Researchers Outline Microsoft's Top 10 Challenges For 2004

Even giants have problems -- and gigantic software maker Microsoft has at least 10 of them.

In an end-of-the-year compilation, research firm Directions on Microsoft has put a spotlight on the top 10 challenges that it thinks Microsoft faces in the coming year.

At the top of the list, said Directions' analysts, is an over-arching call for Microsoft to act like a more mature company in a more mature market -- said Michael Cherry, a lead analyst who covers operating systems for Directions. This need for maturity, he said, has an impact on everything from how Microsoft handles litigation such as the recent lawsuit filed by RealNetworks to how it manages to grow its revenue.

Microsoft's relative immaturity is reflected in the anti-trust lawsuits that competitors file against it, said Cherry, and in other lawsuits that will undoubtedly continue to plague the company.

"Microsoft may have a valid defense because they're complying with the letter of the law [argued by RealNetworks]," said Cherry, "but they should be doing more to comply with the spirit of the law. If you want to be in a leadership position, a higher level of behavior is expected."RealNetworks last week filed a lawsuit alleging that Microsoft balked at providing it information on Windows' application programming interfaces (APIs), and has said that the damages it seeks could climb above $1 billion.

"If Microsoft isn't answering Real's API questions, and that's not the mark of a mature company," Cherry said. "A lot more lawsuits like this will come from that kind of activity and attitude."

Microsoft must also address this maturation issue if it's to continue to boost revenue, other Directions on Microsoft analysts said.

"Microsoft still has the same basic business model as it did in the 1990's, a model that is largely predicated on creating software grand slams that compel customers to upgrade," said lead analyst Paul DeGroot. That's the reason why the company has been pouring so many of its development resources into Longhorn: it's looking for that next big hit.

Such a strategy, however, is increasingly showing serious signs of aging. "Short of selling customers on product upgrades, Microsoft hasn't found an effective way to convert its installed base advantage into a steady revenue stream."Another challenge for Redmond -- ranked number three on Direction's list -- plays to this same maturation problem, said Cherry.

"From the operating system perspective," he said, "a mature company should be able to provide a better road map for its product introductions. It's one thing for a young company to say 'we don't know how long it will take us,' but Longhorn's not the first Windows OS that Microsoft's done. They ought to be able to come up with a reasonable roadmap and timetable." Instead, said Directions' analysts, Microsoft continues to ask customers to commit cash up front for upgrades -- dubbed 'Software Assurance' by Microsoft -- while at the same time committing only to vague delivery dates and features.

It's unrealistic for Microsoft to expect this to work, added Rob Helm, Directions' director of research. "Customers need to know which upgrades are coming out when and what features they'll get."

Not surprisingly, Directions on Microsoft rated security as the company's second-biggest challenge in 2004. Constant vulnerability announcements from Microsoft -- for products ranging from Windows to Internet Explorer -- during 2003 forced end users to patch, and in some cases, re-patch, a steady stream of problems.

Although Directions' analysts saw progress on Microsoft's handing of security during 2003, and expect that to continue next year -- if only because the company's executives have harped on the topic -- Redmond still needs to get a grip on its patching procedures, which Cherry describes as a patchwork itself."The main security challenge [that Microsoft faces in 2004] is one of discipline: enforcing a consistent set of patch technologies and procedures across traditionally independent product groups," he said.

Such a move, said Directions, would go far toward solving problems users encounter with Microsoft's patches: some can be uninstalled, others can't; patches must be retrieved from multiple Web sites; and consumers relying on dial-up connections have a difficult time downloading megabytes worth of fixes.

Other challenges facing Microsoft in 2004, according to Directions' top 10 list, include keeping Linux at bay; rebuilding its partner network to stave off competitors to its .Net environment, such as Java; simplifying its overly-complicated licensing programs; and making good on its promise to improve its system management technology.