On Nov. 8, the first phones running Microsoft's Windows Phone 7 will hit the U.S. The update to the venerable mobile operating system formerly known as Windows Mobile is bulging with fresh ideas a clever alternative to Apple's iPhone and handsets that run Google's Android, not a clone. Even so, with other contenders so well established and Windows Phone 7 missing key features such as cutting and pasting and full multitasking, Microsoft remains a decided underdog in the smart-phone wars.
Hold on Microsoft an underdog? The company whose software has defined the PC industry for as long as there's been a PC industry? The one whose record results for its first quarter, announced last week, included $3.3 billion in profits for Windows and another $3.4 billion for business applications like Office?
Yes, indeed. With Windows and Office maintaining their awe-inspiring market shares, Microsoft has the past of computing all sewn up. It's the future boom markets like Web services and mobile operating systems where its position is shaky. The arrival of Windows Phone 7 is one of several encouraging developments, but the company is still grappling with the odd conundrum of turning 35 years of wild success into an asset rather than an albatross.
It wasn't always this way. Once upon a time, Microsoft used the dominance of Windows and Office to bulldoze its way into new territories, gleefully trammeling over any company that dared get in its way. In the mid-1990s, for instance, Netscape's free Web browser became the hottest software around; Microsoft responded by bundling its own Internet Explorer with Windows as a freebie and encouraging sites to add features that worked only in Internet Explorer. The strategy, replicated in multiple variations elsewhere, was known as embrace and extend. (Inside Microsoft, reportedly, it was sometimes called embrace, extend and extinguish that last step being what it let the company do to rivals.)
But a funny thing happened in this century: embracing and extending turned out to be a deeply flawed business strategy, and not just because its use against Netscape led to the epic court case known as United States v. Microsoft.
There were hints it was getting rusty as early as a decade ago, when Bill Gates declared that he believed tablet computers would outsell traditional laptops within half a decade. It was a visionary prediction, as if Gates could see the iPad era coming years before the iPad existed. However, Microsoft's Windows-centric recipe for tablets modify the operating system slightly for pen input, then cram a PC into a slate-style case was profoundly unsatisfying. Consumers noticed and stayed away in droves.
Looking at every new opportunity through Windows-colored glasses also hurt Microsoft on the Web. In 2006, it reacted to Google's Microsoftian dominance of Web search by relaunching its MSN Search as Windows Live Search, a move that was more confusing than clarifying. It also announced plans to strip Hotmail of its name one of the best-known monikers on the Internet and redub it Windows Live Mail. (The company wisely reconsidered that one.)
In retrospect, Microsoft's single worst month may have been January 2007. On Jan. 9, Apple's Steve Jobs unveiled the first iPhone, instantly turning then popular Windows Mobile phones into antiques. Then, on Jan. 29 of the same year, Microsoft rolled out Windows Vista, the successor to Windows XP. It was a bloated disaster, short on compelling new features and long on glitches. Throngs of consumers and businesses, largely satisfied with XP, showed the company who was boss by refusing to budge.
The dawn of the iPhone, the ascent of Google, the failure of Vista: those were but a few of the wake-up calls that Microsoft got that its old ways weren't working in this new age. It took a while for it to answer them sleeping giants have a way of pressing the snooze button repeatedly but in 2009 and 2010, the company snapped back to attention. It's been replacing embrace and extend with something closer to regroup and reconsider, and the results have been surprisingly encouraging.
Windows Phone 7 is so promising because it has little in common with Windows 7 beyond its name: rather than shoehorn the traditional Windows interface into a phone, Microsoft built something new. Windows 7, released a year ago in the wake of the Vista mess, is a hit because almost all its major changes involve eliminating long-standing annoyances that Vista ignored or exacerbated. Bing, the company's search engine under yet another new name, is Google's only true competitor in part because it's quite different, with a greater emphasis on shopping and research.
At times, Microsoft still acts like a lumbering, ham-fisted behemoth, like back in April when it released a couple of misbegotten phones called Kin not based on Windows Phone 7 and then axed them after two months. Only a company cursed by near infinite resources would even consider building two parallel future mobile operating systems at once. Still, there are plenty of signs that it understands the enormity of the challenge ahead. Its new corporate tagline, "Be What's Next," may address consumers, but it serves equally well as a mission statement for a company that's still in the process of figuring out how to be what's next.
McCracken blogs about personal technology at Technologizer, which he founded in 2008 after nearly two decades as a tech journalist. His column for TIME.com, also called Technologizer, appears every Tuesday.