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Microsoft in 2010: Four Challenges That Lie Ahead

Vista has been the bane of Redmond's existence for the past two years

When you're a technology mongrel like Microsoft, challenges are constant - and 2009 was chock full of them. It was a tumultuous year that saw the software giant's first widespread layoffs and its worst quarterly revenue earnings ever.

Yet there were some rays of sunlight flickering through the clouds. Windows 7 survived its many pre-launch milestones and launched successfully in October; search engine Bing debuted with aggressive marketing and innovative features; the launch of Windows Azure pulled Microsoft's cloud computing strategy together; Office, Exchange and Sharepoint software continue to own the enterprise; and Microsoft's public presence on television improved with the Laptop Hunters, Windows 7 and Bing ad campaigns.

But still, due to its massive size, Microsoft has been more affected by the global economic downturn than tech companies of smaller stature. So 2010 is likely to be a rebuilding year for Redmond as the economy slowly improves, say industry analysts.

But Microsoft cannot merely wait out the economy. It must stave off competition and improve on many fronts. Here are four challenges for Microsoft in the year ahead.

Don't Fall Further Behind in the Mobile Race

Windows Mobile 6.5 was met with harsh reviews when it launched in early October, widely regarded as a ho-hum refresh on the road to Windows Mobile 7.

The key mobile question for Microsoft is this: How do you win over and keep customers when there are so many established and well-regarded choices?

It doesn't help Microsoft's cause that Windows Mobile runs on generic smartphones that lack brand recognition and loyalty.

Microsoft could change the game by branding its own smartphones. RIM, Apple and Palm have proven that buyers want smartphones from one maker with one name. Microsoft's alleged Project Pink is a plan to develop Microsoft-branded phones that will reportedly include Zune services and be built on top of Windows Mobile 7. But waiting for Windows Mobile 7 means it will be a year until consumers and businesses see these "Windows" phones.

The bottom line is that Microsoft has not been able to compete with the iPhone, BlackBerry, Palm or Google Android. Redmond will need to keep WinMo 6.5 from fading into obscurity in 2010 and deliver on the promises of Windows Mobile 7.

"If Microsoft delays much longer on producing a decent mobile platform with software, services and partners," says veteran industry analyst Roger Kay, "then it will be out of the game."

Keep Up Windows 7 Momentum

One thing you can say about Windows 7 so far: It's not Vista. And that's a very good thing for Microsoft.

Vista has been the bane of Redmond's existence for the past two years. At first, Vista was criticized for slowness and incompatibility issues, which gave way to negative perceptions that never let up - with no help from snarky Apple TV ads.

Windows 7 has entered a more diverse PC landscape than Vista, with different Win7 versions designed to run on everything from tiny netbooks to mammoth all-in-one touchscreen PCs. It has received mostly positive reviews, and its early sales are better than those of XP and Vista in a comparable time frame.

The challenge for Windows 7 is to keep marketing Windows 7, even if that means a protracted and expensive slugfest with Apple's "I'm a Mac, I'm a PC" commercials. Windows 7 also must contend with frugal consumers and businesses that are hesitant to spend money on computers in a bad economy.

But with research firm Gartner forecasting that PC sales will actually make modest gains this year, Windows 7 is in a good position for growth and new sales when consumers and businesses start spending again.

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