Steve Jobs quoted this BusinessWeek story in a keynote a few years ago:

Vista, the latest version of the software giant’s Windows operating system, looks like it could turn out to be one of the great missteps in tech history.

But this is the wrong way to interpret Microsoft’s marketshare and mindshare losses to Apple since Windows XP’s release in 2001.

Vista, itself, wasn’t a misstep. Microsoft must keep updating Windows regularly to remain competitive and preserve revenue. It had problems and delays, but the concept was solid and is still defensible even in hindsight.

In 2003, Joel mentioned Microsoft’s impeccable strategy relative to the failed software giants of the 90s such as Lotus, VisiCorp, and Micropro:

Microsoft was the only company on the list that never made a fatal, stupid mistake. Whether this was by dint of superior brainpower or just dumb luck, the biggest mistake Microsoft made was the dancing paperclip. And how bad was that, really? We ridiculed them, shut it off, and went back to using Word, Excel, Outlook, and Internet Explorer every minute of every day. But for every other software company that once had market leadership and saw it go down the drain, you can point to one or two giant blunders that steered the boat into an iceberg.

I think it’s safe to say that Microsoft is hurting now. They’re probably not going out of business in our lifetimes, and they’ll likely continue to dominate many markets for at least another decade or two. But a major shift has occurred between 2001 and today that’s causing some big problems for Microsoft:

Apple’s converting a lot of former Windows users. There’s still a long way to go, but Apple’s growth (into Microsoft’s market) shows no signs of slowing down.

Microsoft’s Windows and Office upgrade revenues have been disappointing.

For the first time in most of Microsoft’s history, they’re repeatedly failing to dominate desirable secondary markets, including portable media players, mobile phones, and web search (actually, every desirable web market). Microsoft’s entry into a market previously meant imminent death of any other players, but now it’s usually a source of comedy for the tech press.

Many of their core products, including Windows, Windows Server, Office, and Internet Explorer, have been attacked by either strong competition or creeping irrelevance.

Microsoft’s brand perception among consumers has been heavily damaged. Many more people now associate them with bugs, delays, shoddy products, and failure.

As far as I can tell, none of these are Vista’s fault, specifically. Vista is just a logical continuation of Microsoft’s style and culture. Die-hard Windows fans like it.

The bigger problem is that Microsoft isn’t very good, and I mean that in a big way. I was too young to appreciate their word-processor and spreadsheet battles of the very early 90s, but that’s what Joel typically cites as an example of Microsoft’s excellent strategy and their production of high-quality software. They may have been great back then, but that’s not the Microsoft we know today.

Today’s Microsoft is impulsive and sloppy. It has become massive and complex with too many layers of management, committees, and bureaucracy to produce anything great — the best they can hope for is good, and even that’s rare. Their products are weakly anticipated and receive mediocre reviews. Most importantly, they’re unable to grow their positions in the technology industry’s biggest new markets as their old markets slowly erode. Top leadership seems to have no strategy or direction for the company, and there’s no sign of any problems being meaningfully solved in the foreseeable future.

After Internet Explorer 6’s release in 2001, when Microsoft had crushed all competing browsers, they rested on their laurels for too long. Now, Firefox and Safari are eating their lunch. Microsoft finally scrambled to release IE 7 and 8, but they delivered too little, too late — Internet Explorer’s marketshare will probably dip below 50% within three years. (I’ll bet Jeff Atwood a beer on that.)

This pattern didn’t just happen in web browsers: it applies to the entire company over a longer interval. After effectively destroying most of the competition by the mid-90s, Microsoft got lazy. But then the internet exploded, and Microsoft wasn’t part of it. Soon afterward, Apple got their act together. Linux became a popular server platform. Google dominated web search, advertising, and applications. Microsoft’s being assaulted on nearly every front by companies that are producing much better products, and they can’t catch up.

None of this is Vista’s fault.

Vista has no major failures. Rather, it’s an immense collection of tiny failures: awkward interfaces, hostile behavior, ugly design, and tons of small bugs. They’re the same of tiny failures that plague all of Microsoft’s modern products, which is why I have absolutely no doubt that Windows 7 will suffer the same fate.

Microsoft’s woes aren’t specific failures of strategy or execution: the company culture, structure, inertia, and ethos are so deeply flawed that it can’t recover. Microsoft can never do what Apple and Google are doing today. It’s too broken. Insert your Titanic metaphor of choice.

Joel paraphrased Bill Gates in 2000:

One of the most important things that made Microsoft successful was Bill Gates’ devotion to hiring the best people. If you hire all A people, he said, they’ll also hire A people. But if you hire B people, they’ll hire the C people and then it’s all over.

Bill Gates is a very smart guy — he’s fully aware of the problems that his company now exhibits. Maybe he semi-retired (or whatever he did) because he saw that it’s all over long before we will.