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Gates shares spotlight with new Windows
By Byron Acohido and Edward C. Baig, USA TODAY
SEATTLE  Microsoft Chairman Bill Gates often likes to use the giant Consumer Electronics Show to unveil high-concept gadgets running Windows software.
Bill Gates opened the Consumer Electronics Show in Las Vegas with a pitch about Windows Vista. Bill Gates opened the Consumer Electronics Show in Las Vegas with a pitch about Windows Vista.
But Gates stepped to the podium in Las Vegas Wednesday night with a higher calling: to pitch Windows itself.
His challenge: to foment buyer anticipation for new PCs equipped with Windows Vista  the latest, most powerful version of the world's most widely used computer operating system. Vista is expected to hit stores late this year.
"2005 was a big year (for Microsoft). 2006 will be an even bigger year, with Vista coming out and Office 12 and the realization of the Media Center PC as a mainstream product," Gates said.
"Windows is Microsoft's most important product, and this is a very big release," Gates told USA TODAY earlier in an interview. "People will see a lot of things that they haven't seen before in terms of media, photos, user interface."
Vista is the linchpin to Microsoft's strategy for breathing life back into its growth rate in a rapidly evolving tech sector  and for reviving investor enthusiasm. Gates hopes to entice consumers to buy powerful new Vista PCs to use as the hub for integrating digital music, movies and video games in their homes as it fends off competition from Google, Apple and others.
From 1995 through 2000, Microsoft revenue, driven by sales of Windows and Office, grew on average 28% a year as consumers and businesses bought new computers and software to keep up with advances in power and sophistication.
But from 2001 to 2005, annual sales growth dropped to about half that. In its last fiscal year, which ended in June, revenue grew just 8% from the previous year.
Not surprisingly, Microsoft shares, which traded around $50 in 1999, have languished below $30 for much of the new millennium. It has become much more difficult for Microsoft to make the case for continual upgrading.
"Lagging sales may be due, at least in part, to many or even most users having all the computing power they need," says Charles King, principal analyst at Pund-IT Research.
Another major factor: Microsoft took five years  the longest stretch in its history  to deliver this Windows upgrade. The main reason: Security woes blindsided it, as hackers and crime groups joined forces to exploit security gaps intrinsic to any Windows PC connected to the Internet. As a wave of Internet-based scams hit, Microsoft scrambled to make security improvements, pulling resources away from Vista's development. With Vista, Microsoft asserts that security is well in hand.
"Security is pretty simple," says Gates. "It's something that because of the innovation in Vista you'll spend a lot less time involved with it, thinking about it, you just won't have to do as much because the software is taking care of that."
But those improvements came at a steep price.
In August 2004, to avoid further delays, the company announced Vista's much-touted graphics and communications engines  Avalon and Indigo, respectively  would be scaled back. Avalon was to smooth the integration of audio and video files; Indigo could make computer-to-computer linkups easier.
Worse, Vista would not include a breakthrough filing system, called WinFS, until later. WinFS was conceived to make it easier to work with and search for files stored in disparate formats, solving a profound Windows bottleneck.
The vacillation left in the lurch hundreds of third-party software developers toiling to create cutting-edge programs to run on Vista, says Paul DeGroot, tech industry analyst at Directions on Microsoft. "Vista is, I hope, the last time that Microsoft labors so long, misses so many ship dates, and revises so many features midstream," DeGroot says.
The delays also gave tech giants IBM, Hewlett-Packard and others wider opportunities to promote systems using Linux open-source-code technology in key parts of corporate networks, where Microsoft sought deeper penetration.
Meanwhile, upstarts, particularly Google and Apple, began shaping the rapidly emerging consumer market for Internet-based services. "Google" became a verb. Apple's iPod became a cultural icon.
Tons of partners
Yet Microsoft officials never lost sight of the potentially vast consumer market for new forms of digital entertainment. In fact, Gates was an early visionary. Windows Media Center PCs  souped-up Windows XP computers outfitted with TiVo-like features  have improved each year since Gates announced the first one at CES four years ago.
The new Xbox 360, for instance, doubles as a device that can relay music and video files stored on a Media Center PC to high-fidelity playback gear in rooms around the home. Beyond launching Xbox, a $2 billion in-house project, Microsoft has culled a small army of third-party manufacturers to supply portable playback devices that similarly tie into Media Center PCs.
"There's tons of hardware partners doing great things," says Gates.
The idea is to create a hub-and-spoke digital content distribution system, with Media Center PCs as the hub, and various devices and online services as the spokes.
"Most of the spokes are supplied by partners, Microsoft earns royalties, and the whole thing helps perpetuate the idea of Windows PCs as the central home entertainment device," says Matt Rosoff, digital services analyst at Directions on Microsoft.
While Gates' vision of PC-centric home entertainment maps out well on paper, it has been slow to gain traction. PCs are prone to viruses and notorious for crashing. Confusion about which portable devices can play various types of digital files prompted Microsoft to stick PlaysForSure labels on compatible devices.
Vista, with help from chipmaker Intel's new Viiv platform, should smooth some of the rough edges. Viiv (rhymes with drive) is a grouping of PC innards designed to run quieter, smaller, more glitch-free Windows Vista Media Center PCs.
Adding another partner does not excite industry analysts. "It seems like Microsoft's strategy of inviting partners in and trying to make it all work together is just too hard for consumers," says Forrester Research analyst Josh Bernoff. "Meanwhile, killer devices like iPod and (Sony) PlayStation Portable come in and dominate market segments."
Indeed, in short order Apple captured 80% of the paid digital music download market with its simple and elegant iPod and straight-forward iTunes online store. Last fall, it introduced an iPod that can play video. And industry speculation is running rampant that Apple plans to reveal more pieces of its digital entertainment strategy at its Macworld convention next week in San Francisco.
Possibilities include a Media Center-like hub built on a Mac Mini computer, or devices for wirelessly transferring video from a Mac to an HDTV. Or it could be "as dramatic as Apple getting into the TV space," manufacturing Mac-friendly HDTV models, says Piper Jaffray analyst Gene Munster.
On the horizon also looms fresh competition from IBM, Sony and Toshiba. They have formed a partnership to introduce powerful new technology, called the Cell processor, to run digital devices. The first will be Sony's PlayStation 3 gaming console, expected to be ready for market later this year.
"The race to supply consumer electronics in a connected living room will heat up through the year," predicts Richard Doherty, research director at The Envisioneering Group. "It's going to mean greater choice and great competitive prices for consumers in 2006."
By Byron Acohido and Edward C. Baig, USA TODAY
SEATTLE  Microsoft Chairman Bill Gates often likes to use the giant Consumer Electronics Show to unveil high-concept gadgets running Windows software.
Bill Gates opened the Consumer Electronics Show in Las Vegas with a pitch about Windows Vista. Bill Gates opened the Consumer Electronics Show in Las Vegas with a pitch about Windows Vista.
But Gates stepped to the podium in Las Vegas Wednesday night with a higher calling: to pitch Windows itself.
His challenge: to foment buyer anticipation for new PCs equipped with Windows Vista  the latest, most powerful version of the world's most widely used computer operating system. Vista is expected to hit stores late this year.
"2005 was a big year (for Microsoft). 2006 will be an even bigger year, with Vista coming out and Office 12 and the realization of the Media Center PC as a mainstream product," Gates said.
"Windows is Microsoft's most important product, and this is a very big release," Gates told USA TODAY earlier in an interview. "People will see a lot of things that they haven't seen before in terms of media, photos, user interface."
Vista is the linchpin to Microsoft's strategy for breathing life back into its growth rate in a rapidly evolving tech sector  and for reviving investor enthusiasm. Gates hopes to entice consumers to buy powerful new Vista PCs to use as the hub for integrating digital music, movies and video games in their homes as it fends off competition from Google, Apple and others.
From 1995 through 2000, Microsoft revenue, driven by sales of Windows and Office, grew on average 28% a year as consumers and businesses bought new computers and software to keep up with advances in power and sophistication.
But from 2001 to 2005, annual sales growth dropped to about half that. In its last fiscal year, which ended in June, revenue grew just 8% from the previous year.
Not surprisingly, Microsoft shares, which traded around $50 in 1999, have languished below $30 for much of the new millennium. It has become much more difficult for Microsoft to make the case for continual upgrading.
"Lagging sales may be due, at least in part, to many or even most users having all the computing power they need," says Charles King, principal analyst at Pund-IT Research.
Another major factor: Microsoft took five years  the longest stretch in its history  to deliver this Windows upgrade. The main reason: Security woes blindsided it, as hackers and crime groups joined forces to exploit security gaps intrinsic to any Windows PC connected to the Internet. As a wave of Internet-based scams hit, Microsoft scrambled to make security improvements, pulling resources away from Vista's development. With Vista, Microsoft asserts that security is well in hand.
"Security is pretty simple," says Gates. "It's something that because of the innovation in Vista you'll spend a lot less time involved with it, thinking about it, you just won't have to do as much because the software is taking care of that."
But those improvements came at a steep price.
In August 2004, to avoid further delays, the company announced Vista's much-touted graphics and communications engines  Avalon and Indigo, respectively  would be scaled back. Avalon was to smooth the integration of audio and video files; Indigo could make computer-to-computer linkups easier.
Worse, Vista would not include a breakthrough filing system, called WinFS, until later. WinFS was conceived to make it easier to work with and search for files stored in disparate formats, solving a profound Windows bottleneck.
The vacillation left in the lurch hundreds of third-party software developers toiling to create cutting-edge programs to run on Vista, says Paul DeGroot, tech industry analyst at Directions on Microsoft. "Vista is, I hope, the last time that Microsoft labors so long, misses so many ship dates, and revises so many features midstream," DeGroot says.
The delays also gave tech giants IBM, Hewlett-Packard and others wider opportunities to promote systems using Linux open-source-code technology in key parts of corporate networks, where Microsoft sought deeper penetration.
Meanwhile, upstarts, particularly Google and Apple, began shaping the rapidly emerging consumer market for Internet-based services. "Google" became a verb. Apple's iPod became a cultural icon.
Tons of partners
Yet Microsoft officials never lost sight of the potentially vast consumer market for new forms of digital entertainment. In fact, Gates was an early visionary. Windows Media Center PCs  souped-up Windows XP computers outfitted with TiVo-like features  have improved each year since Gates announced the first one at CES four years ago.
The new Xbox 360, for instance, doubles as a device that can relay music and video files stored on a Media Center PC to high-fidelity playback gear in rooms around the home. Beyond launching Xbox, a $2 billion in-house project, Microsoft has culled a small army of third-party manufacturers to supply portable playback devices that similarly tie into Media Center PCs.
"There's tons of hardware partners doing great things," says Gates.
The idea is to create a hub-and-spoke digital content distribution system, with Media Center PCs as the hub, and various devices and online services as the spokes.
"Most of the spokes are supplied by partners, Microsoft earns royalties, and the whole thing helps perpetuate the idea of Windows PCs as the central home entertainment device," says Matt Rosoff, digital services analyst at Directions on Microsoft.
While Gates' vision of PC-centric home entertainment maps out well on paper, it has been slow to gain traction. PCs are prone to viruses and notorious for crashing. Confusion about which portable devices can play various types of digital files prompted Microsoft to stick PlaysForSure labels on compatible devices.
Vista, with help from chipmaker Intel's new Viiv platform, should smooth some of the rough edges. Viiv (rhymes with drive) is a grouping of PC innards designed to run quieter, smaller, more glitch-free Windows Vista Media Center PCs.
Adding another partner does not excite industry analysts. "It seems like Microsoft's strategy of inviting partners in and trying to make it all work together is just too hard for consumers," says Forrester Research analyst Josh Bernoff. "Meanwhile, killer devices like iPod and (Sony) PlayStation Portable come in and dominate market segments."
Indeed, in short order Apple captured 80% of the paid digital music download market with its simple and elegant iPod and straight-forward iTunes online store. Last fall, it introduced an iPod that can play video. And industry speculation is running rampant that Apple plans to reveal more pieces of its digital entertainment strategy at its Macworld convention next week in San Francisco.
Possibilities include a Media Center-like hub built on a Mac Mini computer, or devices for wirelessly transferring video from a Mac to an HDTV. Or it could be "as dramatic as Apple getting into the TV space," manufacturing Mac-friendly HDTV models, says Piper Jaffray analyst Gene Munster.
On the horizon also looms fresh competition from IBM, Sony and Toshiba. They have formed a partnership to introduce powerful new technology, called the Cell processor, to run digital devices. The first will be Sony's PlayStation 3 gaming console, expected to be ready for market later this year.
"The race to supply consumer electronics in a connected living room will heat up through the year," predicts Richard Doherty, research director at The Envisioneering Group. "It's going to mean greater choice and great competitive prices for consumers in 2006."