After the Vista debacle, Microsoft changed the way it makes software. The result – Windows 7 – is winning raves. Can a new operating system (and a new attitude) help the company take on Google?

With Microsoft's founder and chairman, Bill Gates, trotting the globe in a quest to abolish diseases, his handpicked successor, CEO Steve Ballmer, has had most of a decade to move the company beyond its two biggest cash cows, the Windows operating system and the Office productivity suite. So far, not so good.

The company's web forays, such as MSN, have only highlighted the dominance of Google and Yahoo. In software for smartphones, there is Apple, RIM (RIMM), and everybody else. MP3 players? Microsoft's Zune hardly merits a mention. And even the core franchise has suffered. In the face of slowing PC sales and the economic pall, Microsoft's fiscal 2009 revenue actually contracted, to $58.4 billion from more than $60 billion in fiscal 2008 — and the company missed its earnings estimate by more than $1 billion.

Fresh Coat of Paint: Artist Ricardo Richey, commissioned by Fortune, spray-paints a street-smartversion of Microsoft'sname and Window's logo on a San Francisco wall.

But the biggest failure under Ballmer's tenure was self-inflicted. Vista was meant to be a wholesale reimagining of Windows, the brand name for Microsoft's operating systems dating back to the early 1980s. Every so often the company unveils a new OS, blandly named for the year of the release (Windows 95, Windows 98) or a geeky abbreviation (Windows XP is short for Windows Experience). Vista had a marketing-friendly moniker, a fancy user interface, new security architecture, a better file-storage system, and much more. More

The Yahoo CEO offers candid views on life post-retirement — and dealing with activist shareholders

Bartz has no regrets about joining Yahoo. Photo: Yahoo

At Fortune's Most Powerful Women conference in Carlsbad, Calif., Yahoo (YHOO) CEO Carol Bartz didn't talk much tech but didn't disappoint.

In characteristically blunt language that was peppered with not-quite-explicit words like "friggin' " and "damn" (she declined to talk about the way she talks, telling interviewer Andy Serwer: "I don't think it's that interesting, personally") Bartz recalled her her nearly nine-month tenure at one of the Internet's pioneering brands.

She ticked off the questions her friends asked her when she made the decision to come out of retirement (she was CEO of Autodesk (ADSK) for 14 years) to take the helm at struggling Yahoo.

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Even with Yahoo deal Microsoft will continue to struggle — and lose money — online.

The anti-climactic deal of the year is now out.  Long after the sizzle faded from Microsoft's (MSFT) failed $40-billion-plus bid for  Yahoo (YHOO), the two companies announced Wednesday they'll do what sympathetic observers urged them to do two years ago. They'll stop competing on search and search-advertising technology, enabling them to combine forces against Google. (GOOG)

Critics frowned on Yahoo (where's the "boatloads" of upfront cash Yahoo CEO Carol Bartz promised she'd extract from Steve Ballmer?) and praised Microsoft, The Wall Street Journal going so far as suggesting the tide may turning in the tired monopolist's favor. Perhaps. Beyond the something-must-be-said-because-they-called-a-press-conference chatter, however, a few points to consider: More

As messy as their hard-fought search deal was in coming, it had to happen.  Find out why in Pattie Sellers' Postcards column.