Four ways Microsoft will make it increasingly difficult to stick with Windows XP

Enterprise installed base. Source: Forrester

When Microsoft (MSFT) launches Windows 7 next week, its biggest competitor — especially in the multi-user enterprises that are its target market — will not be Linux or Apple's (AAPL) Mac OS X, but Windows XP.

Eight years after its launch, and nearly three years after Microsoft began shipping Windows Vista (its putative successor), XP is still the operating system most likely to be installed on a new PC in 81% of IT departments, according to a new Forrester Research poll.

Microsoft made it easy for IT decision makers to do what they are naturally predisposed to do — stick with what they know. Steve Balmer is not going make that mistake again, judging from a report published Thursday by Forrester analyst Benjamin Gray.

"Factors are converging," he writes, "that will provide IT managers with a compelling reason to shake the status quo, finally ending Windows XP’s corporate reign."

Gray, who last year give his clients five reasons to switch to Vista, now offers the timetable by which Microsoft will make life increasingly difficult for anyone who wants to keep supporting Windows XP.

1. Earlier this year, Windows XP Service Pack 2 entered the extended support phase, meaning it will no longer receive new enhancements.
2. On July 7, 2010, Windows XP Service Pack 3 will follow suit.
3. On April 8, 2014, the extended support phase of both Windows XP SP2 and SP3 will end, and new security updates and patches will no longer be released.
4. Eighteen months after Windows 7 is released or with the release of its first service pack (whichever comes first), the OEM licenses bundled with every PC will no longer carry downgrade rights to Windows XP — meaning that to deploy Windows XP you will have to purchase volume license copies of Windows along with new PCs or use existing, unused Windows volume licenses.

"Already 66% of the firms we recently surveyed expect to migrate to Windows 7 eventually, although most don’t have firm plans yet," writes Gray, who clearly believes they better get cracking. "That leaves just 27% of organizations that haven’t yet looked at adopting Windows 7 thoroughly enough and 2% that are considering alternatives to Windows 7, namely Windows 8, Mac OS X, and Linux."

Gray advises managers running Windows XP shops to start preparing now for what could be a long and bumpy upgrade path. For most firms, the processes involved — application compatibility testing, image development, application packaging and testing — can take anywhere from 12 to 18 months.

By which time you can expect Microsoft to start cutting off XP's air supply.

Gray's report, "Windows 7 Commercial Adoption Outlook," is available here for $499.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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.

After a protracted six-year development process, much internal squabbling, false starts, blown deadlines, and broken promises to partners, the engineering team mopped up 50 million lines of code, wrung it all out into a shrink-wrapped box, and heaved it onto the world in early 2007.

The timing couldn't have been worse. Vista required top-end hardware to operate even while users were downgrading from desktops to notebooks. The bloated OS was incompatible with printers, web cams, and device drivers of all sorts. Early adopters scurried back to Windows XP; many corporations skipped the upgrade altogether. Worst of all, Vista energized the cloud computing chorus, led by Google (GOOG), whose vision of the future involves ubiquitous broadband, a good web browser, and everything else hosted on the Internet. No sophisticated operating system necessary. "Vista was the biggest debacle in the history of the company," says one former senior executive. "People were ashamed to say they worked on it."

But here's some good news: On Oct. 22 Vista will be safely behind Microsoft (MSFT). On that day, the company will introduce a successor, Windows 7, and guess what? It doesn't suck. In fact, it's really pretty good. For all the pomp around each new version of the iPhone, the latest Kindle, or Google's next beta, Wave, Windows 7 is sure to go down as the technology launch of the year. Critics love it, and IT managers are ready to buy. A recent Credit Suisse survey says that a quarter of corporate customers plan to upgrade within two years. Analysts estimate that the new OS could boost Microsoft's revenue by more than $3 billion over that time and ignite the entire ecosystem built on Windows — from computer makers like Dell and Hewlett-Packard (HPQ) to third-party software vendors, resellers, and system supporters. It could be the shot in the arm the entire tech sector has been looking for.

On a warm September day in Redmond, Wash., sitting in a conference room in Building 34, the economic epicenter of the Northwest, Ballmer is not ready to declare the doldrums over. A stock market turnaround means little in the face of staggering unemployment. But he remains hopeful because he thinks this version of Windows is a winner. "It's a great product. We did our best. Is that going to cause huge increases in spending by the world's businesses? I can't make that promise," he says, "although I think things are becoming slightly less cautious. There's some hope that says, ‘Hey, look, maybe this is part of the turnaround.'"

Back from the abyss

It's just a hint of optimism from an executive who has been bearish on the economy of late, an indication that the mood is shifting at one of the most self-loathing, hypercritical corporate cultures you're ever likely to encounter. As bad as the Vista years have been, Microsoft seems to be getting its act together. The Wall Street collapse stunned the company, and management reacted with uncharacteristic alacrity. "There was a week or two where everything seemed to come to a stop," says CFO Chris Liddell, "and we said, 'We're going to have to operate in a different way.' "The company laid off 5,000 employees and instituted a "10-point plan" to cut wasteful spending, from vendor allotments to travel and entertainment.

Meanwhile, executives ramped up development cycles. This past summer the company kicked off, in its words, "a year of product launches unlike any other in Microsoft history." Since then, Ballmer et al. have revamped Windows Server and unveiled the Zune HD line of MP3 players. On the way: overhauls of Windows Mobile, Office, Internet Explorer, Xbox Live, Bing (its new search engine), and the introduction of Azure, a plunge into the enemy territory of cloud computing. Microsoft is also about to venture into retailing, an area conquered by longtime nemesis Apple (AAPL).

All this, says Bob Muglia, president of the server and tools division, is part of what he calls Microsoft v.3 — a play on the old saw that it takes the company three releases to get a product right. "In the Vista era, we lost track of a bunch of things," he says. "Now Windows 7 has shipped, and it's the official start of [a time of] mature leadership, competitive focus, aggressive competition — and I think you see the results. You could say it's us getting our mojo back."

If Steve Ballmer has one attribute of a great leader, it's an ability to inspire the troops — which is what he's about to do standing onstage in July at a convention center in downtown New Orleans. The Big Easy is broiling in a midsummer haze. The locals have cleared out, making way for the 5,000 Microsoft partners — resellers, builders, software developers — who have gathered at a conference organized in their honor. Ballmer is, naturally, the headline act. He's peeled off some pretty outlandish keynotes over the years, including "Steve Ballmer Going Crazy" (2 million views on You- Tube) — in which he huffs, "Come on, give it up for me!" — and the much-remixed "Developers" (1 million-plus views), where a heavier Ballmer performs a sweaty, arrhythmic stomp dance.

Today job one is to inject some optimism into the crowd. Ballmer had a tough year. He took a modest (for a man worth $11 billion) pay cut. But his small-business partners are reeling from the downturn. "This is the most phenomenal year we've ever had for technology releases," he rumbles, ticking off reasons to be hopeful about 2010. Microsoft vows to keep investing $9 billion-plus in R&D, it'll increase spending on partner support, and most of all it will keep fighting competitors — because, well, that's what the company does best. "We don't go home," he says. "We just keep coming and coming and coming. We're tenacious, tenacious, tenacious. Boom!"

That's not entirely true. Over the years the company has cowered at least a few times. It bailed on Microsoft Money (a personal finance product designed to oust Quicken), would-be YouTube killer Soapbox, the long-forgotten BOB operating system for kids, tablet PCs, web-enabled TVs, etc. But the company has surely disrupted many markets — from web browsers to console games — by offering a fresh perspective. "Novell said, ‘The world is about single purpose operating systems,' " explains Ballmer, back at Building 34."We had to say, ‘No, the world is really about multiple-purpose operating systems.' Lotus and WordPerfect said, ‘The world is character-based,' and we said, ‘No, let's try some graphics.' Apple said, ‘The world is a proprietary software-hardware combination,' and we said, ‘No, the world needs to be open to choice.'"

The enemy within

Such conquests, while dated, have earned the company a reputation for being obsessed with competitors — a characterization Ballmer does little to diminish. Unlike most executives of his ilk, he says what's on his mind, which can include calling Google a "house of cards" or referring to Linux as a "cancer that … attaches itself to everything it touches." He once laughed derisively on camera at the prospect of the iPhone ever succeeding. But in Microsoft's core business, there is no real competition. Various versions of Windows run more than 95% of all PCs. So when it came to preventing another Vista, Ballmer had to find the enemy within.

Windows 7 is a departure from Vista in many ways. It will be unveiled on time after a three-year development cycle. It's compatible with previous versions and has excised all the security-permissions protocols that were lampooned in Apple's "I'm a Mac" ad campaign. It's sharp-looking, almost as sleek as the Mac OS, and has a few cool new features, like support for multitouch monitors and Aero Shake, which allows users to clear the desktop with a jiggle of the mouse. Perhaps most impressively, it requires less computing horsepower than Vista. That just never happens with a new OS. But the biggest departure comes in scope and ambition. Ballmer claims to have learned something from Vista: It's no longer advisable to try a "big bang" rollout — i.e., completely reimagine a product as sophisticated and interconnected as Windows.

So he hit control-alt-delete. He brought in a new taskmaster, Steven Sinofsky, to oversee the engineering. Sinofsky became known for hitting deadlines while overseeing the Office group from 2000–07. An executive close to the Windows team characterizes his changes as such: "Reset — or reboot — is something that we hear a lot about the transition," he says. "What we did was [give] the development team a clarity that was probably missing." With Vista, teams worked on features simultaneously without an awareness of other schedules. When separate features came together, they were often incompatible. "The goal was to produce a plan for features, but not just a plan — also the motivation, the business rationale," the executive says.

Sinofsky oversaw the largest beta test in history — more than 8 million users — blogged tirelessly about every little tweak, and kept lines open with partners. The team scrubbed inefficiencies and ushered out a fully functional, backward-compatible OS on time, earning Sinofsky a promotion to president of the Windows division. The new openness has resonated in the marketplace. According to Credit Suisse, 58% of corporate customers were either dissatisfied or extremely dissatisfied with Vista. With Windows 7, it's 21% dissatisfied and none extremely dissatisfied. The PC makers seem happy too. "With Vista, the expectations were very high, and the customer reaction was not so positive," says Satjiv Chahil, senior VP of global marketing for HP's Personal Systems Group. "This time the response has been very positive. It's what the market has been waiting for." In the end Windows 7 is what Vista should have been the first time.

Software fades

With its house in order, Microsoft can safely get back to its imperialistic ways. And there's no bigger land grab than web search. Ballmer has pledged to fund his new search engine, Bing, with as much as 10% of operating income over the next five years (potentially $11 billion). Why do something so risky when he's lost so much online already? Because the opportunity is simply too big to ignore. Microsoft considers the global search market to be worth as much as $80 billion. And Ballmer recognizes that there's even more power than money in being the leader. Google.com is what Windows used to be: leverage. Controlling the on-ramp to the web allows a company to distribute a broad array of products, which is what Google does so effectively. "They promote YouTube, they promote Chrome," he says, referring to Google's web browser. "If it was us, people would call it an unfair advantage."

As the importance of client software diminishes, so too does Microsoft as we know it. Bing represents the company's best hope yet of maintaining its own unfair advantage. And Ballmer thinks that Google, despite its enormous market share, is vulnerable. "There are a lot of negative views right now of what's going on — Google Books, monopolization, blah, blah, blah," he says, simultaneously highlighting and waving away a growing anti- Google sentiment. "Put all that aside and you have to ask, ‘Has the experience really changed much? Is it easier to find what you're looking for? Is there a chance to do a better job?' I think there's a real opportunity to do that, and somebody had better seize it. Who's got the best shot?"

Microsoft launched Bing in May, and it confirms Muglia's assertion that the company has become more focused on customers. Rather than Google's minimalist homepage, Bing rotates stunning photos embedded with interesting snippets about various parts of the globe. Like Google, the site acts as a jumping-off point, but has just enough flair to make you want to linger. Visitors see more information than they do in Google results and can even play videos without clicking away. Bing is organized more intuitively, and it outperforms in real-time search — a big plus for the Twitter set.

Early returns have been promising. Before Bing, Microsoft's search engine, Live Search, had 8% of the market, according to ComScore. After three months Bing stands at 9.3%; meanwhile, Google's share has dropped 0.4%. Over the summer Microsoft struck a deal for Bing to power the search function across many Yahoo (YHOO) properties. Once the arrangement kicks in, Bing's share could jump to around 30%. "It's a pretty good start," says Yusuf Mehdi, SVP of Microsoft's online audience group. "Best of all, it's really hot with certain demographics, like elementary school children and women, because of the aesthetic design and feel."

Of course the hope is that greater traffic will lure advertisers. Craig Macdonald is the chief marketing officer at media-buying firm Covario. He spends $250 million a year on search ads for clients like McAfee, Intel (INTC), and Procter & Gamble. Impressed with Bing's aesthetic and buzz, he initially increased spending, but has been disappointed. "We saw a 15% to 20% increase in impressions but a 39% spike in the cost of acquisition," he says. Compared with Live Search traffic, driven primarily from the MSN homepage, Bing users are younger, more web-savvy, and frugal. "They did a nice job creating buzz, but we said, ‘We're pulling back.' "

Microsoft may yet benefit from the anti-Google sentiment that Ballmer calls out. No one likes a monopoly, and everyone's favorite web brand has become a freeloader in the eyes of the telecom, book, and media industries. Some of Google's partners have grown disenchanted as well. "With Google, everything's a black box, completely opaque. You have no idea why things go up or down. They're impossible to deal with," says the president of a website that each year generates more than $10 million hosting Google AdSense ads. "Everyone who's not Google is rooting for someone to be a counterweight."

It's not obvious from walking around the company's sprawling campus that Microsoft is locked in combat with some of the business world's most ferocious competitors. There's little resemblance here to the 24/7 sleep-under-the-desk startup culture that permeates Silicon Valley. Many executives are tanned and fit from weekend sails on Puget Sound, hiking up Mount Rainier, golfing, or exploring Machu Picchu. People arrive promptly to meetings, smile broadly, and are exceedingly polite. If quality of life were the most important metric for a recent grad deciding between Redmond and Redwood City, there really would be no choice.

The Valley set sees this as a sign of age and weakness. "They're the IBM of this generation," says Tod Nielsen, chief operating officer of virtualization software company VMware, who worked at Microsoft for 12 years and now competes with his former employer. "They're profitable and successful, but there's not a lot of excitement. It used to be the velvet sweatshop. Now it's all about 9 to 5, 10 to 5 if you're good, and 10 to 4 if you're really good."

Some ex-employees and analysts, none of whom spoke for attribution, agree that the company remains hugely inefficient and lacks vision. They also question whether Ballmer is up to the task of taking on Google, Apple, VMware, and so many other laser-focused competitors. "If shareholders could vote, I don't think they'd pick Steve," says a former vice president who claims to have left Microsoft on good terms. "It's the whole 'dances with elephants' thing, and I don't think Steve can be Gerstner," he adds, referring to Lou Gerstner's book "Who Says Elephants Can't Dance?", in which he details how he rescued IBM (IBM).

It's an easy analogy — the old IBM and the current Microsoft both bulked up in a bygone era. But pre-Gerstner, IBM was on the brink. Its finance team held weekly meetings to see whether the company could cover payroll. With $15 billion in annual net income, Microsoft, on the other hand, is a cash machine. Even the great Vista failure must be viewed with perspective: It runs 350 million PCs. Analysts expect the Windows division to turn an $11 billion profit in fiscal 2010. And really, that's Ballmer's unfair advantage. The profits rolling off Windows and Office subsidize any lack of vision and allow the company to go the safer, more expensive route of chasing down Goliaths after new markets have solidified.

In search, Microsoft is confronting a Goliath with arguably as much market power. (Google has a $158 billion market cap, vs. Microsoft's $230 billion.) Google's new Chrome browser could prove a significant threat to Internet Explorer, which has already been encroached upon by Mozilla's Firefox. Gmail is making headway with businesses in the battle against Exchange, not to mention consumers. Google Docs has spurred Microsoft to make parts of Office available online free in coming months. And then there's Google's Android OS for mobile phones. Launched in 2007, Android will operate more than two dozen heavily hyped phones by 2010, including T-Mobile's MyTouch.

The battle between these two titans isn't just about bragging rights or short-term profit. As our computing activity moves increasingly off our PCs into our phones, onto the web, and all around us, the most platform-agnostic company will rule. That presents Microsoft with a classic innovator's dilemma: It must diminish, or at least ignore, its prior success to secure a place in the future.

Which is why Google executives like their position in this fight. "They are a very large incumbent in an area that's shifting toward a new technology — cloud computing," says Dave Girouard, president of enterprise for Google. "We are a company that was born of the cloud, and we don't have to deal with the legacy issues they have to deal with."

A year ago it would have been easy to agree with Girouard and skeptics who dismiss Microsoft as a sluggish incumbent. But the Windows 7 reboot has reinvigorated the company. In November it will launch Azure, a platform for building applications that are delivered via the Internet; as with Windows 7, potential users seem optimistic. For a change, Microsoft is even getting under Google's skin: Google's Chrome OS basically looks like a PR ploy designed to drive Ballmer nuts.

Whether the company circa 2009 truly represents Microsoft v.3, as Muglia suggests — the version in which Redmond gets things right — Vista is a turning point. It will be remembered either as a harbinger of a bloated company in decline, or it will be the wake-up call that prompted Ballmer and his team to set down a new path. Of course it will be years before we know how the Microsoft story, post-Vista, will play out. As Ballmer himself will tell you, "Plenty of people say everything in tech takes off or fails quickly. There's nothing more laughable than that."

–Reporter Associate, Kim Thai

I got a thoughtful message last week from Jim Neal, a retired advertising and PR guy who owns a little Apple (AAPL) stock and spends a lot of time following its ups and downs.

Lately he's been trying to make sense of Microsoft's (MSFT) Laptop Hunters TV ads — the ones where ordinary Americans are given a budget and a wad of cash and set loose in a computer store to buy a PC.

Microsoft aired the fifth spot in the series last week (pasted below the fold), and Apple for the first time answered back with a couple Get A Mac spots. See here and here.

"Microsoft's anti-Apple ads," Neal writes, "are generally considered a response to Apple increasing market share, something generally believed to be at the expense of Windows market share [and] made possible due to the failure of Vista to deliver.

"All that may be true, but the decision was a poor one. I'm guessing it was made by Steve Ballmer, clearly a more visceral, shoot-from-the-hip guy than Bill Gates.

"Would Gates have made the same decision? Possibly not. He may have opted to continue to ignore Apple's inroads and put all his efforts into making sure Windows 7 was all that it could be. With the new campaign, the heat will really be on Microsoft to deliver with Windows 7.

"Gates may well look at the current Microsoft ad campaign as a mistake and much as [the ads] may delight some people in their camp, he'd be correct.

"The moment Microsoft decided to attack Apple, they increased Apple's credibility. That's a given any time you decide to respond to an opponent you previously didn't acknowledge even had right to get into the ring with you.

"Further, any marketing pro looking at the issue would know that (1) Apple's rabid fan base would react strongly and do all it could to poke holes in the validity of the campaign, thereby further raising the level of the debate, and (2) Apple would eventually decide to enter the fray, making the need to produce an iron-clad argument against Apple all the more imperative.

"After all from Apple's perspective, Microsoft has done them a favor by putting to a larger the audience the key question, 'which combination of OS and hardware is better for the user?'

"Anyone who has taken time to dissect the Microsoft ads (as so many have), knows they're full of holes big enough to drive a truck through.

"Microsoft clearly knows this. The ads didn't just accidentally end up being crafted in a way that's quite misleading. The problem for Microsoft is that they really, really felt compelled to take on Apple, so much so they did it even though they didn't have a leg to stand on. Someone promoted the argument that in the current recession, Apple's weakness was price. It's a weakness, but not as big a one as Microsoft wants to believe, not based on Apple's sales.

"Microsoft went with it anyway. They could have just said, 'we're less expensive, so if you don't have much money, we're the only game in town,' but that wasn't enough.

"So they created a false premise, that Apple products are over priced for what they are, that Windows machines give you more for the money, and they manufactured a set of conditions intended to support the false premise.

"Why Microsoft continues to view their market dominance as proof they have a better product is beyond me. It's the type of thinking that can really kill a company in the long run, the type of thinking that leads one to make really stupid decisions.

"It's like Goliath not only stepping into the ring with David, but handing him the stones to put in his sling and urging him to fire away.

"The Ballmer decision, I think, was a knee-jerk reaction not only to Apple's increase in market share, but to concerns raised by its largest clients, Dell (DELL), HP (HPQ), etc. It was done at a time when Microsoft is at its weakest, the very time when they needed to take the high road and ignore Apple. It was a very stupid marketing decision.

"But Ballmer couldn't take it any more. He took the bait, set out by Apple through its Get a Mac ads.

"To paraphrase Star Trek's Captain Kirk: 'Now we've got them right where they want us.'"

ADDENDUM: Neal doesn't mention it, but Bill Gates would be even more embarrassed if he knew what some people are saying about the format of the Microsoft ads. The image of a young woman being handed a fist-full of cash is apparently a visual trope used quite frequently in a very different kind of film. See Laptop: Porn Hunters.

See also:

• How Microsoft put Apple users on the defensive
• All about Microsoft’s ‘Lauren’
• Is the Apple press falling into Microsoft’s trap
• Apple slaps Microsoft with rubber chickens

Below the fold: The latest Laptop Hunters ad.

UPDATE: Microsoft's own tests find IE8 faster than Firefox. See links to pdfs here. Independent reports treat the company's tests somewhat skeptically. See here and here.

- – -

I have not tested Internet Explorer 8 — the new version of Microsoft's (MSFT) industry-leading Web browser, which was released here on Thursday. And since Microsoft has made it clear that it has no intention of writing a version for the Apple (AAPL) Macintosh, I may never use it.

However, I've gone through the promotional videos and read some of the early reviews, starting with Walt Mossberg's in the Wall St. Journal, and I gather it's a significant advance over IE7 with some fine new features and none of the obvious flaws Vista had coming out of the box. But it has a fundamental problem. As Walt puts it in the last graph of his laudatory review, damning IE8 with faint praise:

"If it were faster, I would say it was the best browser currently available for Windows." (link)

Microsoft's new browser, according to Mossberg (who is backed up by independent tests  — see here and here), is slower than Firefox, Google’s (GOOG) Chrome, and even the Windows version of Apple’s Safari 4. Which makes me wonder whether IE8 might do for Microsoft's dominant position in the Web browser market what Vista did for Microsoft's monopoly position on the PC desktop.

What am I talking about? Let's go to the pie charts below the fold.

According to Net Applications, which does a pretty good job of tracking who's doing what on the Internet (and reports the results in low-res pie charts), this is what Microsoft's share of the OS market looked like two years ago — a couple months after Vista's worldwide release — and what it looks like today:

In two years, a 93% market share has shrunk to 89%. Moreover, Vista only represents 22% of that market; 63.5% of the world is still using Windows XP. (That green slice, by the way, represents the Mac OS's growing share.)

Now let's look at what has happened to the Web browser market in that same time period.

Here the deterioration is even greater: in two years, IE's market share has fallen from 79% to 67%.

This isn't entirely surprising. Although Internet Explorer enjoys the same built-in advantage as Windows — the software comes pre-installed on every Windows PC sold — there are better Web browsers out there, and it's a whole lot easier for users to switch browsers than to switch operating systems. Hence the growing green (Firefox) and red (Safari) slices in the second chart.

How has Microsoft responded to the challenge? From what I'm hearing, Redmond's strategy with IE sounds a lot like the one that brought the world Windows Vista: Stay focused on your installed base. Pile on the features. Sacrifice performance for new tricks. And act as if the other operating systems didn't exist.

That may produce a pretty good Web browser — and one that's sure to improve over time — but it's not going to keep the barbarians at the gate forever.

UPDATE: The latest data from Net Applications show that IE8 lost market share over the first weekend following its release. One theory is that early adopters are switching back to Firefox. See here.

Twenty three were nominated. Nine were selected as finalists. But only one could take home top prize in the first-ever Fiasco Awards ceremony, held Thursday night in Barcelona, Spain.

And the winner was …

Microsoft's (MSFT) Windows Vista, garnering 5,222 of 6,043 votes (86%) registered via the Web. The successor to Windows XP was cited for being over-hyped, overly complex and riddled with incompatibilities.

A quirky, slightly tongue-in-cheek project of the Catalan Association of Telecommunications Engineers, the Fiasco Awards are designed not to "criticize" or "engage in public derision," according to their website, but to recognize that "technological advance is not a straight path" and that "success and fiasco are … head and tail of the same coin."

"God rewards fools," reads the award's logo.

Using a balloting system weighted to ensure that "an opportunity was given to local projects," a consolation prize went to SAGA, the Administration and Academic Management System of the Catalan Government.

The nine finalists were all over the lot, mixing the famous, the local and the obscure. The list included One Laptop Per Child's $100 computer; Linden Lab's Second Life; Google's (GOOG) Lively; the DAB digital radio system used in Europe; the Madrid-based Mobuzz.tv project; Maresme Digital, a project for bringing digital television to Catalonia; and some Linux-based free software packs distributed by the local government administration.

Vista made a particular strong impression in Catalonia because it was the first version of Windows that could be purchased in Catalan, the language of the region.

"Edison made over 1,000 attempts before inventing the light bulb," according the awards' press release, "so he learned how not to do it in more than 1,000 different ways… "

Edison's example could be applied to the Fiasco Awards themselves. Maybe they'll be better next year.

Via: SciAm.com

Apple's (AAPL) slice of the Internet pie grew measurably in November as both the Mac and the iPhone hit record numbers in a Net Applications Web survey issued overnight Monday and updated Monday morning.

At the same time, Microsoft's (MSFT) Web presence crossed two psychological barriers, with Windows' Internet share dropping below 90% for the first time and Internet Explorer's market share retreating to less than 70%.

The Mac's share of Web hits, having lost ground in October, grew 8.04% in November to a record 8.87%, according to the Web metrics firm's preliminary corrected data. The iPhone's gains were sharper: up 12.12% to 0.37%.

(Linux grew even faster, up nearly 16.9% for the month, following a 22% drop the month before.)

Windows' share slipped nearly 10% to 89.62% as Vista's gains failed to make up for sharp losses by Windows XP.

Internet Explorer's shrinkage — down 2.1% to 69.78% –  was largely due to gains by Mozilla's Firefox, which topped 20% for the first time in November.

"Reaching 20 percent worldwide market share is a significant milestone for Firefox and Mozilla," Mozilla CEO John Lilly told Net Applications. "It's a huge achievement by the global Mozilla community, one that just a few years ago most would have considered impossible."

Net Applications' monthly surveys are conducted by sampling browser data from some 160 million visits to Web sites operated by firm's clients. Although the company describes the results as “market shares,” Net Applications does not actually measure share of market in the traditional sense of sales revenue or unit sales. It does, however, provide a consistent methodology by which to measure browser and operating system trends.

To see Net Applications’ Nov. 1 report, click here. The results are summarized in the tables below.

These monthly reports, however, mask considerable variation from week to week and day to day. To get a sense of how variable web browsing patterns can be, see the see-saw graphs below the fold created by Financial Alchemist's Turley Muller, who has been tracking Net Applications' daily reports since last June.

Below: Muller's daily tracking of Mac and iPhone Internet shares.

For more of Muller's analytical work, visit his Financial Alchemist website here.

This seems to be the season of lists, the bread and butter — however stale — of journalists facing a slow news day.

This one trods the most familiar ground in computerdom, pitting Apple (AAPL) Macs running OS X against PCs running Microsoft (MSFT) Windows. But it comes from APC, the longest running computer magazine in Australia, and it's unusually insightful.

I post only the intro and the topic headers here because I recommend you read it in the original, complete with well-chosen examples, clever illustrations and charming Britishisms.

Here's how APC Web editor Dan Warne sets it up:

15 reasons Macs are still better than Windows PCs

A journalist colleague of mine recently put this question out there:

"I'm sure I'll either get ignored or flamed for this but what's with all the pro-Mac stuff at the moment? It seems as though everyone […] is either using or recommending Macs these days.

I'm not wanting to start a flame war here but I'm genuinely interested in why this general shift has occurred.

Do people think Vista is truly that awful that they can't use it or even recommend a normal Windows desktop/notebook? I use it every day and I admit I don't like it much either but I don't think it's that bad that I'd jump to using or recommending a Mac instead…"

I long ago stopped actively seeking out Mac vs PC discussions (partly because Macs are now PCs — so the argument is more about Mac OS X vs Windows vs Linux than a proprietary Mac architecture vs an x86 PC architecture), but I still find it confounding that after all these years, people still don't know the basics of the upsides of Macs and OS X. Perhaps it's because of the tiresome arguments from people like this.

So here's my answer. Note, despite what I said above about the argument really being between operating systems these days, I've looked at Macs as a hardware and software combination in this article, pitted against regular PCs running Windows. (link)

Warne's 15 reasons (topics only). For the full article, click here.

1. Reliable sleep mode
2. Extremely fast boot times
3. Apple uses good quality parts
4. Less blinking lights
5. OS X + Windows is better than just Windows
6. Easier to troubleshoot Macs
7. A culture of good quality community software
8. More useful apps out of the box
9. Neat and contained system settings
10. Apple doesn't load the system up with crap
11. Tonnes of small reasons make Mac OS X better
12. Still no need for additional security software
13. Apple seems largely to be lameness free
14. Power of the Linux command line with Photoshop CS4
15. File sharing is much easier

Once again, for the full article, click here.

[Illustration courtesy of apcmag.com]

How do you explain this one?

The monthly Market Share survey from Net Applications, which had reported steady increases for the Mac OS in the previous two months and sharp growth for the iPhone — including a 57% surge in August — showed a very different picture in the October report issued overnight Saturday.

In October, iPhone growth slowed to 3.12% (down from 6.67% in September) and the Mac's share actually fell, down 0.24% from September. (Linux was particularly hard hit, down nearly 22% for the month; see charts below.)

Windows, meanwhile, got a little bump — up 0.19% — thanks to a healthy 5.24% jump in Vista's share.

How did this happen?

The first thing to be said about these results is that Net Applications' "market share" report doesn't actually measure share of market as a percentage of revenue or unit sales. That's the business Gartner and IDC are in. And in Gartner and IDC's latest reports, Apple's (AAPL) share of the U.S. market had grown to 9.5% and 9.1% respectively, largely at the expense of the HP (HPQ) and Dell (DELL) (see here).

What Net Applications does measure — based on browser data from some 160 million visits to websites operated by Net Applications’ clients — is the extent to which users of each operating system are hanging out on the Internet.

In other words, what the Web metrics firm's latest data show is that in October, Windows users — and Vista users in particular — were coming online at a faster rate than Mac users. This despite the fact that Mac sales grew 21% worldwide last quarter according to Apple, and roughly 30% in the U.S. according to Gartner and IDC.

So what was it about October that drew Vista users to the Web in greater proportion than Mac users? Could it have something to do with Microsoft's (MSFT) $300 million ad campaign for Windows? Was it PC users obsessively tracking poll numbers in the U.S. presidential race? Could it be related somehow to the meltdown of the global financial markets?

While you ponder that, here are summaries of the latest Net Applications reports, broken down first by OS and then by different versions of those operating systems. To see the full results, click here.

"Developers," a VP at Electronic Arts once told me, explaining why there were so many me-too Windows applications, "will walk through the desert in their socks to get to an installed base."

True enough. But it doesn't quite explain the results of a survey issued last week by Evans Data Corp. The headline was that most developers are still not targeting Windows Vista when they write new apps. Only 8% of the 380 developers surveyed were writing for Vista; 49% were still targeting Windows XP.

That makes sense, given that XP still enjoys a 73% market share, compared with less than 15% for Vista, according the latest NetApplications report (link).

What is harder to justify, using the desert-and-socks rule, is the sharply increased interest in non-Windows platforms. The press release didn't mention it, but Evans Data CEO John Andrews did in an interview with Computerworld's Heather Havenstein:

"Open source alternatives like Linux continue to take on interest," he [said]. "As well, MacOS is also acquiring significant interest among North American developers. Although unlikely to displace Windows volume, MacOS experienced 50 percent growth as a primary development platform and 380 percent growth as a targeted platform during the period." (link)

We've asked Evans Data to clarify this quote, because in this form it's not particularly helpful. The 380% figure sounds suspiciously like a misquote, given that the size of the survey group was also 380. And that 50% increase is unanchored; it could mean 1 more developer writing for Mac or 100.

But any increase in Mac and Linux development is surprising — and encouraging — given that Microsoft (MSFT) still owns more than 91% of desktops, Apple's (AAPL) OS runs on 7.38% and Linux still hasn't cracked the 1% mark.

Could programmers be developing an interest in something beyond the size of the installed base?

Apple has no numbers to compare with the 140 million copies of Vista that Bill Gates says Microsoft (MSFT) has sold since the latest version of Windows started shipping in late 2006. (link)

Literally, no numbers. The last time Apple (AAPL) released a Leopard sales figure was Oct. 30, 2007, when the company said that it had sold more than 2 million copies of Leopard in one long weekend (see here). Apple reported $170 million revenue from Leopard sales in the December '07 quarter, but that represents fewer than 1.3 million copies. Apple also sold 2.32 million Macs that quarter, more than 2/3 of which probably had Leopard pre-installed.

Even so, the two operating systems aren't even playing in the same ballpark when it comes to raw sales.

Of course, Vista was greeted with brickbats and Leopard with raves, but Gates didn't dwell on that in Tokyo Wednesday, where he gave his Japanese partners an update on how Vista is doing. "That's a very rapid sales rate," he said.

Not necessarily.

"The most significant number," says Piper Jaffray analyst Gene Munster, "is Apple's upgrade penetration vs. Microsoft's. Apple estimated that about 19% of the OS X user base was on Leopard by the end of its launch quarter. By my math, Vista is used by about 12%-14% of the Windows user base more than a year after its retail launch."