Bill Gates ups the ante
Can Microsoft win back customers (and investors) with its new products?
By Fred Vogelstein, FORTUNE senior writer

LAS VEGAS (FORTUNE) - Every year for the past decade Microsoft Chairman Bill Gates has spent the first week of the year in the same place: Las Vegas. The stakes were higher this year.

Gates always takes the stage at the mammoth Consumer Electronics show to remind the world of high tech and consumer electronics that Microsoft (Research) is the dominant software company in the universe. In some respects it has always been a laughable exercise. Gates isn't a particularly dynamic speaker, and no one at the show needed to be reminded about how powerful a player Microsoft was.

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Not this year. In the past 12 months Microsoft has looked more lost and vulnerable than anyone can remember. It acknowledged that it was revamping the way it wrote software to deliver products quicker. It acknowledged that the way its businesses were organized and managed wasn't working, and it restructured them.

And it acknowledged that the traditional ways of selling software as a product with a price tag might not work long-term. It said it was experimenting with new ways of selling its products -- as either a subscription, like cable TV, or for free supported by online advertising. It was as if General Motors had said it was going to change the way it built and priced cars.

Meanwhile, competitors like Google seemed to do everything right, capturing Microsoft's mantle as the smartest company in high tech, hiring more than 100 of its best and brightest, and just recently, outdueling Microsoft for AOL's search and advertising business.

Think about this for a second. It has long been a truism in high tech that you never wanted to compete with Microsoft for anything it wanted badly because it could always outbid you. Yet in the bake-off for AOL's search and advertising business -- something Microsoft wanted desperately -- it lost.

Meanwhile, Microsoft shares have been trading in a range from around $25 to $30 a share for going on three years.

Trying to get back on top

So it was up to Gates on Wednesday night to remind the world that his corporation remains an important and powerful franchise. He did not disappoint.

His presentation hammered home an important theme: Despite stiffer challenges from competitors than Microsoft has ever seen -- whether it be Google in search, Apple in music, Sony in gaming, or Sun Microsystems's Java on cell phones -- Microsoft Windows remains an important and powerful platform.

Cynics will be tempted to turn up their nose at the products Gates presented. None are new ideas. Many of the features in its new operating system Vista, like powerful, easy-to-use photo editing software, have been part of Apple's OS X for years and more recently a big part of Google's software offerings.

The tabbed browsing feature in the new version of Internet Explorer has been the hallmark of the Firefox browser for nearly two years. The fact that Microsoft only now is releasing a compelling music service almost half a decade after Apple's iTunes -- seems almost laughable.

But all of the products appear to be slick, compelling and easy to use. It sounds so familiar. Make software that is as good or better than competitors and build it into the operating system so that it becomes the easiest choice for consumers to make. It's what helped Microsoft become a software powerhouse in the first place -- and got it in trouble with the government for antitrust violations.

It will be interesting to see if the strategy works again. Top of page

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