Some New Year

As 2007 winds to a close Microsoft Corp. has its financial house in order, with $37 billion in cash reserves and profits up more than 16.5 per cent. Still, the Redmond, Wash.-based software giant has a host of challenges staring it in the face, including the familiar bespectacled mug of its founder, as the new year approaches.

Here are some of the big ones:

1. Bye-bye Bill. Yes, as in Gates. In July, Gates will leave his full-time position to devote more time to his philanthropic work. Experts say Microsoft won’t suffer on the technical side but rather on the image front. Gates will continue to serve as chairman and an advisor on key development projects. But his departure could be a sign of things to come as CEO Steve Ballmer is now on the clock. Ballmer and Gates are the same age, and Ballmer joined Microsoft five years after Gates founded the company.

2. Get Vista in high gear and flesh out client road map. February is going to be an important month for Microsoft on the server/platform side (see below) and the client side. The first service-pack milestone for Vista is coming in February 2008, and Microsoft is hoping it will be the spark to ignite mass adoption. With availability of XP extended to June 2008 and mainstream XP support ending in April 2009, it could be a perfect Vista storm. But even more importantly, Microsoft has to flesh out what comes after Vista; its client operating-system road map does not exist. Why is it important? Experts say that in the time it took Microsoft to get from XP to Vista, Google went from zero to mortal enemy. Time is of the essence if Microsoft wants to hold on to the power it gets from controlling the desktop.

3. Launch services platform. In February, Microsoft will host a ceremonial “launch” of Windows Server 2008, Visual Studio 2008 and SQL Server 2008. The trio forms the guts of Microsoft’s services platform, which the company will ride into the new software-plus-services era. The launch also aligns Vista SP1 with the Windows Server and such network security features as Network Access Protection. Early numbers from a Network World survey, however, show the server might be a hard sell. Half of the 687 respondents said Windows Server 2008 is nowhere on their road map.

4. Define the services business — especially for partners. Microsoft has always been a partner-driven company, but online services might just throw partners in the back seat. “The role that Microsoft appears to have been positioning partners for is as agents for Microsoft services,” says Paul DeGroot, an analyst with Directions on Microsoft. “If Microsoft’s online services strategy depends on partners bringing them customers, it is going to fail. Partners are not going to do that.” The bottom line here is money, and Microsoft needs to define for partners a clear path to significant revenue.

5. Deliver on advertising platform investments. In the race with Google, Yahoo and others in the lucrative Internet advertising game, Microsoft in 2007 acquired three companies: Aquantive (advertising platform), AdECN (advertising exchange) and ScreenTonic (mobile advertising). At $6 billion, Aquantive represents Microsoft’s biggest acquisition ever. In 2008, Microsoft will need to show some return on those investments.

6. Get cool. Microsoft hasn’t been cool for a while and it needs a swagger for the rapidly changing enterprise, Internet and distributed computing landscape. Whether it is Zune, PC/online games or mobile devices, Microsoft needs a breakout. “Being hip and cool would be very beneficial,” says Peter O’Kelly, an analyst with the Burton Group. “They are seen in a lot of areas as a follower.”

Other key tasks:

Microsoft needs its unified communications platform to get off to a quick start to ensure that it can transition voice from hardware to software.

Virtualization is another area where Microsoft will be challenged with the late year release of its Hyper-V technology.

The company must reaffirm that its Windows and open source integration is a genuine community-building effort, not some sinister plot. Lastly, the company must get its green strategy in order if for nothing more than positive PR.

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