A pair of leggy, lipsticked models stop short outside a casting call at Milk Studios, a cavernous space in Hollywood known for art shows and photo shoots. They edge forward in 4-inch heels, intrigued by the sidewalk scene: a snaking line of balding reporters and backpacked bloggers sweating in the June afternoon heat. Not exactly the red carpet at Fashion Week. “It’s for Microsoft,” an attendee mumbles when asked about the commotion. Thick-framed Ray-Bans do nothing to hide the models’ puzzled looks.

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A good 40 minutes after the crowd began to form, the doors open and more than a hundred reporters shuffle into the space and take their seats. The room darkens, the caffeinated stares of live-bloggers lit only by the glow of MacBook Airs. (Not for crew members, who joke that their instructions are “No fruit allowed”; Microsoft higher-ups had forbidden them from bringing iGadgets to the event.) A bass-heavy pop song blasts over the speakers as CEO Steve Ballmer stomps out in front of the crowd, his Shrek-like stature dominating the stage, to unveil the star of the show: the Surface tablet, the first PC device that Microsoft has manufactured in its 30-year history. In the center is Sam Moreau, who led the Windows user experience team. The buzz, the secrecy, the horde of reporters–one might expect this from Apple, not the corporate giant responsible for Clippy and blue screens of death. The attention was warranted, too. The Surface, with its ultrathin magnesium casing and integrated kickstand, might be the iPad’s most compelling competitor yet. But what was really revolutionary at Milk Studios that day was the software driving the Surface: Windows 8, which aims to change the way we’ve been interacting with computers for the past three decades. Windows 8 could also transform the nature of the software giant’s competition with home-run king Apple, potentially reversing a string of embarrassing defeats, especially in the mobile market. Even more improbably, Microsoft is building this comeback attempt not on its traditional strength–engineering–but on, of all things, design. It’s not about adornments. It’s about typography, color, motion. That’s the pixel. Microsoft has united around a set of design principles that it dubbed Metro, a slick, intuitive, and playful visual language that is seeping into the company’s product portfolio, from Office to Bing to Windows Phone to Xbox, creating a common platform for hardware of all types. You won’t be seeing the word Metro in Microsoft’s branding because of a reported last-minute naming conflict with a European partner. But as manifested in Windows 8, these principles embody what the company has called an “authentically digital” experience. Gone are the icon-studded toolbars and drop-down menus and artificial glassy reflections; Windows 8 emphasizes a stripped-down user interface that’s flat and without flourish. “It’s not about adornments,” says Sam Moreau, the director of user experience for Windows. “It’s about typography, color, motion. That’s the pixel.” The Innovation by Design Awards on October 16 will celebrate the controversial ideas, new products, business ventures, and wild ideas highlighted every day on Co.Design. Award Winners in nine categories will be unveiled at the event. Register today. With 1 billion users of its operating system, Microsoft’s novel approach to interface design could cause tectonic shifts in the way software of all sorts is conceived. And therein lies the risk. Windows has long been Microsoft’s bread and butter: 336 million Windows PCs were sold in 2011–roughly 10 per second–a large chunk of which went to corporate customers, who are constitutionally resistant to change. The Surface could add to the disruption, as third-party hardware makers will soon be in the awkward position of having to compete with the company they support. But Microsoft has no choice other than to bet on its new software design. For if Apple has proved anything, it’s that design has become big business in the technology world. “It’s the ultimate design challenge,” Moreau says. “You’ve got 25 years of Windows behind you. There’s a responsibility to preserve it but also to evolve–knowing that when you change something, you’re changing how computing works.”

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Live tiles display real-time updates for email, weather, and more, giving immediate context without having to dive into a web page or widget. Visually, at least, Windows 8 is the simplest version of the operating system ever. For years, software has followed the same formula: The user interface mimics a real-life desktop, with documents filed in folders and pictographic icons that act as visual metaphors of a software program’s function. It’s a legacy of the graphical user interface (GUI) popularized in the 1980s by Apple. Operating systems have largely seen only incremental innovations since Windows 1.0 and the original Macintosh. They do many more tricks than before, but the underlying blueprint is the same. Metro has a noble provenance: the Bauhaus school, the German modernist movement of the 1920s and 1930s. Windows 8 rips that blueprint to shreds. The new face of Windows is a Mondrianesque grid of tiles colored like Skittles. Clicking on a tile will bring up your news or your inbox or your documents. Within these Metro-style apps are no toolbars or framed windows–just an immersive full-screen experience. The UI is minimal, featuring only clean typography, basic icons, and intermittent animations that provide real-time updates for, say, a new email or calendar appointment. Even the famous start button–the icon occupying the lower left corner since Windows 95–is gone. (Users can still access the old desktop-based UI if they wish, but it’s been relegated to an application within Windows 8.) Metro has a noble provenance: the Bauhaus school, the German modernist movement of the 1920s and 1930s. Its central ethos was that materials must be treated in ways that speak to their essential nature. “Reducing down to the most beautiful form and function–that’s what the Bauhaus was all about,” Moreau says. Fashioning metal to look like wood, for example, was tantamount to a crime. These standards have driven architects and graphic designers ever since. The Bauhaus ideal came to permeate life in all sorts of everyday objects–chairs, lamps, teapots–and by the 1960s, utilitarian design was helping passengers navigate city streets, highways, and transit hubs. Indeed, the language of Metro was initially sparked by way-finding systems in subways and airports. Jeff Fong, principal design lead for Windows Phone and a founder of the Metro principles, cites among his inspirations the signage at Heathrow’s 1961 Oceanic Terminal (now Terminal 3) for its crisp typography and no-fuss iconography, and Italian designer Massimo Vignelli’s 1972 New York City subway map. “That structure, that order, that grid system–there’s something so clear and direct about it,” he says of the lucidity of both. “Before we called it Metro, we actually called it Airport.” Editor’s Note For a harsh critique of Apple’s reliance on skeuomorphism, voiced by former Apple designers, click here. As in Bauhaus design, with its fidelity to the essence of materials, the most innovative element of Metro is its shift away from visual metaphors. That imitative system, called skeuomorphism, is another legacy of GUI. Before users were accustomed to working with computers, designers had to make on-screen applications legible–for example, a digital Rolodex to denote where contacts were stored. Skeuomorphism has since flooded into all areas of UI design–most prevalently (and jarringly, to some) in Apple’s software, where digital calendars have faux-leather stitching and bookshelves an Ikea-like veneer. “We think stuff like leather stitching is just a useless distraction,” says Moreau, who seems genuinely repulsed by excessive GUI, as if it were actually gooey and not just pronounced that way. Team Microsoft believes consumers have developed a fluency for digital interfaces and no longer need those kitschy translations. In Bauhaus-speak, software designers can finally let the pixel be a pixel.

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That Microsoft would come to invoke the Bauhaus is an unlikely turn of events. The impetus isn’t coming from a Ministry of Design or an aesthetics-obsessed CEO. “Unlike other companies that maybe have one person at the top, we don’t have a [design] czar at Microsoft,” says Julie Larson-Green, VP of program management for Windows. Of Metro, she adds, “It’s not like Steve [Ballmer] decreed it.” One former longtime Microsoft manager put it bluntly: “I don’t think Steve could even spell the word design.” And unlike Steve Jobs, who was infamous for meddling in every detail of Apple’s product launches, Ballmer didn’t go to any of the rehearsals at Milk Studios for the unveiling of the Surface; his part was played by a stand-in till he arrived on the day. So if the brass were so indifferent to design, how did this thinking emerge at Microsoft at all? In May 2009, Julie Larson-Green corralled 150 thought leaders from various Microsoft groups (Office, Phone, Bing, Xbox) in the Redmond, Washington, campus conference center to kick off planning for Windows 8. MC Hammer’s “2 Legit 2 Quit” boomed throughout the auditorium, and the crowd watched as Sam Moreau and fellow Windows designer Jensen Harris rifled through then-and-now pictures of Jodie Foster. They wanted to demonstrate how much the world had changed since 1992, when baggy pants and The Silence of the Lambs were in and the first memo circulated at Microsoft about a new kind of UI that would go into Windows 95. The new social app corrals your fragmented networks–Facebook, Twitter, LinkedIn–into one simple hub of status updates. But the PowerPoint presentation took a serious turn when Moreau and Harris, self-described partners in crime, began displaying images of revolutionary products followed by their disruptive successors: Sony’s PlayStation 2 controller replaced by Nintendo’s Wii remote, Yahoo’s home page supplanted by Google’s search box. They didn’t want to wait for Windows to be shunted aside. As Larson-Green says, “It’s a risk to do something new, but it’s also a risk to sit where we are. There’s always an opportunity to think different.” So if the brass were so indifferent to design, how did this thinking emerge at Microsoft at all? Call it a Freudian slip that Larson-Green would invoke Apple’s famous slogan to describe the innovator’s dilemma faced by Microsoft. If anything, the warning came late; the company had already become the complacent incumbent and fallen behind in music players, e-readers, and smartphones. The PowerPoint presentation did include a slide for the iPhone (conveniently compared to a BlackBerry), the perfect symbol of the disruption Microsoft suffered in mobile operating systems, where it once owned a 42% market share. Apple’s iPad now generates more revenue than Windows does; iPhone sales alone eclipsed Microsoft’s total revenue of about $74 billion for the fiscal year ending in June. So Microsoft embraced design not because Ballmer suddenly discovered beauty or started futzing around with typefaces, but because Apple showed that good design can be obscenely profitable. “We have recognized the value of [design],” says P.J. Hough, head of Microsoft’s Office division, “and we have decided to make it a much higher priority.” A former senior-level Microsoft source who advised Ballmer puts it a touch more tartly: “They’re placing an emphasis on design because the dollars sit there. They’re looking at Apple’s market cap.”

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Still, the Windows 8 designers can’t quite pinpoint the origins of the company’s new religion, not least because they have worked without attention from top management. According to insiders, Ballmer offered no direction to the Windows 8 team on the features of the new user interface. Windows president Steven Sinofsky kept him abreast of the team’s progress, but Ballmer met with Larson-Green only twice during the development process, and he never got together with the team to green-light the design. Now, after a long, hard slog, the company’s top designers have a wider field of play. At 41, Moreau is young for Microsoft’s leadership team; he joined the company only in 2006. (“Internally, that’s code for ‘Vista isn’t my fault,’ ” he has joked.) With a boyish grin, he speaks eagerly but unpretentiously about Swiss graphic design and Josef Mueller-Brockmann, its exemplar; you imagine the documentary Helvetica sitting atop his Netflix queue. Moreau has teamed up with veterans such as Windows Phone SVP Joe Belfiore, who joined Microsoft in 1990 as an engineer, to provide downfield blocking for designers. Sources praise the pair for “lowering barriers” and “putting a lot on the line and really battling with management.” Their work has let Microsoft steal a beat on Apple, winning the company some unfamiliar praise. “I think Microsoft is ahead of everyone else,” argues Gadi Amit, founder of design agency NewDealDesign. “They’re no longer chasing Apple; they’re actually making Apple look old. That’s a really unexpected turn of events in design and the competition between these two powerhouses.” Microsoft and Apple have long been at odds over software design. If any company has exemplified skeuomorphism, it’s Apple. As Microsoft flattens its interface, Apple continues to push its software toward more glossiness, more 3-D, more bevel. Apple recently demonstrated a feature in iOS 6, the next version of its mobile operating system, that will delete used e-tickets and coupons with an animated paper shredder. Inside Apple, tension has built up between supporters and detractors of these digital trompe l’oeils. Scott Forstall, Apple’s SVP of iOS, is a big supporter of the skeuomorphic approach. But industrial design SVP Jonathan Ive and other top Apple staff are said to despise the trend, according to several former senior Apple designers who wished not to be identified. “You could tell who did the product based on how much glitz was in the UI,” says one source familiar with Apple’s design process. One former senior UI designer who worked closely with Jobs traces skeuomorphism back to the Apple cofounder himself. “Steve pushed it hard,” the source says. “The iCal’s leather stitching was taken directly from a texture in his Gulfstream jet. There was lots of internal email among UI designers at Apple saying this was just embarrassing, just terrible.” Apple declined to comment for this story.

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Much of the criticism of Apple’s software design hasn’t made its way into the mainstream consciousness partly because, as industrial designer Yves Behar puts it, “People think that everything Apple does is sent from God.” But its software, once as widely praised for its polish as Microsoft’s was (and still is) derided for its glitches, clunkiness, and vulnerability to malware, now faces a legitimate rival in Windows. “My teenage daughter has never seen some of these GUI metaphors,” says Amit. “She doesn’t use a Rolodex or the calendar my grandmother used 50 years ago. Microsoft finally broke through this paradigm.” Behar agrees and is surprised that Apple, so renowned for its Bauhaus approach to hardware and the beauty of its devices, would tolerate such embellishments in its software. “It’s distasteful because it’s inherently confusing,” he says. “The digital bookshelf doesn’t really work like a bookshelf. Microsoft is showing the way to higher, cleaner, more functional design.” Even so, it may be too early to declare that Microsoft has turned over a new leaf, especially in terms of commitment from its leadership. “If the importance and value and DNA of design aren’t trickling down, they sure as hell are going to have a hard time trickling up,” says Ian Sands, the former senior director of Microsoft’s product long-term vision and strategy, who left the company in 2010. Louis Danziger, an independent graphic designer who has consulted with Microsoft since 1995 and taught many of its top designers, also has doubts. “The software engineers and product managers there often think of design as lipstick,” he writes via email, “something applied at the end to enhance appearance rather than an enabler of their activity, which it is.” No matter how lovely the new face of Windows 8, the suspicion is that the old Microsoft is hidden one layer beneath. At Apple, by contrast, design is embedded in the culture. One former top designer who has worked at both Apple and Microsoft recalls visiting the Apple shipping unit and discovering workers carefully loading boxes so the logos all faced the same direction. “I asked why and one guy explained that he loved the look on people’s faces when he threw open the truck doors and revealed all the boxes perfectly aligned,” the director says. “They weren’t instructed to do that. I know that’s just a simple example, but I mean, it’s the guys in shipping and receiving!” It was 2010 when Moreau and Larson-Green laid eyes on the first mock-up of Windows 8, named “Pocahontas” to reflect their journey into a new world of design. Since then, Metro has worked its way into other products and software applications. The Xbox features a dashboard of tiles branded with modern typography. Bing touts a Spartan design that fuses social networking with search. And in the next version of Office, blue, green, and red ribbons will slide out from the left side of Word, Excel, and PowerPoint when users, say, print or save a document, providing a simplified interface for navigation. Most menus will seamlessly refresh rather than disgorge clunky pop-up boxes, and all files will be stored in the cloud by default. Much of the clutter will be gone–fewer buttons, no drop shadows–and, like Windows 8, Office will be touch-screen ready. On October 26, Microsoft will release Windows 8 to the world, and the company will finally learn if its bet on design has paid off. Microsoft knows that it faces a stern test in the market, especially with corporate customers, for whom elegant design has never been a decisive factor, as Apple could tell you. But whether or not users love Windows 8, Moreau and his team have done something new; they have taken it to Apple; they have won a little respect.

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And yet… inside Windows 8, past its novel and beautiful skin, lie many elements of the past. Just one click away, in the desktop app, is the old world of Microsoft–toolbars, task bars, drop-down menus, cluttered folder systems. Even the company’s flagship browser, Internet Explorer, once a key to Microsoft’s future on the web, remains a symbol for the addiction to this bygone era. Two versions of Explorer come installed on Windows 8, one pre- and one post-Metro. No matter how lovely the new face of Windows 8, the suspicion is that the old Microsoft is hidden one layer beneath–all you have to do is scratch the surface. In late March, I spoke with Moreau about this legacy on a visit to Soho House, a pricey, members-only club in Manhattan’s meatpacking district. In the fifth-floor library, framed by elements he banished from Windows–leather-bound books, wood paneling–I asked him whether Windows would ever be free of all the cobwebs. “I have no idea,” he says, swirling the ice in his glass. “We haven’t even started thinking about what’s after this. It’s enough just to build this thing.” He adds, “It’s true that people don’t like change. But we don’t do things frivolously. I don’t want someone to be frustrated or mad–that hurts my heart.” And who knew Microsoft had a heart? A version of this article appears in the October 2012 issue of Fast Company.