Microsoft's challenges swing from enterprise to online in '08

As 2008 begins to wiggle out of the grasp of Father Time, Microsoft has its financial house decked out, with revenue up nearly 16% and profits up more than 16.5% in fiscal 2007. And even though cash reserves have dropped from $60 billion in 2004 to just $37 billion in 2007, the company retains its ability to use acquisitions to keep up when R&D falls behind. Still, Microsoft has a host of challenges staring it in the face, including the familiar bespectacled mug of its founder, as the new year approaches. Here are some of the big ones:

1. Bye-bye Bill.
Yes, as in Gates. In July, Gates will leave his full-time position to devote more time to his philanthropic work. Experts say Microsoft won't suffer on the technical side but rather on the image front. Gates will continue to serve as chairman and an advisor on key development projects. But his departure could be a sign of things to come as CEO Steve Ballmer is now on the clock. Ballmer and Gates are the same age, and Ballmer joined Microsoft five years after Gates founded the company.

2. Get Vista in high gear and flesh out client road map.
February is going to be an important month for Microsoft on the server/platform side (see below) and the client side. The first service-pack milestone for Vista is coming in February 2008, and Microsoft is hoping it will be the spark to ignite mass adoption. With availability of XP extended to June 2008 and mainstream XP support ending in April 2009, it could be a perfect Vista storm. But even more importantly, Microsoft has to flesh out what comes after Vista; its client operating-system road map does not exist. Why is it important? Experts say that in the time it took Microsoft to get from XP to Vista, Google went from zero to mortal enemy. Time is of the essence if Microsoft wants to hold on to the power it gets from controlling the desktop.

3. Launch services platform.
In February, Microsoft will host a ceremonial “launch” of Windows Server 2008, Visual Studio 2008 and SQL Server 2008. The trio forms the guts of Microsoft's services platform, which the company will ride into the new software-plus-services era. The launch also aligns Vista SP1 with the Windows Server and such network security features as Network Access Protection. Early numbers from a Network World survey, however, show the server might be a hard sell. Half of the 687 respondents said Windows Server 2008 is nowhere on their road map.

4. Define the services business -- especially for partners.
Microsoft has always been a partner-driven company, but online services might just throw partners in the back seat. “The role that Microsoft appears to have been positioning partners for is as agents for Microsoft services,” says Paul DeGroot, an analyst with Directions on Microsoft. “If Microsoft's online services strategy depends on partners bringing them customers, it is going to fail. Partners are not going to do that.” The bottom line here is money, and Microsoft needs to define for partners a clear path to significant revenue.