New Windows Era Starts To Unfold

Microsoft's business customers will need to decide whether Windows Vista's better performance and management tools, souped-up graphics, and improved security are worth yet another costly PC operating-system rollout. The last time they went through anything like it was in 2001, when Windows XP was launched. Some have yet even to make that transition.

It could be the last time an operating-system release matters this much. With computing's center of gravity shifting from the desktop PC to online applications from competitors like Google Inc. and Inc., and to consumer electronics like Apple Computer's iPod, Windows Vista is an attempt to show that the PC still matters. "Some people will ask if Windows Vista is the end of the last generation of software," CEO Steve Ballmer said last week at a meeting with financial analysts at Microsoft's headquarters. "I think of it as the beginning of the next era of software from Microsoft."

It will be an era that adapts to the fast growth of PDAs and cell phones and one in which "we deliver bits and services across the Internet," Ballmer said. In a continuing push into the software-as-service model, Microsoft is developing online products for regulatory compliance, document routing, and storage.

It's also moving toward "premium" editions of Windows and Office that would include more features for a higher price. "You could say the whole family's getting bigger," chairman Bill Gates said at the analyst meeting last week. When Microsoft releases new versions of major products, most of its new technology goes into the basic product, he said, but "we feel like we have enough innovation to take pieces of it" for premium editions. The company also wants more-frequent releases of Windows, akin to the way it rapidly streams out updates to MSN Messenger and other apps on

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Microsoft has a lot riding on Windows Vista. Desktop Windows generated $12.2 billion in revenue during the fiscal year ended June 30--more than 30% of Microsoft's $39.8 billion total sales. But Windows sales grew just 6% in fiscal 2005, slower than a companywide 9% growth rate. By the time Windows Vista arrives, sometime around Christmas 2006, Windows XP will be more than 5 years old. That's an eternity in computing.

Are buyers ready? If Microsoft delivers on promised security improvements, that alone will get some companies to make the move. "It would be a great benefit to get more of the security from the operating-system company because they ought to know the most about it," says Bob Elward, director of client and server engineering with Air Products and Chemicals Inc., a maker of specialty gases and other chemicals with more than 15,000 PCs running Windows XP or Windows 2000. Elward expects to begin testing Vista on one or two machines this fall.

Security advances in Windows Vista include account-protection features that cordon off areas of the operating system to users, so admins can grant them only the privileges they need to do their work. Windows Vista also contains data-protection technologies that can encrypt a PC's entire disk so it can't be read by outsiders, even if a laptop is stolen. And beta 1 includes an early version of Internet Explorer 7 with rolled-in anti-spyware technology Microsoft got when it acquired Giant Software Inc., including the ability to block access to phishing sites (see story, Security: How Vista Fights Vulnerability).

Beta 1, which also will be available to the half-million developers who signed up at Microsoft's technical Web sites, is mainly aimed at programmers and IT pros. But it also includes a taste of new features that will appeal to users, such as animated controls powered by a new graphics subsystem, a new search engine, and the ability to tag files by their content. Used together, those technologies could make it easier for employees to find and sort through their ever-growing assemblage of documents, slide shows, spreadsheets, and audio and video files. Folders also have a see-through quality that lets users peek at their contents. Much of the user-interface work Microsoft is promising for Vista won't show up until beta 2, expected later this year. Microsoft last week also released a limited test version of the Longhorn Server operating system, which is due in 2007.

IT-advisory firm Gartner expects companies to wait 18 months after Vista's arrival before deploying it widely. In an informal poll of 160 readers, 20% plan to implement Vista within a year of availability, 24% in 1 to 2 years, 33% in 2 years or more. One-fourth had no plans.

The time lag presents a problem to Microsoft since customers, knowing that Vista is around the corner, are holding off on buying Windows XP. Factoring out sales to PC makers, Microsoft's license business for Windows dropped 9% last year. The company had trouble selling multiyear licenses for Windows XP to large companies because of "uncertainty" about the arrival date and features of Vista, senior VP Will Poole said last week.

It will take a new generation of applications built around Windows Vista to drive its uptake because businesses no longer view running the latest version of Windows as a competitive edge, says James Governor, an analyst with RedMonk, a market-research firm. "Think about a pilot implementation? Yes. But plan the migration? I don't see it yet," he says. New lightweight technologies, some of which will find increasing support in Vista, will dominate future Web applications and propel Vista adoption. Examples: blogging applications and more direct interactions with users, using Really Simple Syndication to share targeted information; Extensible Application Markup Language, for automated features underneath Web forms and documents; Extensible Stylesheet Language Transformation, which allows translation of one XML dialect into another; and WinFS or XML-based file storage.

Centex Homes won't be tinkering with the Windows Vista beta. "We wouldn't do Vista until it's in general release and would wait for all of our software vendors to certify on Vista" before deploying it, CIO Charles Irsch says. But with about 8,000 Windows PCs, 75% of which run Windows 2000, Irsch is keenly interested in Windows Vista's security. "The whole security concept is probably the biggest need that has to be addressed," he says. Today, "you have to build a set of tools around [Windows] because they're not built into the operating system like they should be."

Windows Vista comes at a time companies are scrutinizing IT spending. In addition to software-licensing costs, IT departments need to factor in computer-hardware and application upgrades and the staff resources needed to pull it off. But could there be savings at the end of the rainbow? Windows Vista can knock as much as 25% off the cost of managing desktops in the next few years, Poole said.

Companies with Windows XP can afford to wait longer than those with Windows 2000 to upgrade to Windows Vista. Most independent software vendors will stop supporting Windows 2000 in two years, and Microsoft plans to cease bug fixes for the operating system in 2010. Gartner recommends companies that skipped Windows XP start making sure beta 1 runs in their data centers and get on the phone with their most important ISVs to ensure that they'll be making the Vista leap.

Even so, all that planning and testing will only get you so far, Groople's Larsen says. Large IT environments make it difficult to test every piece of software for total compatibility when a new operating system gets introduced. Says Larsen, "The question is, what's going to break?"

With Charles Babcock, Larry Greenemeier, Rick Whiting, and John Foley

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