Courtesy of InformationWeek Two months before Microsoft is supposed to finish Windows Vista, the first new version of its desktop operating system in half a decade, the company is under intense pressure to change not only the way it develops Windows in the future, but everything about it. The last big Windows shake-up was 10 years ago, when Microsoft integrated its Web browser and Internet Protocol stack to fend off Netscape. Now Microsoft is at a crossroads again, and whatever comes after Vista could be a radical break from the past. While it's putting the finishing touches on Vista--a near-final test version could arrive this week--Microsoft is at work on the next major version of its most important product, a system code-named Vienna that's supposed to introduce a whole- sale reworking of the Windows desktop. Before that, a tune-up of Vista, dubbed Fiji, is in the works. But post-Vista Windows will break with the past only if Microsoft can figure out how to do things differently. Here are the challenges the company faces as it works on Fiji, Vienna, and whatever follows them: Faster delivery. First and foremost, Microsoft must figure out how to deliver Windows features faster. If it takes another five years to deliver the next major upgrade to Windows, Microsoft's golden goose is cooked. More Web functions.Microsoft must increase the operating system's value by delivering many of its functions on the Web, in ways that can be updated as PC users' needs change. The Web can be a fabulous delivery vehicle for a modern operating system, but Windows has to get smarter about handling data and programs that live online. Windows Live and Office Live are part of the answer, but Windows itself needs to become Webified. Better security. Windows' nagging reliability and security problems stem from its wide-open support of every software program and hardware device ever designed to work with the system. Microsoft must find a way around that. Smaller Windows. The system has been growing with every version for the past 20 years. It's become so bloated with old code and features that the drawbacks (security holes, resource consumption, regulatory ire) outweigh the benefits. Put another way, Vista could be the last whopping Windows operating system designed to run on a single PC, giving way to a sleeker design that divides functions across the PC and the Web. "Is Vista the last big release of Windows?" says Gartner analyst Tom Bittman. "I firmly believe that it is." The stage is set for change at the company. Bill Gates said in June that he will ease out of day-to-day management over the next two years, and he's already relinquished many of his technical responsibilities as he devotes more time to his charitable foundation. Jim Allchin, the executive who has guided the technical direction of Windows since 1990, plans to retire in January. His influence already is on the wane. Ray Ozzie, Microsoft's new chief software architect, has inherited many of Gates' responsibilities, and the future of Windows is now more in his hands than Gates'. Steven Sinofsky, brought onto the Vista project to get it out the door, recently took the reins on the follow-up to Vista. Sinofsky has a reputation for getting the company's army of programmers marching in the same direction, a sorely needed skill set in the Windows group. "The next version of Windows will be a transition from where Microsoft is to where it needs to be," says Rob Enderle, a principal at consulting company the Enderle Group. "Vista is our last operating system that looks backward." But that's only if Ozzie and his lieutenants can pull off a major overhaul. Most of the work still lies ahead. The New Hybrid Microsoft must get there soon, as Google and other competitors chip away at its markets by introducing Web software that generates revenue from advertising, rather than conventional licensing or retail sales. Just last week, Google introduced a suite of online e-mail, calendar, and Internet phone software that it will host free of charge for small companies and schools. A business-oriented bundle with word processing and spreadsheets is due next. To slow Google, Microsoft is embarking on an ambitious undertaking to fuse the worlds of online software and PC software. The company wants to make search a "programmable utility," woven into its operating system and desktop apps, Microsoft co-president Kevin Johnson told Wall Street analysts last month. As Google refines online spreadsheet and word processing software, Microsoft is moving in the other direction, building features for Excel, Word, and Outlook that use the Web to extend those apps to provide what Ozzie calls "hybrid user experiences" that split code between the PC and the Web. "Clearly, the company is in the midst of a pretty big transition," says Dan Ling, a corporate VP at Microsoft and head of its Redmond, Wash., research lab. "We do have to think about making the development process shorter and more predictable." Mario Juarez, a senior product manager in Microsoft's servers and tools group, says there's "a soul-of-the-company type discussion" under way about how to position Microsoft's technology stack for the Internet. Windows is central to Microsoft's bid to extend its dominance to the world of Internet computing. The company must find ways to keep the operating system up to date with industry trends and jettison the style of development that resulted in the snaillike pace of Vista. The PC isn't dead, but the emergence of new forms of computing, wireless connectivity, and software services on the Web could marginalize the desktop box and with it, Windows. Netscape Communications and the rise of Web browsers posed the same danger in the 1990s. "The desktop stuff can be trivialized--Netscape was absolutely right," Enderle says. So how does Microsoft get from here to there? A year ago, Gates proposed that the company move toward more frequent releases of Windows, perhaps streaming out changes generated by its big-release development projects on an incremental basis. Nothing like that's emerged so far, as Microsoft's developers work hard to finish Vista. Part of the battle is that Microsoft must find a way to jettison the security problems and code complexity that stem from supporting every application and hardware peripheral ever created for the PC. It's unlikely (but not out of the question) that Microsoft would abandon backward compatibility--Windows' staying power is partly explained by the fact that apps work consistently from one version of the operating system to the next. Don't laugh, there's still plenty of Windows 98 out there. So Microsoft needs to cordon off the old stuff to fix the reliability and security problems that stem from backward compatibility--or decide it's OK to break some apps and scuttle the old code completely. Apple Computer has done that twice in this decade, when it moved to the Unix-based Mac OS X, and during this year's switch from Power PC to Intel chips. "The way Apple approaches this market is to bite the bullet every so often," says Tim Bajarin, president of consulting company Creative Strategies. The trick to Webifying Windows will be keeping essential components on a PC's hard drive, while moving some user files and the software that interacts with them onto servers in Microsoft's data centers. That would unlock users' data from their desktops and let Microsoft react faster to shifts in demand and competing products. Microsoft has taken baby steps in this direction. The Windows Live site comprises online search, E-mail, blogging, and instant messaging. Features for managing photos, music, and video could be delivered as Internet services in the future, Windows product management director Barry Goffe says. Drags On Development Microsoft's Windows development process has been fabulously complex. Vista includes some 50 million lines of code, 40 percent more than Windows XP and 70 percent more than Windows 2000. Microsoft reinvents the wheel with each version of Windows, and CEO Steve Ballmer himself has said the practice must stop. At the analyst meeting last month, Ballmer said a huge mistake Microsoft made during the transition from XP to Vista was trying to create an entirely new software infrastructure for the operating system. It was a decision on which he, Gates, Allchin, and chief research and strategy officer Craig Mundie all signed off. "We tried to incubate too many new innovations and integrate them simultaneously," Ballmer said. That approach had worked in the past, "but it can't work now," he said. "There's just too much complexity." Two years ago, Microsoft reset its entire Windows development process to make pieces of the operating system less intertwined, though Ballmer said Windows is still "not as modular as we'd like it to be." Another problem is that the Windows development teams are under continual pressure from the sales force to build features on big customers' wish lists, which makes projects unwieldy. "They never have heard an idea they didn't like," says Michael Cherry, an analyst with Directions on Microsoft, who worked in Microsoft's Windows group in the '90s. Windows' dependency on the quirks and shortcomings of the slew of PC hardware it needs to support has held Microsoft back from modernizing its operating system as much as it would like. Yes, Microsoft's own programming mistakes and at times willful inattention to quality have put Windows in the security muck it's in. But many bugs come from the hardware companies, says Tim Huckaby, CEO of InterKnowlogy, a software developer that builds prototypes and proof-of-concept software for Microsoft, one of its largest customers. It's not just a security problem--those dependencies indirectly affect Windows apps' performance, Huckaby says. For instance, many of the software objects in Microsoft's .Net Framework must interface with Windows dynamic link libraries, instead of running natively in managed code, which causes them to run more slowly. Microsoft has discussed remaking the Windows kernel as .Net code and even has a research project to make its Common Language Runtime the center of Windows' system code. But Windows' hardware access layer has prevented it from making the shift. "Pulling the trigger on it is a huge business decision--it's not a technology decision," Huckaby says. Some say Gates himself may have been part of the problem, as his outsized personality and influence caused product teams to hold off on making key decisions until he reviewed their work. All Eyes On Ozzie It's difficult to predict what lies beyond Vista. Microsoft is scrambling to finish the product, and many of the executives responsible for charting the technology road map are in new jobs or leaving familiar ones. Ozzie is the person most responsible for the future direction of Windows. He joined Microsoft a year and a half ago when the company bought his firm, Groove Networks--Gates has said the acquisition was as much about snaring him as his technology--and has since gained enough cred inside Microsoft to influence its products and business model. Ozzie, whose roots stretch back to Lotus Notes, 1-2-3, and Software Arts' VisiCalc, has worked largely under the radar so far. That could change soon. Gates expanded Ozzie's CTO role a year ago to include shaping Microsoft's Web software strategy. In June, he promoted Ozzie to chief software architect--Gates' old title. Between taking over Gates' product development job (the role of overseeing long-term research went to Mundie) and taking the pulpit at more Microsoft events, Ozzie could exert more sway over Microsoft's customers. In a speech at Microsoft's TechEd conference in June, Ozzie said advances in technology that are transforming consumer software on the Internet also are bearing down on businesses, who could lower costs and increase productivity by embracing them. Internet services will give companies access to processing power, data storage, and communications bandwidth in large data centers being built by Microsoft and its competitors, Ozzie said, bringing "fundamental changes" to the way companies manage IT. Those data centers being built by Microsoft, Google, and Yahoo will serve up consumer technology such as search engines, e-mail, blogs, and instant messaging services for hundreds of millions of users. Business software serves at most tens of thousands. Microsoft is designing software that lets businesses take advantage of those remote data centers--future Microsoft products will give companies the option to run software on their own computers or as an Internet service, then switch modes at any time. "Microsoft is laying the foundation for this new world," Ozzie said. And the company's online business software will complement its Windows and other desktop products, contrary to the view of "extremists" who think IT departments will disappear as software moves to the Net, he said. Microsoft plans to use its Windows Live software to make handheld PCs work better with desktops and laptops, adding the ability to more easily share notes, E-mail, and calendars. "Moving forward we must frame all our products and services from an online-connected, end-user perspective," Ozzie said. Microsoft will start tracking more Web usage data as it launches an ad-serving system to compete with Google. Even the Windows desktop isn't sacrosanct: When Microsoft introduced its Live software effort last year, Ozzie noted that its adCenter software could one day serve ads to client-side software as well as Web sites. Microsoft is considering more radical changes to its Windows business model. A patent application filed by the company in July describes how an Internet service provider could offer free PCs to consumers in exchange for ads targeted to users' profiles, including their language, music preferences, and whether they play PC games. The application also proposes an ad-subsidized operating system, in which users could choose to license the software without ads, pay a reduced subscription license for limited ads, or receive a free version in exchange for viewing many ads. The Curse Of Backward Compatibility What would a post-Vista Windows look like? Ideally, it would be smaller and more modular, less compatible with ancient software but more robust against attacks, and more divided in functionality between the PC and Web. A more modular Windows is an idea Microsoft has experimented with, albeit without much seriousness. A year ago, it released Windows XP N under a European Union court order that excluded the Windows Media Player. But Microsoft didn't charge any less for the reduced-function software, and European retailers and PC makers unsurprisingly didn't bite. The Justice Department once proposed a modular Windows that lets consumers pull out components such as the Web browser and media player, but that idea now sounds like outdated thinking. Microsoft's Goffe says a new development process rolled out for Vista two years ago gives the company "infinitely more flexibility" to add software modules to Windows without interfering with existing code. But some customers just want a smaller product. The germ of a better idea is the Windows Vista Starter Edition that Microsoft plans to sell in India, Mexico, Russia, and South Asia at lower prices than mainstream versions of the product. PCs with Starter Edition will be limited to three open windows at a time and will lack many home networking features, but they could catch on in places where consumers can't--or won't--pay for the whole package. At Microsoft's analyst meeting in July, Mundie said much of the company's research is directed at making software system design simpler and more predictable, bringing programming on par with other engineering disciplines. For that, Ozzie may play a key role. Under Microsoft's traditional development style, groups of programmers work on system elements, then bind components together. Instead, Ozzie prefers to develop the core of a system, then build code on top of it--an approach used by Apple. But Microsoft has an albatross around its neck that Apple doesn't: 850 million PCs that run Windows. When Apple switched to OS X in 2001, it made a sharp break with backward compatibility. Developers could get their old apps to run on the new system using a special API set called Carbon, which required weeks, even months of programming work. To get the full benefits of OS X, customers had to rewrite their apps using a set of object technologies called Cocoa. Apple put its ISVs under strain again this year, requiring code porting to support the Intel chips in all new Macs. Microsoft's problem is more complex. Thousands of software programs and hardware devices made by hundreds of companies must interface with Windows, not to mention all the software written by Microsoft's customers. So the solution may be to cordon off those old apps in a virtual machine, something Microsoft had originally proposed doing in Vista. All that old software presents security risks to companies running it, but if Microsoft attempted an Apple-like break with the past, it would endanger a big part of the reason companies buy Windows in the first place. "Microsoft puts far too much weight on the altar of backward compatibility at the risk of truly moving the platform forward," Directions on Microsoft's Cherry says. The version of Windows after Vista will likely be a compromise. Microsoft plans to include virtual machine technology that keeps legacy code in a container that prevents virus-ridden programs from infecting the rest of the system. In July, Microsoft closed its acquisition of Softricity, whose software cordons off applications to prevent changes to DLLs, the Windows registry, or other settings from affecting other parts of the computer. Softricity tools also can package apps to be delivered across a network, bringing code to a PC from a remote server as needed. Customers can envision three development methods for Windows apps: There will be a performance penalty for apps in the partition, in exchange for better security. There will be an application development method for hosted software. And there will be New Windows, free from the shackles of the past. Still To Do Even assuming Microsoft can clean up Windows' complexity and backward-compatibility problems, that still leaves two big unaddressed areas: features and what to do about the Web. Planned Vista features left on the cutting-room floor would be natural fits for the next version. A PC-to-PC wireless syncing feature got dropped from Vista, as did a lightweight home networking infrastructure code-named Castle, Goffe says. Health monitoring and backup features for multiple PCs are still under development, and Microsoft technical fellow Gary Flake says Vista's Avalon graphics technology originally was slated for a bigger role than it plays. How Microsoft divides Windows' functions across computers on the Internet is a more open question. InterKnowlogy's Huckaby says users of post-Vista Windows will likely manage their files from a Web app. WinFS, the file system dropped from Vista, could surface in releases of Office, letting users store files on servers running Microsoft's SharePoint and SQL Server products. Users could then search a Web site for their files instead of navigating through folders. "It's information at your fingertips, but it's a Web app," Huckaby says. "That's WinFS's bold promise." (Microsoft last year bought FolderShare, software from ByteTaxi that synchronizes files across PCs and even Macs.) It's unclear how quickly Microsoft will bring together the Windows desktop operating system and Windows Live, which Charles Fitzgerald, a Microsoft general manager for business strategy, calls "personal computing beyond the box." But there's little question the two efforts are merging. Microsoft even has its own abbreviation for the team that reports to Sinofsky: WWL, which stands for Windows/Windows Live. Ultimately, Microsoft's development environment will include a "Windows Live layer" of software for writing Internet services, says Steve Guggenheimer, application platform general manager. Microsoft now publishes APIs for Windows Live apps, including its Windows Live Local mapping software and instant messaging service. But programming Windows and Windows Live is "radically different today," Flake says. "That's not necessarily a good thing." Microsoft plans to release a software development kit that simplifies programming of Windows Live APIs, which can request data from another machine on the Net. "It's pretty obvious that the whole Windows Live and Office Live effort and post-Vista development are going to get closer," says David Harnett, senior director of IP Ventures at Microsoft. There's already some crossover between Windows Live and the desktop: Vista users will be able to download Windows Live applets called "gadgets," similar to miniapps from Apple and Yahoo. Microsoft has to go it alone, for better or worse. "The notion that there's either a path to fold our hand, or say, 'We can't do it, let's buy somebody'--those don't exist," Ballmer told analysts in July. "We will do well ... whether it's me or the guy who has to replace me because we're not doing well." Replacing Ballmer isn't the answer. Replacing Windows--with a version that's more responsive to changing needs, more Web friendly, and less anchored to the past--is the kind of daring change the company really needs.