The Road Ahead

Gates, Microsoft solidify longhorn investment, lay groundwork.

Microsoft Corp. executives laid out the companys product vision for the next five years at its annual financial analyst meeting here late last month. And while fiscal issues were discussed during the daylong briefing, the main focus was on the future.

Microsoft Chairman and Chief Software Architect Bill Gates said hes committed to aggressive investments in product innovation and research and development. The company plans to boost its research budget by more than 8 percent, to $6.8 billion, in the current fiscal year. Gates said that would add some 5,000 new jobs, more than half of which would be based in the United States.

Gates also said that despite the burst of the tech bubble and the lackluster economy, he is excited about and focused on several big initiatives: "Management capability; integrated storage; our new Windows File System [WinFS] ... a workflow that allows business processes to be drawn up in an easy way; business intelligence that builds in the XML platform; model-based programming; speech language; and the natural-based interface are all things Im excited about," Gates said.

Many of these initiatives will show up in releases before the next major Windows upgrade, code-named Longhorn.

"We do not yet know the time frame for Longhorn, but it will involve a lot of innovative and exciting work," Gates said. "There will be major advances in the user interface. ... Web services will be built in as part of the interface.

"Longhorn will be built around scenarios and making these as easy as possible. Longhorn is not just a release of the Windows client, but it will also involve Office and our server products. Everything at Microsoft is built on and designed to take advantage of that," Gates said.

Jim Allchin, group vice president of the Windows Platform Group, said the next step for Longhorn will be at Microsofts Professional Developer Conference, to be held in Los Angeles in October, where Longhorn developer preview CDs will be handed out. "That will be followed by a broad first beta next year," Allchin said.

Microsoft partners and customers are divided about the need for another major upgrade. A partner with a Midwest company who works closely on Windows and who requested anonymity said there are two good things in Longhorn: WinFS and the new compositing system. "The file systems were using today just dont cut it. With terabyte hard drives coming, we need a file system that makes it easier for users to organize their data," he said.

But John Persinger, an internal network administrator for Source4 Inc., in Roanoke, Va., does not see the need for another Windows system upgrade. "Windows XP has had a hard enough time justifying much ROI [return on investment] for us, and I dont see Longhorn being the cost savior we need. Weve matured beyond the trends of the industrys heyday and have resisted the urge to jump at owning the next best thing," Persinger said.

The new WinFS file system in Longhorn did spark Persingers interest, however. An XML/SQL-based file system was a step toward seamless integration between systems, he said.

"I think that the closer we get to removing the hurdles that stand between us and data on the network, the more possibilities well have," Persinger said. "Of course, caution in this area is just as important. The higher we climb, the further well have to fall if something goes awry."

Among other issues discussed at the analyst conference, Chief Financial Officer John Connors reported that the company has no intention of distributing its stockpile of $62.7 billion in cash and investments to shareholders until Microsofts legal risks have been removed.

"We still have a number of outstanding legal issues, including from Sun Microsystems [Inc.], the EU [European Union] and shareholder class actions, and for us the biggest factor in any such decision is what the business model risk is to unresolved legal matters of significant consequence," Connors said.

He also repudiated financial analyst reports that the software maker is considering giving up to $10 billion of its cash back to shareholders through a dividend payment. Connors said Microsoft had declared its first-ever dividend in January and had repurchased $24 billion in stock over the past four years.