Microsoft has delayed the release of Windows Vista by up to eight weeks - and become the Grinch that stole the PC industry's Christmas. Vista, the next version of Windows, will still be delivered to corporate users this year. But, as the company put it in a masterfully spun press release last week, after consulting with PC manufacturers and retailers, "broad consumer availability" will be delayed until January 2007. In other words, too late for PC manufacturers to put on the machines that will be in shops at the biggest selling time for consumer PCs.

Possibly more significant, two days after the announcement of the delay to Microsoft's flagship product, the company announced a reorganisation: the Windows division is being broken into eight units, with the next version, code-named Vienna, coming under the charge of Steve Sinofsky, the 40-year-old senior vice president who was in charge of Office, Microsoft's biggest money-spinner.

Sinofsky, a 16-year veteran who joined the company as a software engineer, was described by Microsoft Watch author Mary Jo Foley as having "the reputation of a strict, schedule-bound manager who keeps the trains running on time". That phrase, to European ears at least, might seem a backhanded compliment both to him and to Jim Allchin, who is in charge of the Vista effort but (as was already known) will retire when it is delivered.

Security delays

Still, the Vista train is late - arguably by three years. It was delayed after Windows XP, released in 2001, came under attack from worms and viruses: Microsoft took 18 months off, beginning in 2002, to re-educate its programmers in trustworthy computing, and to create what amounted to a new, more secure version of the code. This shipped in the summer of 2004 as XP Service Pack 2 (SP2).

In 2004, there was what Microsoft staff call "the reset," when Allchin decided to abandon all work in progress based on the Microsoft.net 2.0 programming framework, and start from scratch using the (successful) Windows 2003 Server code base. Pop, that's three years gone, though members of the Windows group get annoyed by suggestions they haven't shipped anything since 2001.

Brad Goldberg, a general manager on Windows, pointed out to the New York Times that, as well as SP2, Microsoft has released two versions of the Windows Tablet PC software for pen-based notebooks, and four versions of Windows Media Center. Those are areas where Microsoft is still ahead of the market.

Reorganisations are common at Microsoft, but this is the second in seven months. It follows a company-wide one last September which created three divisions - platform products and services, business, and entertainment and devices.

Two questions arise: Is the delay dramatic news for Microsoft and its partners? And are there deeper troubles in the company and is this only a symptom? While the delay has made headlines (some of them wrong: it is unthinkable 60% of Vista's code would be rewritten so close to release; and Microsoft has firmly denied any Xbox programmers are being put on the Vista team), industry analysts mostly think it will not have a great effect on annual revenues. Paul Jackson, a principal analyst at Forrester Research, says: "It's a bit embarrassing, and the investors won't like it, but the long-term effects are likely to be minimal."

High hopes dashed

However, it will push back revenues for Microsoft, says Joe Wilcox at Jupiter Research's Microsoft Monitor: "While Microsoft says Windows Vista will be available [in 2006] to businesses through volume licensing, the company's own financials show only a small percentage of customers purchase that way. About 85% of Windows revenue came from OEM sales during Microsoft's 2006 fiscal second quarter. Most businesses buy Windows on new PCs and these won't be coming until 2007."

However, Brian Gammage, a research vice president at Gartner, is less sanguine about the impact on the retail market. He says: "There's a desire to find some new thing to sell, and everybody had pinned their high hopes on Christmas 2006. Vista would have been just in time for peak consumer demand." The fourth quarter, he says, accounts for about a third of annual PC sales in the UK.

Instead of appearing in the peak selling season, Vista will appear in January when consumers want bargains in the sales, adds Gammage. "It's a double hit, to be paid for by computer manufacturers and retailers, and component suppliers such as memory manufacturers. It's a losing scenario for all of them," he says. "I don't think there's a plausible way of wrapping this up as a benefit for the PC industry."

David Weeks, Windows client marketing manager at Microsoft UK, is willing to have a go. He points out that Microsoft has many different partners who can get to the market at different times. "There are a number of partners that possibly could have made it into retail with Windows Vista, and some wouldn't, so there would not be the customer choice," he says. "We consulted with partners and major retailers worldwide, and they were supportive of us moving [the launch] to January, so that all partners would be able to sell Vista from day one."

A split could have had a real impact on the two largest PC manufacturers, Dell and Hewlett-Packard. Dell manufactures to order then supplies PCs direct, so it could load Vista quickly. HP, however, builds most of its HP and Compaq-brand PCs in advance then sells them via retail channels, which takes longer. This would give Dell a significant advantage in the Christmas market, and Microsoft's US anti-trust controllers forbid it from favouring one supplier over another.

While both manufacturers declined to discuss the issues, they issued similar statements supporting Vista. There might be anger in private, but the industry seems to be supporting the decision in public.

There is another effect besides the financial one. Morale has been hit. Within and without the company, from staff bloggers, manufacturers and shareholders, there have been calls for heads to roll - and that may be happening behind closed doors. The Mini-Microsoft blog (minimsft.blogspot.com), written by an anonymous staffer who thinks the company has grown fat and torpid, made the simple call: fire the leadership. Mini-Microsoft has become a lightning-rod for disaffection within the company. Managers and programmers gather there and leave comments, some supportive, some angry, but all with suggestions on how to improve the company.

But is the leadership listening? Asked last September whether he reads Mini-Microsoft, Microsoft's chief executive Steve Ballmer replied: "I do not", though he confirmed he knew of its existence. He said internal data suggested an 85% satisfaction rate among staff. One wonders if Ballmer thinks the blog is worth reading now it wants senior managers fired.

It would also be interesting to know Bill Gates's view. He has always believed in giving bad news a conduit. In his 1999 book Business@The Speed of Thought, on effective business practice, he said: "Sometimes I think my most important job as a CEO is to listen for bad news. If you don't act on it, your people will eventually stop bringing bad news to your attention. And that's the beginning of the end."

Either way, Microsoft's culture is changing. The September reshuffle put two sales and marketing people - Ballmer and Kevin Johnson, promoted to joint head of platform products and services - in charge of a company that used to be run by software guys, Gates and Allchin.

The blogger who writes Mini-Microsoft used that title because he believes the company needs to shed staff from its 63,500 headcount. Microsoft's challenge now is not to turn into the sort of slow, bureacratic company it tore apart - IBM. But that may be happening. "The constant these days is reorganisation," one Microsoft UK executive said last week. That's reminiscent of what IBM's employees used to say - that the company initials stood for "I've Been Moved".

And while Microsoft struggles with its internal identity, Google and a host of other online companies are throwing out new ideas quicker than ever. Many of them flop, but some stick. Is Writely a better way to produce an online collaborative document than Office 12? It's certainly a lot cheaper. Is 37Signals' Basecamp a better project management system than Microsoft Project? Maybe not but if you're a startup, you'll have much more money left over if you use Basecamp.

Advantage, Apple

Apple Computer, 30 years old this week (a year younger than Microsoft) has already won the digital music crown with its iPod; it could win quite a few extra customers for its computers this Christmas, since there will be no Microsoft marketing campaign to drown it out, and the only Windows machines on sale will have a five-year-old operating system.

But even when Vista arrives, there's a problem. "Basically, consumers are not clamouring at the doors of Redmond saying 'We need a new operating system'," observes Forrester's Jackson. And that may be part of the problem: even within Microsoft, nobody seems to have a snappy answer to the question: "Why is Vista better than XP?" As in, why lay out the cash? Mini-Microsoft saw a fellow employee asked that question at an internal conference. "Not only could you tell her brain was momentarily frozen (uhhh), you could feel the entire crowd hit a panicked brain freeze. The lady then came up with an almost apologetic answer saying Vista is more stable, safer, and faster than XP." Not, he comments, the greatest reason for either splashing out on a new PC or going through the pain of an OS upgrade on your new machine.

The giant Microsoft is seeing its picnic being eaten by ants. Some are tiny, some huge, but all chewing at some part of its revenue-generating structure - whether it's Windows, or Office, or media.

It used to dominate in search; if you mistyped a URL in Internet Explorer, you'd end up on the MSN page. These days, Google is the most popular starting point for searches online.

And the longer Vista is delayed, the more the ants carry away.

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