll be exploring in our next releases of the home page,” the employees wrote on the blog.

Analysts who asked Ballmer last week how the company might fix its confusing online branding to make it easier for users to find Microsoft’s online services might be relieved to hear that there are more changes to come. Microsoft maintains both the MSN and Live online brands, and in some cases the same online services carry both names.

Ballmer said Microsoft has been working on a way to combine its online services under a single Web page. However, the new Live.com page includes links to MSN.com and the Windows Live home page, so the current redesign hasn’t addressed that problem.

Indeed, while the pictures might give the Live.com home page more aesthetic appeal, Microsoft is unlikely to gain ground against Google in online search and advertising until it clarifies its online services. In search, Google continues to hold a daunting lead over Microsoft, which runs a distant third even to Yahoo, the company Microsoft failed to acquire  after months of negotiations.

With the Internet increasingly taking on the role of the PC operating system and the growing prevalence of virtualization technologies, there likely will be a day when the Windows client OS as it has been developed for the past 20-odd years becomes obsolete.

According to published reports, Microsoft Corp. seems to be preparing for that day with an incubation project codenamed Midori, which seeks to create a componentized, non-Windows OS that will take advantage of technologies not available when Windows first was conceived.

Although Microsoft won’t comment publicly on what Midori is, the company has confirmed that it exists. Several reports — the most comprehensive to date published on Tuesday by Software Development Times — have gone much further than that.

That report paints Midori as an Internet-centric OS, based on the idea of connected systems, that largely eliminates the dependencies between local applications and the hardware they run on that exist with a typical operating system today.

The report claims Midori is an offshoot of Microsoft Research’s Singularity operating system project that creates “software-isolated processes” to reduce the dependencies between individual applications, and between the applications and the OS itself.

With the current ability to run an operating system, applications and even an entire PC desktop in a virtual container using a hypervisor, there is less and less need to have the OS and applications be installed natively on a PC, said Brian Madden, an independent technology analyst.

“Why do you need it?” he said. “Now we have hypervisors everywhere.”

Madden suggested that a future operating system could actually be a hypervisor itself, with virtual containers of applications running on top of it that can be transferred easily to other devices because they don’t have client-side dependencies to each other.

And while he has no information about Midori beyond the published reports, he said descriptions of it as an Internet-centric system that provides an overall “connectedness” between applications and devices makes sense for the future of cloud computing and on-demand services. Microsoft likely recognizes the need for this, even if the actual technology is still five or more years out, Madden said.

“They’re preparing for the day when people realize we don’t need Windows anymore,” and thinking about what the company has to do to remain relevant, he said.

Indeed, Microsoft has been emphasizing its virtualization strategy, based on its new Hyper-V hypervisor. The company also is moving full steam ahead with plans to virtualize applications and the desktop operating system as well.

Using virtualization in these scenarios would eliminate the problems with application compatibility that are still giving headaches to Windows Vista users, and that have made the OS a liability rather than a boon for some Windows power users and enterprise customers.

If Midori is close to what people think it is, it will represent a “major paradigm shift” for Windows users and be no easy task for Microsoft to pull off, said Andrew Brust, chief of new technology at the consulting firm Twentysix New York.

Brust said the challenges faced by Microsoft on a technology like Midori would include technical complexities as well as the “sobering compromises” that must be made when a product moves from being a research project into commercialization. “I would expect those in abundance with something of this scope and import,” he added.

Although he hasn’t been briefed by Microsoft on Midori, Brust said the idea makes sense because the company needs to drastically update Windows to stay current with new business models and computing approaches — particularly to help it compete against Google Inc. on the Web.

“Breaking with the legacy of a product that first shipped 23 years ago seems wholly necessary in terms of keeping the product manageable and in sync with computing’s state of the art,” Brust said. “If Midori isn’t real, then I imagine something of this nature still must be in the works. It’s absolutely as necessary, if not more so, to Microsoft’s survival as their initiatives around Internet advertising, search and cloud computing offerings.”

CEO says losses are a small risk

By TODD BISHOP
P-I REPORTER

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