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Microsoft Corp. finally finished Windows Vista in 2006. But how many people will really use it? And how susceptible will it be to online attacks?Those won't be the only critical questions facing the company in 2007. Here's our annual look at what to watch at Microsoft in the new year.
NEW WINDOWS AND OFFICE: The retail release of Windows Vista and the 2007 Office System, at the end of this month, will be a key moment for both flagship products. The pace of Windows Vista sales to consumers and businesses, particularly on new PCs, could figure largely in Microsoft's financial results.
Microsoft has said Windows Vista will contain fewer of the flaws that have made its software vulnerable to viruses, spyware and other online threats. But the company suffered a setback with the recent discovery of the first Windows Vista security bug. The question now is whether Windows Vista will be noticeably more secure over time.
The new Microsoft Office comes with a revamped on-screen interface that the company hopes will prompt people and businesses to upgrade. But in some cases, it could have the reverse effect, making people reluctant to abandon the familiar confines of the existing Word, Excel and other Office programs.
Office is also a significant factor in Microsoft's financial results, as the company's second-most-profitable product line, behind Windows for PCs.
ZUNE VS. SANSA: Yes, you read that right. Microsoft's new Zune music player may have long-term ambitions of rivaling Apple's iPod in market share, but the real question in the meantime is whether it can win second place against the Sansa Rhapsody music device and service from SanDisk and RealNetworks.
WEB SEARCH: Microsoft's homegrown Live Search engine, formerly MSN Search, continued to lose market share to Google last year. That makes this year pivotal if Microsoft is to ultimately prove its massive investment in search and online advertising technology worthwhile.
BILL GATES' BIG MOVE: With Microsoft's chairman preparing to shift away from full-time work at the company in mid-2008, his impending transition will be a major backdrop to the coming year. Microsoft has named executives Ray Ozzie and Craig Mundie to fill Gates' technical leadership roles, and it wouldn't be unusual to see further internal adjustments in advance of Gates' shift to full-time philanthropy.
MORE PEOPLE: Microsoft's employment grew at a record rate last year, expanding by more than 10,000 people, to 71,553 employees as of June 30. Regional economists will be watching closely to see if the trend continues.
FINANCIAL ISSUES: On a related note, analysts will be watching Microsoft's financial forecasts closely, particularly after it surprised them with plans to spend $2.4 billion more than they were expecting in the current fiscal year.
Microsoft has separately projected a revenue increase of 13 percent to 15 percent for fiscal 2007, which ends June 30. That's better than the single-digit revenue growth of two years ago, but not as much as many investors would like. Microsoft shares climbed toward the end of 2006 but still closed below $30.
ANTITRUST ISSUES: Microsoft's appeal of the European Commission's March 2004 antitrust ruling is pending in the European courts, with further developments expected this year. Meanwhile, a class-action antitrust trial is ongoing against the company in Iowa, raising the possibility that both Gates and Chief Executive Steve Ballmer will be on the stand in the case later this year.
GAME CONSOLES: Microsoft's Xbox 360 charged out to an early lead in market share among next-generation video-game consoles, thanks to a head start over Sony's PlayStation 3 and Nintendo's Wii. But the PlayStation is a formidable brand, and the Wii is proving particularly popular, setting the stage for a tough competition this year.
BATTLE FOR THE DIGITAL HOME: The Xbox 360 is part of Microsoft's broader effort to solidify presence in the living room. But the company faces stiff competition from rivals such as Apple, which is poised to unveil its own device for streaming media content to a TV.
NOVELL DEAL: Microsoft made a surprise alliance with Linux vendor Novell in November, but the deal has caused a backlash against Novell in some corners of the open-source community. Will the arrangement bring new customers for Microsoft and Novell, or build momentum for Red Hat, Novell's rival and the leading Linux vendor?
PIRACY FIGHT: Microsoft is putting new anti-piracy protections into Windows Vista, hoping to reduce the financial losses it suffers as a result of rampant counterfeiting in some parts of the world. But it also risks alienating some PC users who believe they've bought legitimate Windows copies only to have the Microsoft tool label their software non-genuine and disable much of its functionality.
MOBILE DEVICES: An updated version of Microsoft's Windows Mobile software is expected to come out this year, marking the next stage in the company's battle for a bigger piece of the software market on smart phones and other devices.
BEYOND VISTA: The release of the new operating system starts a new Windows development cycle, and Ballmer has promised that the next version won't take anywhere near the five years that Windows Vista did. That will force the Windows development team to distinguish early on between the features they want to include and those they can finish on time.