Programming Windows: Transitions (Premium)

Microsoft’s revenues had long been dominated by Windows and products that required Windows, like Office. But by 2007, Office had become Microsoft’s biggest business and Windows Server had emerged as a third core business. And so it is perhaps not coincidental that the software giant moved to shore up the Windows client by splitting Windows Vista to include more premium product versions, as had been done before successfully with Office. The results were immediate: in the quarter ending March 31, 2007, over 70 percent of initial Vista consumer sales were of premium versions, and premium Vista versions contributed 1 percentage point of growth to sales from PC makers.

The numbers were interesting. Windows client revenues surged an incredible 67 percent to $5.3 billion in the quarter, it reported, and Windows accounted for about 37 percent of Microsoft’s total revenues of $14.4 billion. But it had deferred at least two quarters of Vista-related technology guarantees: Windows client had really delivered just $4 billion in revenues in the quarter, or about 28 percent of Microsoft’s revenues. And the deferrals were over, so future quarters would deliver a more accurate telling of Vista’s success.

Then, on July 19, 2007, Microsoft reported that it had earned over $50 billion in annual revenues for the first time, a gain of 15 percent year-over-year. The firm touted the “solid customer acceptance” of Windows Vista in the announcement, but it also mentioned that it would drive growth in the coming fiscal year, which stretched from July 2007 through June 2008, though a long list of coming new product offerings that included Windows Server 2008, formerly called Longhorn Server, but not Vista.

For all its inevitability on PCs, Vista was a laughingstock, and not just because of Apple’s incessant “I’m a Mac, I’m a PC” TV ads, which Microsoft silently ignored. It had taken several years to come to market and didn’t deliver on the most interesting of its original promises. It ran slowly on existing PCs, and even those PCs that could run it often didn’t have the graphics hardware to display the beautiful Aero UI, with its glass windows and transparencies. There were rampant compatibility issues with both software and hardware, a problem that was exacerbated in the 64-bit versions of the product. And Microsoft was forced to keep selling Windows XP, especially for a new type of low-end and inexpensive portable PCs called netbooks.

To fix these problems, Microsoft had brought in a fixer in Steven Sinofsky, the man who had successfully released the previous four versions of Microsoft Office, itself a complex and dominant platform, on time and on schedule over the past several. Sinofsky had been promoted and sent to the Windows team in early 2006 to focus on post-Vista versions of Windows, like “Fiji,” which became Windows Vista Service Pack 1 (SP1) and “Vienna,” which became Windows 7. So all would be well.

Even...