Prediction: Microsoft will leapfrog Vista, release Windows 7 early, and change its OS business

Microsoft is nothing if not responsive to its customers. In fact, it’s hyper-responsive. That’s why we’ve ended up with feature-bloat in both Microsoft Windows and Microsoft Office as the company has tried to please everyone by including everything-but-the-kitchen-sink in its software.

And that’s why Microsoft will ultimately try to quell the embarrassing Windows Vista debacle by making a bold move with Windows 7 to win back customer loyalty and generate positive spin for its most important product.

What will happen next?

My prognosis is that Microsoft will use smoke and mirrors to conjure up an early release of Windows 7, the next edition of the world’s most widely-used operating system. Then they will quietly and unofficially allow IT departments to migrate straight from Windows XP to Windows 7.

Microsoft Chairman Bill Gates has already alluded to this and IT departments have certainly welcomed that idea, since most of them have found very few reasons to migrate to Vista — although my colleague John Sheesley recently argued the devil’s advocate position for IT departments to adopt Vista.

To be clear, I am not predicting that Microsoft will do a quick-and-massive overhaul of Windows Vista in the next 12 months. Instead, I think we’ll see Microsoft do the following:

• Strip out or minimize some of Windows Vista’s clunkiest features — especially User Account Control
• Simplify the interface back to something closer to Windows XP
• Reduce backward compatibility in order to streamline the code base
• Work much harder with vendors to ensure driver and software compatibility with new hardware and applications
• Reduce the cost of Windows in retail boxes in order to generate goodwill and undercut Mac OS X (meanwhile, this will have little effect on the price of enterprise licensing, which is already much cheaper than retail)
• Learn from the long delay of Windows Vista and move to an incremental release model with a subscription and at least one major update per year. Financially, most IT departments are already on a subscription plan. Now look for Microsoft to move consumers in this direction.
• Release Windows 7 by the end of 2009 and market it as the simplest and easiest Windows ever

This will be Windows Vista Service Pack 2 but with a new Windows name, a new marketing campaign, and a new release model. Naturally, Microsoft won’t fool many IT departments or hard core techies with this type of move, but it doesn’t have to.

If Microsoft does it right, this will create a general sense that it “fixed” Windows and will create an OS that is more modular and more versatile so that it can thrive on more types of devices, from things like the Eee PC and the HP 2133 Mini-Note to high-end laptops and desktops.

If you want evidence to support this theory, look no further than the circumstances that created and led to the evolution of Windows XP, which currently dominates about 80% of computers.

Remember the circumstances surrounding Windows XP?

Windows 2000 was supposed to be the version of Windows that unified the two code bases: Windows NT and Windows 9x. It was named Windows 2000 so that it would be seen as the obvious successor to Windows 98, which was much more widely deployed than Windows NT 4.0, the code base that made up the foundation of Windows 2000. However, as deadlines were missed and features had to be dumped, the concept of codebase unification was one of the casualties.

That left Microsoft with Windows 2000 Professional as the clear successor to Windows NT 4.0 Workstation, while Windows 98 still enjoyed a far larger installed base and thus most of the hardware and software vendors tailored their solutions to that OS. Windows 2000 Pro was not widely adopted, despite the fact that it may have been one of the highest quality client OS releases that Microsoft has ever done.

Microsoft’s update to Windows 98 was called Windows Me, and it had an ever lower adoption rate than Windows 2000. Users, businesses, and IT departments simply were not interested in either of these two operating systems. They stuck to their guns and stayed with Windows 98 in large numbers. Is any of this sounding familiar?

As a result, Microsoft sped up the next release of Windows 2000 and re-focused it on unifying the two codebases. The result was Windows XP Home and Windows XP Professional. Despite a lot of initial concerns about Product Activation (which was introduced with Windows XP), the OS itself satisfied users and IT departments enough that it became a natural choice to upgrade when it came time to replace hardware.

One of the primary motivators for naming Windows XP — the “XP” stood for “eXPerience” — was to get away from the year designations (Windows 95, Windows 98, and Windows 2000) and create a product that would be upgraded incrementally and purchased via subscription. So, the idea of creating an operating system that would rely on incremental releases rather than a shiny new box every 3-4 years is definitely not new for Microsoft.

The first problem with that was that while Microsoft was talking about that ideological shift during the release of Windows XP, there was already a group of developers working on the next major release of Windows (it was code-named “Longhorn” back then and eventually became Vista). The status quo executives inside Microsoft decided that they wanted to keep doing standard OS releases because there was too much money at stake to change the business model too rapidly.

However, with its Software Assurance program, which as launched in 2002 (the same year as XP), Microsoft bundled OS and application licensing with customer support to create a new volume licensing program that is based on a subscription model. That was the first step in changing the business model, so that it can change the development and upgrade model for Windows.

The next big — and potentially more challenging step — will be to convert consumers and small businesses to Windows subscription customers. This could eventually involve advertising, in which users could get Windows for free or at a reduced cost if they allow part of their Windows screen to be used for targeted advertising. Of course, you could pay a higher fee and get no advertising.

Whatever Microsoft does in terms of the Windows business model, it’s clear that the company must simplify Windows and change the development model to feature incremental releases of the OS rather than huge new versions that break existing applications and are incompatible with the current hardware. Consumers and IT departments are simply no longer willing to accept that.

Can Microsoft change Windows quickly enough?

Microsoft knows it needs to change Windows drastically and quickly. It’s known since before it even released Vista.

In a January 7, 2004 e-mail, the chief of the Microsoft Windows team, Jim Allchin wrote to Bill Gates and Steve Ballmer:

“I am not sure how the company lost sight of what matters to our customers (both business and home) the most, but in my view we lost our way. I think our teams lost sight of what bug-free means, what resilience means, what full scenarios mean, what security means, what performance means, how important current applications are, and really understanding what the most important problems [our] customers face are. I see lots of random features and some great vision, but that doesn’t translate into great products. I would buy a Mac today if I was not working at Microsoft… Apple did not lose their way… They think scenario. They think simple. They think fast.”

On September 23, 2005, The Wall Street Journal reported:

Jim Allchin, a senior Microsoft Corp. executive, walked into Bill Gates’s office here one day in July last year to deliver a bombshell about the next generation of Microsoft Windows.

“It’s not going to work,” Mr. Allchin says he told the Microsoft chairman. The new version, code-named Longhorn, was so complex its writers would never be able to make it run properly.

The news got even worse: Longhorn was irredeemable because Microsoft engineers were building it just as they had always built software. Throughout its history, Microsoft had let thousands of programmers each produce their own piece of computer code, then stitched it together into one sprawling program. Now, Mr. Allchin argued, the jig was up. Microsoft needed to start over.

We don’t know the extent to which Microsoft changed Longhorn/Vista or the development process. We do know that it went ahead and released Windows Vista in January 2007, and that the response to it has been famously lackluster. Many users have been confused and frustrated by it. A lot of powerful machines run much slower with Vista than XP. IT departments have avoided it like the plague.

Microsoft executives have continued to point to strong sales of Windows Vista, but those are mostly driven by new computers that have Vista installed automatically and enterprises that are paying for Vista licenses as part of Software Assurance but are not deploying it.

I have no doubt that Microsoft execs are privately seething over the public condemnation of Vista, and they are looking for ways to right the ship. Never forget that this is Microsoft’s most important product.

If you doubt Microsoft’s ability to move quickly, look at its response to the security crisis it faced in 2000-2002, when Windows was repeatedly targeted for viruses, worms, and malware. Bill Gates announced the Trusted Computing initiative in early 2002. In August 2004, Microsoft launched Windows XP Service Pack 2, which hardened Windows and inspired enough confidence for IT departments to standardize on Windows XP in large numbers.

Microsoft developers are ready

I was on the Microsoft campus in the fall of 2005, and I got a vibe from the Windows development team that really surprised me. They were not very happy with the direction of Longhorn or the team’s leadership. They seemed to think that it was time to blow up Windows and start over with something stronger and simpler.

Obviously, they didn’t get their wish. At the time, they probably didn’t realize that Jim Allchin would have preferred to do the same thing. Now, it’s very doubtful that they will get the opportunity to start from scratch with Windows 7, but at this point, I think it is very likely that they will get the opportunity to simplify and streamline Windows. While the leaders of Microsoft didn’t see that as a necessity or an option when they got Jim Allchin’s warning flares a couple years ago, I bet the market’s rejection of Windows Vista is proving to be a much more powerful motivator.

Bottom line for IT leaders

It’s unlikely that Microsoft is sitting on its hands and waiting for IT departments to start rolling out Windows Vista, or for users to start liking it and creating a demand for it. The jury has ruled on Vista, and it is largely a dud because it offers too few improvements from Windows XP and it actually runs slower on the same hardware in many cases.

Look for Microsoft to make some bold moves with the OS, including a new incremental development model and potentially a subscription business model for consumers. Also, look for the Microsoft marketing machine to launch a “new” version — Windows 7 (which will actually be more like Windows Vista Service Pack 2) — that will be faster, simpler, and perhaps  released in 2009.