Microsoft

Gartner Says Vista Will Collapse. And That's Why The Yahoo Deal Must Happen

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Gartner analysts Michael Silver and Neil MacDonald told a conference audience yesterday that Microsoft’s Windows product is collapsing and must make radical changes to its operating system or risk becoming a has-been.

They specifically pointed out the slow adoption rate by businesses – just 6% to date – and the fact that the Vista code base is so large. That means changes take years, and only high end computers can really take advantage of it anyway.

For most early adopters (and all Mac users), the browser is increasingly the only operating system that matters anyway. Windows isn’t really that relevant any more just because of the increasing utility of online applications like Google Docs, which competes with Microsoft Office. Vista could be perfect and it still wouldn’t matter. The fact that it is flawed only makes the situation worse.

Microsoft makes a ton of revenue on sales of software that sit on the computer. $15 billion a year for Windows alone, and another $16 billion for Office and Exchange Server in 2007. That’s 60% of Microsoft’s total revenue, and profits from those groups float the rest of the company. Microsoft isn’t a viable company without their consumer and business desktop software profits.

The real question isn’t “What can Microsoft do to fix their Windows product?” but rather “Even If Windows and Office were perfect, would it be enough to keep Microsoft relevant in the medium term?” I think the answer to that latter question might be “nope.” And that, of course, is why they want Yahoo so badly. Online advertising revenue is their only real hope of long term survival.

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