Microsoft hoping for business upgrades

Bill Hartnett got accustomed to the screaming. As Microsoft Corp.‘s manager of software sales to financial services companies, Hartnett used to get pelted with complaints about the security and reliability of Microsoft‘s products.

The occasion is the launch of crucial upgrades to Microsoft‘s most widely used and most profitable products. All at once, Microsoft is releasing a new Windows operating system, known as Vista; an update of the Office "productivity" package, which includes Word, Excel, Outlook and PowerPoint; and server software that handles behind-the-scenes functions.

Even in a less competitive world, the enormity of the launch would make this a crucial time for Microsoft. Vista has been delayed so long that it has been five years since the last overhaul of the operating system, which runs 90 percent of the world‘s personal computers. Office last got refreshed in 2003.

In other words, this is no time for Microsoft to deliver a dud in the core of its franchise. Next Thursday‘s corporate launch of Vista, Office and server software is being called "A New Day For Business," meaning Microsoft‘s customers, but the phrase applies in Redmond just as well.

It also worked to make its software sturdier than ever — less prone to crashes and less vulnerable to hackers. Because of that and new tools aimed at pleasing corporate technology staffs, Microsoft estimates the labor costs of supporting a machine running Vista will be $507 per PC a year, down from $542 with Windows XP .

That‘s largely because switching can be a complicated, costly process. Many organizations only recently upgraded to Office 2003.

"If you look at Vista, you say,

What‘s the killer app?‘" said Forrester Research analyst Ted Schadler. "Somebody else will build a killer app on it, but until you get a killer app, you don‘t see the power of the platform."

This is no small matter. Together, Sharepoint, the Exchange e-mail offering and Office software rang up $14.5 billion of Redmond‘s $44.3 billion in revenue in the last fiscal year, which ended June 30. That exceeded Windows sales of $13.2 billion.

Still, competitors have made important inroads — one reason that Microsoft stock remains cheaper today than when Windows XP launched in 2001.

Other rivals, including Google Inc., are increasingly hosting Office-like applications over the Web for free, supported by ads. For now, that threat to Microsoft is somewhat muted, since most businesses probably would rather pay for software than let their workers be distracted by ads all day. Even so, Microsoft has been racing to develop ways to deliver its software over the Web as well.

And it‘s not just a bunch of gnats targeting Microsoft. IBM Corp. sells a range of productivity applications and Web services. Database leader Oracle Corp. has been maneuvering closer to Microsoft‘s territory by pledging to support open-source products.

Proof that Microsoft is watching closely came in the recent $400 million cooperation pact it signed with Linux vendor Novell Inc., a deal aimed at strengthening Microsoft‘s hand against other open-source players. Even after the agreement was signed, however, Microsoft and Novell were squabbling over its details.

Microsoft‘s best chance of continued riches from the business sector likely lies in its products‘ ubiquity. Just about every PC user is familiar with Microsoft programs. That tends to make it safe for many companies, and a risk to use something else.

Of course, that ubiquity is also a hazard for Microsoft. Its software is the ripest possible target malicious hackers could exploit, so they do. And being everywhere often ties Microsoft‘s hands. Microsoft considered more radical changes to Vista, for example, but feared whether users and third-party software developers would be able to adapt.

This landscape means that "Microsoft‘s always going to be a half-step to a full step behind" many of its rivals, said McNabb at Forrester. But at the same time, he added, "they don‘t have to be the innovation leader."