A big Microsoft step on uncertain terrain

It's just another Monday for most of us, but for Microsoft Corp. and much of the world computer industry, today was supposed to be Christmas.

This afternoon, Microsoft will finally begin shipping the consumer version of its new Windows Vista operating system, and the latest update to its Office productivity software suite. Both products had been expected to drive sales of personal computers during the holiday shopping season, but neither was ready in time. Indeed, Vista is coming to market four years later than Microsoft had originally planned.

So much has changed in those four years that industry experts now question the future of Microsoft's traditional business model, in which the company every few years sells full-blown software upgrades to millions of customers worldwide. As in every upgrade cycle, Microsoft must persuade people to abandon earlier versions of Windows or Office, even though they're good enough for most people. But this time, Microsoft Office must compete with Internet-based competitors and a popular free office software suite, and it must contend with government agencies that want to store public information in a more accessible form.

As for Vista, it faces strong competition from Apple Inc.'s Macintosh computers and the free Linux operating system. Besides, today's newest computers have processors so powerful they can run several different operating systems at once, in a technique called "virtualization." Users might not even need full-fledged operating systems any more. Instead, the computer could run a virtualizer program , which can interface between programs and computer hardware more efficiently than standard operating systems. Programs such as browsers or word processors could be sold as "virtual appliances." Instead of being written for Windows or Linux, these programs would work on any kind of computer running a virtualizer.

J. P. Gownder, principal analyst at Forrester Research in Cambridge, said Microsoft is already preparing for a future in which Windows fades in importance. "Are they going to get the majority of their revenue from operating systems in the future? Not in the long run," said Gownder. He said that Microsoft's leaders are investing heavily in digital entertainment products like the Xbox 360 gaming console because there's little chance of massive growth in the Windows business.

Microsoft's second-most-profitable product, Office, is also under stress. Cheaper alternatives abound, from the free OpenOffice software suite to new online office applications that run over the Internet. But the toughest challenge to Office may come from government agencies around the world, including the state government of Massachusetts. Documents generated by Microsoft Office are stored in Microsoft's proprietary file format, thus making it difficult to read the documents using other brands of software. Some government officials want alternative data storage formats that can be accessed by many different programs.

Massachusetts this month began requiring the executive branch of the government to store all documents in OpenDocument, an internationally recognized standard format that Microsoft does not include in Office. Most government computers, which use Microsoft Office, are being equipped with add-on software to convert files to the new format. Microsoft has fought back with a new document format of its own, called OpenXML , which is included in Office 2007. OpenXML has been submitted to the International Standards Organization for recognition as an open standard. Massachusetts officials say they're willing to consider using OpenXML as well as OpenDocument.

Either way, it means that in the future, any office software will read any OpenDocument or OpenXML file, and users will no longer feel compelled to buy each new version of Microsoft Office to read their files.

To Louis Suárez-Potts, community manager for OpenOffice.org, it's the beginning of the end. "We're giving people keys to the toy room," said Suárez-Potts, whose OpenOffice suite uses the OpenDocument standard. "I do not say that judgment day is coming and Microsoft should head for the hills," he said, but added that open file formats are bound to erode Microsoft Office's dominance.

Microsoft founder Bill Gates and chief executive Steve Ballmer are hosting a gala rollout party for Vista and the new Office in New York's Times Square. But the road to the Vista launch party was a rocky one. First, Microsoft had to scrap its original design for the software after it proved too complex; then the company was forced to divert hundreds of programmers to fix massive security problems in Vista's predecessor, Windows XP.

Still, things don't look so bad from Microsoft's viewpoint. "The role of the operating system will continue to be not only central, but will become more important," said Brad Goldberg, general manager of Windows client software. Goldberg said that as millions of consumers embrace digital photography, music, and movie downloads, the personal computer becomes the hub for all home entertainment and information systems. Handling all that work will require a robust, full-featured operating system like Windows, not a stripped-down virtual appliance, said Goldberg.

Yancey Smith, group product manager for Microsoft Office, said that adding an open file standard will actually boost his product's popularity. "We just have to keep offering something new that people want," said Smith, "and if they do, people will keep on buying it."

Hiawatha Bray can be reached at bray@globe.com.