Microsoft dancers
Chris Hondros  /  Getty Images
Members of a dance theater group hang from ropes and perform on a poster promoting Microsoft Windows Vista in Manhattan ahead of the product's retail launch.
Alison
By Allison Linn Senior writer
msnbc.com
updated 1/29/2007 4:42:24 PM ET 2007-01-29T21:42:24

After years of delays, corporate reshuffling and other snags, Microsoft Corp. is on the verge of its biggest product launch in a decade or more — the simultaneous unveiling of its two flagship products, Windows Vista and Office 2007.

The stakes are high because Office and Windows, used daily on tens of millions of computers worldwide, remain the company’s two biggest cash cows. That means Microsoft is relying on profits from the two franchises to fund its efforts to diversify into areas like video game consoles, music players and Internet content — all of which are key to its long-term growth plans.

(MSNBC.com is a Microsoft-NBC Universal joint venture.)

Windows Vista arrives after much-publicized delays and is being released to the general public more than five years after the last major version of the computer operating system. Office 2007, the business software suite that includes Word, Excel and Outlook, has undergone its most radical redesign in years.

The two products go on sale to the general public Tuesday amid a worldwide promotional blitz stretching from the Taj Mahal to the Eiffel Tower. Chief Executive Steve Ballmer is slated to show up at a New York City Best Buy to help consumers welcome the product, and Microsoft Chairman Bill Gates is scheduled to appear on the faux news show "The Daily Show With Jon Stewart."

So far, investors and industry analysts appear optimistic about the releases. Early indications are that they may finally give Microsoft — dogged in recent years by everything from worries about the rise of Google Inc. to ongoing antitrust concerns — something to cheer about.

Shareholders already may be benefiting. After hovering at around $25 a share for years, Microsoft stock has surged more than 30 percent in recent months.

Microsoft, based in Redmond, Wash., also pleased investors last week with financial results that exceeded Wall Street estimates despite a drop in profits.

In announcing the results, Microsoft said it expects revenue growth for the division that includes Windows to be slightly higher than previously expected during the fiscal year that ends in June. Chief Financial Officer Chris Liddell attributed the change to higher consumer interest in more sophisticated — and costlier — versions of Windows plus faster-than-expected adoption of Vista.

“I think Microsoft is going to do very well this year,” said analyst Toan Tran with Morningstar.

Microsoft also is benefting from early reviews that are, if not outstanding, at least mostly positive. Vista has been lauded for its aesthetic changes, faster search functions and beefed-up security. Still, many have noted that Vista may not be radically different enough to prompt people to upgrade immediately, and several point out that rival Apple Inc. has had similar functions for years.

Recounting some recent changes in The New York Times, reviewer David Pogue wrote, "You get the feeling that Microsoft's managers put Mac OS X on an easel and told the programmers, 'Copy that.'"

Office 2007, meanwhile, has gotten high marks for a host of radical changes designed to make the system sleeker and easier to use — although any recommendation to upgrade has come with the caveat that it will likely be frustrating at first for users accustomed to the old system. Walt Mossberg, writing in The Wall Street Journal, called Office 2007 "a big step forward," but cautioned that it may not be worth it for everyone.

Still, even a successful launch won’t necessarily translate into an immediate rush on the software. Many analysts expect it to take years for Vista and Office 2007 to enjoy widespread adoption.

With consumers, that’s because most people will only upgrade to a new operating system when they buy a new computer, and it’s not clear that Vista itself will offer enough incentive to prompt that purchase.

Vista, the first major Windows upgrade in more than five years, offers faster ways to search for documents, improved security and better graphics, among other improvements. But amid many embarrassing delays, Microsoft was forced to drop some other planned improvements, including a highly sophisticated way for storing and accessing data.

J.P. Gownder, principal analyst with Forrester Research, expects some affluent and tech-savvy users to buy Vista immediately. But he said most people likely will wait until they need a computer for some other reason, like if the old one breaks.

“If you just take a step back and think, ‘Well, what is it about Vista that’s going to make people run out and buy that right away?’ It’s not really that evident,” he said.

Forrester is estimating that Vista will be used in 12 million U.S. households by the end of 2007, and in 73 million households in 2011. In Forrester’s forecast, that means more than 16 million households will still be running Windows XP in 2011, when it will be more than 10 years old.

Big businesses, on the other hand, will generally take at least a year to adopt a new operating system because they need time to test it and make sure it works smoothly with other crucial business software. Analyst Alan Davis with D.A. Davidson isn’t expecting businesses to broadly start using Vista or Office 2007 until Microsoft’s fiscal year ending in June of 2008, if not later.

Microsoft has radically redesigned Office 2007, the software suite that includes such popular tools as Word and Outlook. The changes are designed in part to make it easier to find functions people want to use regularly, although the new method could initially confuse those who are used to the old way of doing things.  Some analysts expect businesses, especially, to delay adopting Office 2007 because they don’t want to go through the hassle of training people on it.

Still, many analysts say such a major change was needed, especially since Microsoft has long faced criticism for not giving users enough reason to upgrade to a new version of Office.

“In the long run it’s a better product,” Davis said. “It’s the right direction for them to go.”

Microsoft technically released Vista and Office 2007 to big business customers already, last November. But Michael Silver, research vice president with Gartner, said he thinks most companies still aren’t using it.

“I don’t think there’s been that much serious adoption,” he said.

Even Microsoft executives have taken somewhat of a conservative tone about how quickly they expect people to adopt the products.

Speaking to analysts last week, Liddell said he was heartened by the success of a holiday promotion that offered coupons good for a free or discounted version of Vista to people who bought computers running Windows XP.

Still, Liddell cautioned that he didn’t expect to see the frenzy associated with Windows 95, when fans lined up on launch day to snag copies.

“This is different from if you go back a decade, obviously, to Windows 95 impact. We’re certainly seeing it being positive, but more gradual, as it rolls out into the marketplace,” he said.

Analysts also will be on the lookout for any potential stumbling blocks that could turn people off to buying the new system.

For example, Microsoft promised to make security a top priority with the operating system. But with Internet attackers growing more sophisticated, industry analysts expect there to still be some security snafus. A major breach could hurt consumer confidence in the product.

Even if Vista and Office 2007 prove successful this year, the next question will be how much shareholders can benefit.

Last week, Davis downgraded his rating of the stock from buy to neutral, citing the recent surge that has pushed the stock close to his target price.

Others are more optimistic. Analyst David Hilal with Friedman, Billings, Ramsey & Co. said he thinks some of the good news about the two launches is already being reflected in the stock price, but he still expects shares to keep rising.

“I think the business is just going to be so powerfully strong this year,” he said.

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