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Though the company is trying to shed its arrogant, customer-unfriendly image by providing road maps to new software releases, its biggest product of all isn't playing along. The next version of Windows, code-named Longhorn, has been delayed so much that it has acquired the nickname Long Wait. Gates recently warned that we would have to cool our heels until 2006 before we would see it five years after the release of Windows XP and even that date isn't certain. "We'll ship it when it's ready," says Neil Charney, director of product management for Windows. One reason for the delay is that Gates' "trustworthy computing" plan has pulled programmers off Longhorn to work on fixing Windows XP, patching the kinds of security holes that led to record-breaking viruses like the Blaster worm.
A bigger problem for Microsoft is that fully 65% of Windows users have not yet upgraded to XP. Why should they, when there's another new version taking shape? As Gates is fond of saying, "Our biggest competitor is our installed base." Now the Longhorn team has been told to scale back its ambitious plans for the new operating system in order to make sure it will work with the average PC.
The Longhorn delay is causing an industry logjam both in Redmond and down in Silicon Valley. Since 95% of the world's computers run on Windows, practically all software makers tie their development process to the life cycle of each new version. But nowhere is the long wait for Longhorn more damaging than at Microsoft. After all, you can't have the new Longhorn version of Microsoft Office until Longhorn ships.
Result? There's little in Microsoft's immediate output to make consumers go wild. The biggest product the Windows team is touting for 2004 is a service pack containing mostly security updates to Windows XP. There's also an improved version of Office for Macintosh (see the review in the Your Time section), but that is a niche product compared with software for the vast PC market. "This is not going to be a banner year for products, that's for sure," says Mary Jo Foley, editor of the Ziff Davis Media website Microsoft Watch.
At the same time, Microsoft faces renewed competition from old enemies. Less than a year after its surprise release, Apple's iTunes for Windows has garnered most of the music-player market, sidelining Microsoft's Windows Media Player and fueling speculation that Apple guru Steve Jobs will release more free Mac software (like iPhoto or iMovie) for the PC.
Then there's Linux, the free, customizable operating system that threatens to shatter the desktop dominance of Windows. Each week brings a fresh Linux victory. Sam Palmisano, CEO of IBM, wants his company to be Windows-free by 2006. The governments of South Korea, China and Japan usually not the greatest of allies have teamed up to create their own flavor of Linux, which could well flood the Asian market. A study by research firm Gartner predicts that Linux will run 21% of desktops by 2008, taking its market share directly from Microsoft.
Such a threat is exactly the kick in the pants the company needs to get its mojo back. "Microsoft works best when there's a foe," says financial analyst Rosoff. And as Apple and Netscape discovered to their chagrin, the folks at Redmond are not shy about adopting their rivals' good ideas. The real attraction of Linux is that it is open source anyone can poke around in the software code, and engineers around the world can suggest improvements. That is anathema to Microsoft, which fiercely protects its intellectual property. Yet to meet the threat, Microsoft has hired some top Linux brains and released its first open-source product. It's a relatively insignificant geekware tool called WiX. But considering that Ballmer previously called open source "a cancer," WiX may signal a major change of heart.
Which at this company is pretty much business as usual. "We have a treasure chest of technology that allows us to be very agile," says Rick Rashid, Microsoft's senior vice president for research. "If the world changes, we can change with it." Being aggressively agnostic about technology is the only way Redmond has a shot at double-digit growth again. Gates & Co. may never soar as it did in the 1990s, but it can still avoid the industry's penchant for crash landings.