Tech: Is Microsoft Squabbling Internally?

March 22, 2006 — -- In addition to disappointing retailers and partners in the PC market, Microsoft's decision to delay the release of its long-anticipated Windows Vista operating system until early 2007 suggests the company has had problems integrating its once-autonomous technology divisions, analysts said.

Though the announcement only delays the new operating system's scheduled release date by months, it's just the latest in a string of development holdups. Originally, Microsoft planned to release an operating system called Longhorn in 2005, but technology and company politics forced it to dump one proposed feature in the new system and push the release date back to the second half of this year.

The latest delay will likely affect holiday sales at retail stores like Best Buy, as well as at PC companies like Dell that use Microsoft Windows.

'They Bit Off More Than They Could Chew'

Analysts said the major problem was Microsoft's eagerness to pack extra features into Windows Vista. In its initial concept phase, Vista was to include its own database filing system, known as WinFS, that would allow users to apply database features like address books to such functions as e-mail and instant messaging, and even across online networking sites like MySpace.com.

But one analyst said developers who worked to integrate WinFS into the operating system had difficulty coordinating between previously autonomous divisions within the company. Clashing cultures and incentives between the Windows client division, which previously oversaw all Windows operating system work, and the server and tools division, which was in charge of database management, slowed down the process.

"There were political problems and technical problems," said Rob Helm, director of research at Directions on Microsoft, an independent analysis firm that focuses solely on Microsoft. "The two divisions have different business incentives, and the company, knowingly or unknowingly, set up a situation where their business incentives were not the same as their technology incentives."

Microsoft has since decided to scrap the WinFS addition to Windows Vista, a move that Helm said would help speed up development. It's likely that the company will work to integrate the systems and the separate divisions in the future.

"Frankly, they bit off more than they could chew," said Helm. "Over time, Bill Gates, who is the champion of interactivity, will push the company to integrate more. They're just acknowledging that they're not there yet."

The company has also reorganized the management of the Windows client division. Eventually, the reorganization will benefit the company, Helm said, but in the near term it likely added to the development slowdown.

Trying to Make a Splash

The company also wants to make a lot of noise with the Vista release. As the lag time grew between the release of Windows XP nearly five years ago and the introduction of the new system, the company was conscious of the need to make a splash. Imperative to that goal, analysts said, was to put out a product that customers could operate easily without problems.

"What Microsoft was looking to launch was a product as big and memorable as Windows 95, and they want to make sure it's not a disappointment," said Michael Gartenberg, an analyst with Jupiter Research. "But they know the only thing worse than missing a ship date is to ship a product that is buggy and doesn't work."

The company released an early test version of Windows Vista in February that was riddled with various bugs, Helm said. It's not unusual for a test release to have a lot of glitches, but it usually requires eight to 10 months to clean out the bugs before an operating system is ready for consumer use.

Security concerns also weighed heavily on the development of Vista. Increased public consciousness of security threats like identity theft and bank fraud from online hacking pushed the demand for security features to the forefront. Microsoft is acutely aware of that demand.

"One of the main problems is that standards have gone up -- customer standards. When Windows XP went out, customers tolerated some security bugs and some service bugs they won't tolerate now, especially the security," Helm said.

The Windows operating system has been a popular target of Internet attackers and of various forms of Internet spyware. Vista will have a standard mode that will prevent the installation of new software; it's designed specifically to prevent the passive installation of spyware.

Regardless of the slowdowns that Longhorn and Vista have encountered, the delayed release is not expected to threaten the company's dominant position in the operating- system market. Though some analysts have noted that competitors like Apple could see an uptick in sales as consumers shop for computers that come with the most updated technology, Microsoft's market position is strong enough to weather the delay.

"This is a blip for Microsoft. It's an embarrassment, and it's not going to make their retail partners, their PC partners happy. But the bottom line is the people who were going to buy the product in November and December will still buy it in January and February," Gartenberg said.