It's old news that Microsoft's latest operating system, Windows Vista, is underwhelming. Oh, and late, bloated and buggy. What is news is that this might actually be a problem for Microsoft Chief Executive Steve Ballmer and crew.Not that this is going to stop Microsoft (nasdaq: MSFT - news - people ), in the near-term, from doing what monopolies do: making big piles of money. Microsoft will post third-quarter earnings after the market closes, and analysts expect to see net income of $4.5 billion, or 46 cents a share, up from $3.3 billion, or 29 cents a share for the same period a year earlier, thanks to the January release of Vista. Wall Street expects that sales will to $13.9 billion from $10.9 billion.
So rather than concentrating on Microsoft's numbers Wednesday afternoon, pay attention to what the company says about Vista's prospects over its next fiscal year. It better be good: The company's shares have been flat for the past five years as it repeatedly delayed the release of Vista, originally slated for launch in 2003.
Meanwhile longtime rival Apple (nasdaq: AAPL - news - people ) hit a gold mine in digital music, and search engine Google (nasdaq: GOOG - news - people ) evolved into a new threat as it moved from upstart to online goliath. Microsoft's Xbox console has made life difficult for Sony (nyse: SNE - news - people ), but the money-losing business can't match Apple's iPod profit spigot.
The traditional fix for Microsoft, of course, has been to use its ubiquity on the desktop to open up other markets, from Web browsers to office productivity software. But now its unclear how that strength on the desktop will translate into an edge in online advertising, digital media and Web-based business applications.
And just months after its release, Vista is already looking stale. While Microsoft fiddled with Vista, competitors such as Apple, Sun Microsystems (nasdaq: SUNW - news - people ) and Red Hat (nyse: RHT - news - people ) kept cranking out release after release of their alternative operating systems.
Ballmer, moreover, soft-peddled Vista's prospects earlier this year. This may be more than just Microsoft acting coy on all things financial, as it usually does. PC giant Dell (nasdaq: DELL - news - people ), which has always loyally jammed Microsoft's latest software into its PCs, announced earlier this month it will start selling Microsoft's old operating system, Windows XP, once more.
Dell's announcement aside, Vista will dominate the desktop, of course. But the desktop has always been the place from which Microsoft can get a grip on the rest of the computing world. The question: If that strength has turned into a soft spot, then what?
Source: forbes.com
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