- The Washington Times - Monday, October 19, 2009

Microsoft Corp. Chief Executive Officer Steve Ballmer says the company got the wrong impression from early positive feedback on Vista and won’t make the same mistake with the software’s successor, Windows 7.

Mr. Ballmer has established a process for gathering feedback from computer makers, and he’s personally surveying customers — and his teenage son — to make sure Windows 7, which debuts Thursday, works.

Early users, including Continental Airlines Inc., Starwood Hotels & Resorts Worldwide Inc. and the city of Miami, say they are upbeat about the software.

“The test feedback has been good, but the test feedback on Vista was good,” Mr. Ballmer, 53, said in an interview. “I am optimistic, but the proof will be in the pudding.”

Mr. Ballmer needs a winner. Microsoft’s shares have lost about half their value since he took over as CEO in 2000. For most of the past year, he ran the Windows business himself, and he’s counting on Windows 7 to restore investor confidence after corporations and consumers snubbed Vista.

About 80 percent of companies plan to switch to the software in the next two years, according to ISI Group, a brokerage firm in New York.

“Windows 7 is important for how Microsoft is seen in the marketplace, especially after how Vista was received,” said Ken Allen, a portfolio manager at Baltimore-based T. Rowe Price Group Inc., the seventh-biggest institutional holder of Microsoft shares. “It will be an important year for how Mr. Ballmer is viewed as CEO.”

Wall Street is underestimating the impact of Windows 7, said Sarah Friar, a Goldman Sachs Group Inc. analyst in San Francisco. Analysts’ profit estimates for Microsoft, the world’s largest software maker, are 3 percent and 5 percent too low for 2010 and 2011, she said.

The company’s Windows sales will increase 9 percent to $16.3 billion in 2010, the first full year Windows 7 is on sale, compared with a 10 percent decline this year, she predicts. “We have big expectations for what Windows 7 can do,” Ms. Friar said.

Others remain unimpressed with Windows 7 and Mr. Ballmer.

“Ballmer needs to retire — it’s been a huge disappointment from a shareholder’s perspective,” said Dave Stepherson, a fund manager at Hardesty Capital Management in Baltimore, referring to Mr. Ballmer’s tenure as CEO. He helps manage $650 million, including Microsoft shares. Windows 7 won’t change things because it doesn’t have any “must-have” features, he said.

Microsoft shares haven’t fared well during Mr. Ballmer’s tenure as CEO, but they ended last week at $25.55, 31 percent higher than at the start of the year. Of the 36 analysts following the Redmond, Washington-based company, 25 suggest buying the stock, 10 say hold and one says sell, according to data compiled by Bloomberg.

Continental, the fourth-largest U.S. air carrier, and Starwood, the third-biggest U.S. lodging company, say Windows 7 runs faster than Vista. It starts up and shuts down more quickly and lets users preview the contents of windows by placing their mouse over the entry on the bottom of the screen. It also supports multitouch navigation, so users can control the software using their fingers.

In the past, companies typically have switched to a new version of Windows when buying new PCs, said Heather Bellini, an analyst at ISI in New York. Because Windows 7 runs on older computers, ISI’s survey saw a “significant jump” in companies saying they would put Windows 7 on existing computers.

Continental says Microsoft is more responsive to suggestions than it was with Vista, when the airline’s proposals for features never made it into the software. Windows 7 now offers those options, such as better mobile access to corporate networks, said Eric Craig, managing director of technology at Houston-based Continental.

Because Windows 7 can run on older machines, it’s more appealing to budget-conscious customers, Mr. Craig said. Continental can use the software on more than 60 percent of the PCs it already has, he said. Microsoft has developed tools that help customers upgrade operating systems and assess whether their applications will work.

“We’re all struggling with the economic reset,” Mr. Craig said, adding that Mr. Ballmer should get a lot of the credit for focusing on the cost of Windows 7. “He really understands the incredible pressures on us to deliver with what we already have.”

Vista debuted in 2007 — two years behind schedule and more than five years after the previous version, Windows XP. Vowing never to go that long again between releases, Mr. Ballmer reshuffled executives. He put Steven Sinofsky, known for sticking to deadlines with Office releases, in charge of Windows development.

Even then, Mr. Ballmer said he worried that Windows 7 wouldn’t be exciting enough. That changed two summers ago, when he saw a demonstration of a math feature. Users could hand write an equation onto a panel, and the software would recognize the notation. Mr. Ballmer, who went to math camp as a child, was impressed.

“I said, ‘Yep, this product’s going to be an exciting product,’” he said.

To gauge the reception to Windows 7, Mr. Ballmer is doing his own polling. A test version of the software has been available since January, giving early adopters a chance to try it out.

“He asks everyone he talks to, ‘Are they using Windows 7? What are they experiencing?’” said Tami Reller, a Windows vice president. “He’s his own market-research firm.”

Mr. Ballmer says his toughest critic is his 14-year-old son, who has helped find bugs in the software. The boy put an early version of Windows 7 on his school laptop about 18 months ago, “probably well before he should have,” Mr. Ballmer said.

With Vista, many computer and software makers didn’t have compatible products out soon enough. To fix that problem, Mr. Ballmer has his lieutenants gather feedback from computer makers in a systematic way and act on it. The new approach has won praise from Hewlett-Packard Co., Dell Inc. and Acer Inc., the three largest personal computer makers.

“Windows 7 is the first right thing they have done in the recent five years,” said J.T. Wang, chairman of Taipei-based Acer, in an interview in April.

Windows still dominates the market, running more than 90 percent of PCs. Even so, Apple Inc.’s Macintosh has gained market share since Vista debuted. Apple’s share of U.S. PC sales increased to 8 percent in the fourth quarter of 2008, from 5.1 percent in 2006, according to Stamford, Connecticut-based Gartner Inc.

“We often hear from our customers that they chose Mac because they’re tired of the headaches with Windows,” said Bill Evans, a spokesman at Cupertino, Calif.-based Apple. He said many existing Windows users will have a “painful upgrade” to Windows 7, giving them a reason to buy a Mac.

Some customers put off PC purchases altogether after Vista. And makers of netbooks — the cheap laptops that have surged in popularity this year — have opted to use the older Windows XP because it’s less expensive and doesn’t require powerful hardware. Windows revenue has declined in each of the past three quarters.

Mr. Ballmer’s record as CEO depends on more than just the success of Windows 7, ISI’s Ms. Bellini said. He needs to reach beyond the achievements of his predecessor, Bill Gates, she said.

Being able to say: “‘I took what someone else did and maintained it’ is not a bad legacy, but it’s not a great legacy,” said Ms. Bellini, who recommends buying Microsoft shares.

“His legacy should be: What can he build on his own?”

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