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Redmond's Really Big Year

As the year winds down, so will be tens of thousands of Microsoft developers -- once Vista is actually out the door and on store shelves. But that's not all that helped make for an intense year for the tech company based in Washington's Redmond.

Microsoft (Quote) undertook its most ambitious product schedule ever, a monstrous effort that produced several significant new titles all at the same time.

Vista was the focus of the most attention this year, going from a poorly received second beta early in the year to much-improved release candidates later in the year.

However, Microsoft's (Quote) biggest news was something long-expected: the departure of founder Bill Gates as the chief software architect, to be replaced by Ray Ozzie. Ozzie is widely considered to be every bit as technologically-capable as Gates. The only question is whether he will have the gravitas.

But the change was widely expected, especially in light of Gates and his wife Melinda being voted Time Magazine's Persons of the Year, along with U2 singer Bono. Gates had been progressively less involved with the company in recent years as his passion had been for his philanthropic work.

Meanwhile, life went on at Microsoft. Vista wasn't the only product finished in 2006. This year, the company shipped or completed Office 2007, Exchange 2007, Expression, Internet Explorer 7, .Net Framework 3.0, OneCare, BizTalk Server 2006, Office Communications server, Windows Media Player 11, Office Live and Windows Live Messenger. It also entered the handheld device market with the Zune, to lukewarm reviews.

"Any time you ship Windows and Office, that's a good year," Microsoft watcher Greg DeMichilie of Directions on Microsoft told "Those are the flagship products. They are where the majority of the money comes from."

Next year, look for Microsoft to shift its focus from the client version of Vista to the server side; Longhorn Server, the code name for the still-unnamed server version of Vista, is due in the second half of 2007.

Next year will also bring new versions of Systems Management Server, System Center Operations Manager, Office SharePoint Server 2007, Office 2007 for the Macintosh and possibly Visual Studio.

Long a developer-minded company, Microsoft embraced, without extinguishing, dynamic languages in 2006. This year, Microsoft released IronPython, a Python (define)  implementation for .Net, and expects to ship Atlas, a set of .Net extensions for Ajax support.

Microsoft continued to reach out to open source developers. It launched CodePlex, an open source developer community modeled after the popular SourceForge site, and Port 25, an open source lab. Port 25 even extended a hand to Mozilla developers, inviting them to Redmond to help in ensuring compatibility between Vista and Mozilla.

Then there was its ongoing trouble with the European Union.

Microsoft took more than a few hits this year, though. The European Union continued to be a whole rose bush's worth of thorns in its side. Early in the year, for example, the EU demanded that Microsoft unbundle media player and other extras from Vista -- just as it had ruled with Windows XP -- or be barred from the market.

Microsoft's fight with the EU showed that Europe is where the antitrust action is, said Directions on Microsoft's DeMichilie. "Microsoft faces no serious antitrust action in the U.S. The EU has shown a willingness to get involved before a product ships, and the U.S. has never done anything like that. It's always waited until the product shipped, and competitors would argue that by then, it's too late."

Microsoft became so frustrated with the EU trying to dictate its business decisions that it threatened to withhold Vista from Europe. But that was a no-win situation and Microsoft eventually blinked. DeMichilie wasn't surprised. "People say things when they are ticked off, but that's not a realistic thing. Europe is too large a market for Microsoft to ignore." The PR battle rages on.

In the U.S., Microsoft's biggest black eye came with the embarrassing revelation that the Windows Genuine Advantage (WGA) utility in Windows was connecting with Microsoft on a daily basis, checking in on whether users were running a valid copy of Windows.

Users resented the intrusion, comparing it to spyware, and Microsoft was hit with two lawsuits over the program. Eventually the company backed down, a little. It modified WGA to only check in with Microsoft once every two weeks instead of daily.

WGA remains on user computers and has even more power in Vista. It can even shut you out if your Vista PC fails a validation check. The company also tried to connect the Vista licensing process to the physical PC but backed down after user complaints.

At a luncheon conference earlier this year, CEO Steve Ballmer talked about what makes Microsoft a success. One element he cited: Microsoft's patience. The company hangs in there even when it's losing, until it finally makes traction.

One area of belated success, without question, is Microsoft's Xbox 360. When the company entered the console videogame market in 2001, critics yawned. The Xbox was never considered a big threat to Sony's PlayStation 2; the PS2 sold over 100 million units worldwide over the course of its lifespan, the Xbox only 24 million units.

But for a first entry, 24 million is not too shabby. The second-generation console, Xbox 360, has already sold six million units in its first year of sales and has a bonafide hit in the game Gears of War, which has sold more than one million units.

But Microsoft's gaming division is still in the red, according to DeMichilie. "Even if Xbox 360 turns a profit, it won't make up for the huge amount the division lost on the first generation of the gaming system. It shows you can be a big success if you are willing to do it at a billion dollar loss. If Xbox were its only business, it couldn't be in business."

So what's in store for 2007?

Vista's coming out party will be in full swing, for one, along with more strategic shifts toward unified communications. Developers had better enjoy that post-Vista breather.

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