Microsoft's tricky balancing act in 2009 will be to phase out Windows XP while boosting demand for Windows Vista and building anticipation for Windows 7.

Compounding this challenge is that Vista has been Microsoft's most embattled operating system, and though recent reports say that Vista has improved over the past year, there are also reports of a growing indifference from users. Many are sticking with Windows XP for now (or even requesting to "downgrade" to XP with new computer purchases) with the hope that Windows 7 will be more nimble and efficient than Vista.

Recent market share numbers from Net Applications Inc. show that Microsoft's market share is slipping with both Windows and the Internet Explorer browser, while companies like Apple and Mozilla keep making incremental gains. A silver lining in the Net Applications report is that Vista grew its market share in November and cracked the 20 percent mark for the fist time as Windows XP fell 1.81 percent.

With the definite release of Internet Explorer 8 and the possible release of Windows 7 happening in 2009, plus Microsoft's aggressive push into cloud computing with the Windows Azure operating system, the coming year looks to be a pivotal one for the software giant.

Keeping the Windows 7 Hype Machine on Low

So far, the hype surrounding Windows 7 has been kept to a minimum by Microsoft, likely an effort not to repeat the over-hyping that hurt Vista's release. Playing it cool with Windows 7 will also give Vista some breathing room as Windows XP slowly becomes less prevalent.

Tim Bajarin, president of consulting firm Creative Strategies, says that the potential conflict of enhancing demand for Vista while raising awareness about Windows 7 "does not seem to be impacting new sales of Vista on PCs. In fact, pushing Windows 7 appears to be keeping people from downsizing to Windows XP at the business and consumer level as people are now anticipating upgrading to 7 in the near future, and it is not worth the trouble to go back to XP."

The low-key marketing of Windows 7 is a smart tactic, says Michael Cherry, analyst with Directions on Microsoft, but warns that Microsoft should not become standoffish about the value of Windows 7.

"They are being much more low-key in discussing the features of Windows 7 to put the Windows team in a position where they have under-promised and hopefully can over-deliver," Cherry says. "But Microsoft has to begin to share information with partners and customers to help reduce any potential compatibility issues."

Though Cherry believes Vista is not as bad as its reputation, he thinks that with Windows 7 Microsoft needs "to do a better job of telling customers what hardware they truly need to run the OS, and they have to be able to articulate the value of upgrading to both consumers and businesses."

Windows 7 Release: Sooner Is Better

Microsoft has not given an official release date for Windows 7, but has said publicly that it expects to ship it within three years of the January 2007 consumer release of Windows Vista.

Gartner Research has predicted that Microsoft will ship Windows 7 in time for the 2009 holiday season, which would require shipment to take place around August 2009.

Gartner analyst Michael Silver expects that Microsoft will try to differentiate Windows 7 from Vista by keeping ship date hype to a minimum and then delivering earlier than anticipated.

"If they don't give a date, it's harder for people to say they were late," Silver says.

Bajarin believes that Microsoft needs to ship Windows 7 as fast as possible and move quickly to start getting all of their PC users to upgrade. "If it is ready by mid-2009 as many believe it can be, there is no reason to delay it."

Another benefit of shipping Windows 7 as soon as possible, says Bajarin, is it could quash the lingering stigma of Vista.

He adds, "As long as Windows 7 is rock solid when it is released and gets good reviews, the Vista stigma will most likely fade away quickly."