Microsoft CEO Steve Ballmer can't afford to bewrong about Windows 8.
On Thursday in New York, Microsoft will unveil a dramaticoverhaul of its ubiquitous Windows operating system. If it flops, the failurewill reinforce perceptions that Microsoft is falling behind competitors such asApple, Google and Amazon as its stranglehold on personal computers becomes lessrelevant in an era of smartphones, tablets and other mobile devices.
If Ballmer is right, Windows 8 will prove that the world'slargest software maker still has the technological chops and marketing muscleto shape the future of computing.
"This is going to be his defining moment," saidtechnology industry analyst Patrick Moorhead of Moor Insights & Strategy.Ballmer's "legacy will be looked at as what he did or didn't do withWindows 8. If Windows 8 is not a success, a lot of people will be looking forMicrosoft to make a change at the CEO level."
Windows 8 is designed to run on PCs and tablet computers,heralding the biggest change to the industry's dominant operating system in atleast 17 years. It also marks the first time that Microsoft has madetouch-screen control the top priority, though the system can still be switchedinto the familiar desktop mode that allows for control by keyboard and mouse.
Ballmer sees Windows 8 as the catalyst for a new era atMicrosoft. He wants the operating system to ensure the company plays anintegral role on all the important screens in people's lives — PCs,smartphones, tablets and televisions.
"We are trying to re-imagine the world from the groundup with Windows 8," Ballmer told The Seattle Times. He declined to beinterviewed for this story.
Early reaction has been mixed. Some reviewers like the waythe system greets users with a mosaic of tiles displaying applications insteadof relying on the desktop icons that served as the welcome mat for years.Critics say it's a confusing jumble that will frustrate users accustomed to theolder versions, particularly when they switch to desktop mode and don't see thefamiliar "start" button and menu.
Windows 8 will hit the market backed by an estimated $1billion marketing campaign. The advertising frenzy is just one measure of howimportant Windows 8 is to Microsoft's future.
Ballmer's margin for error is slim after being consistentlyoutpaced by Apple and Google in his nearly 13 years as CEO. During his tenure,Microsoft's stock has lost nearly half its value, wiping out more than $200billion in shareholder wealth.
But the company's board hasn't expressed any publicdissatisfaction with Ballmer, who is Microsoft's second-largest shareholderwith a 4 percent stake worth $9 billion. Only his good friend and predecessor,Microsoft founder Bill Gates, owns more of the company's stock. Gates has a 5.5percent stake.
Since Ballmer succeeded Gates as CEO in January 2000,Microsoft's annual revenue has nearly quadrupled to $74 billion and expandedinto lucrative new territory with its popular Xbox 360 video game console,which has given the company a platform for delivering services to televisionsets. But Microsoft has been slow to respond to technology shifts and has madesome costly missteps trying to catch up.
Some of the best-known blunders include the company's iPodclone, the Zune, and its $6.3 billion acquisition of Internet ad serviceaQuantive.
Ballmer, 56, has spent most of his life at Microsoft. He wasattending Stanford University's graduate school of business in 1980 when Gates,a former classmate at Harvard University, persuaded him to drop out and become oneof the startup's first 30 employees. He brought more business savvy to theoperation just as the company began providing an operating system for IBMCorp.'s first personal computer.
Just two weeks before Ballmer took over, Microsoft's stockreached its peak price. The dot-com bust quickly deflated that market value,and the company became locked in antitrust battles in the U.S. and Europe thatdistracted management for years.
The biggest question hovering over Windows 8: Is itinnovative and elegant enough to lure consumers who are increasingly fond ofsmartphones, tablets and other sleek gadgets? Those mobile devices have beensetting industry standards while Microsoft engineers have spent two yearsdesigning a new operating system.
And Windows 8 must address not only the upheaval in thecomputing market since Windows 7 came out in 2009, but also have theflexibility to adjust to future shifts in technology before Microsoft releasesanother version in two or three years.
"It doesn't seem like Microsoft is really pushingconsumers into the future with Windows 8," said Forrester Research analystSarah Rotman Epps. "What Microsoft has done is like buying a pair of shoesfor a kid. The shoes may fit exactly right today, but those shoes probablywon't fit six months from now."
Previous versions of Windows and other Microsoft productssuch as Office are so deeply embedded in companies and government agencies thatMicrosoft is still assured a steady stream of revenue from that segment of themarket. That loyal base of customers is one of the reasons that Microsoft isexpected to earn $25 billion on revenue of $80 billion in its current fiscalyear ending next June.
"This isn't a company that is on the edge ofextinction, like some people would have you think," said BGC Financialanalyst Colin Gillis. "What we are seeing with Windows 8 is classicMicrosoft. They let the (technology) market lead and then they follow."
But investors want to see Microsoft do something more. Thenagging fear on Wall Street is that the PC industry is past its prime andheading into a gradual decline that will pull down Microsoft, too.
The signs of decay have been proliferating since Applereleased the iPad in 2010, hatching a tablet computer market that has combinedwith an already vibrant smartphone market to siphon away technology spendingthat used to go toward the latest PCs.
Worldwide PC sales year are expected to decline this yearfor the first time since 2001, according to the research firm ISH iSuppli. It'sa drop of just 1 percent, but it underscores a troubling trend that has beenhurting Microsoft.
The shift to mobile devices has whittled Microsoft'sworldwide share of the computing device market from 67 percent in 2008 to about30 percent today, estimates Forrester Research analyst Frank Gillett. Thanks toits Android software for phones and tablets, Google is now the leader with a 40percent share of the computing device market. Apple stands at 20 percent.
Analysts don't expect Microsoft's corporate and governmentcustomers to immediately embrace the new system, no matter how much it's hyped.About half of this traditionally cautious group of customers still haven'tupgraded to Windows 7. Most analysts expect companies and government to holdoff on switching to Windows 8 for at least another year.
Ballmer hopes to accelerate the changeover by makingMicrosoft's Office software suite more compelling, with the help of two majoracquisitions.
Microsoft bought the video chat service Skype for $8.5billion last year and in June agreed to pay $1.2 billion for Yammer, a servicethe builds social networking services within companies. Both are expected tobecome key features within Office to make it easier for workers to connect andcollaborate with their peers and customers.
Ballmer also has won praise from analysts for strikingpotentially fruitful partnerships with Yahoo Inc. and Nokia. Microsoft nowprovides Yahoo with much of the same technology that runs its Bing searchengine. The Yahoo deal provides Microsoft with 12 percent of the revenue fromthe ads shown alongside search results on Yahoo's website.
The Nokia alliance ensured Windows 8 would be the operatingsystem on that company's latest line of smartphones, a potentially valuableplatform if Nokia is able to regain some of the market share it has lost inmobile phones during the past five years.
(Microsoft has also joined with The Associated Press to useAP content in Windows 8 news applications.)
But none of that has yet restored the luster Microsoft hadon Wall Street when Gates was in charge.
Ballmer's initially dismissed emerging threats from Googleand Apple. He consistently pooh-poohed Google as a one-trick company during itsearly years and in 2007 declared: "No chance that the iPhone is going toget any significant market share."
Those were some of his biggest mistakes, detractors say.Google quickly made important inroads in Internet video, online maps, email andmobile computing and contributed to the damage that the iPhone and iPad havedone to Microsoft and its partners in the PC market.
Apple's meteoric rise has been especially painful forMicrosoft. When Steve Jobs returned to run Apple in 1997, the company was sobad off that it needed a $150 million infusion from Microsoft to stay afloat.Now Apple has a market value of $570 billion — more than double Microsoft's$250 billion.
On Tuesday, Apple got a chance to upstage Microsoft when CEOTim Cook showed off the iPad Mini, a smaller and less expensive version of itstop-selling tablet.
On Thursday in New York, Ballmer will herald the arrival ofthe most important product of his reign. The market's response to Windows 8 maydetermine whether it turns out to be the opening act in his vindication or oneof his final moments in the spotlight.