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Microsoft generated plenty of negative headlines in 2008. We watched as it struck out in its attempts to acquire Yahoo. And Microsoft-haters grew smug when the confusing Seinfeld-Gates commercials were quickly pulled and replaced with the “I’m a PC” campaign. Microsoft’s attempts to out-market Apple and reverse the negative press of Windows Vista simply didn’t work out.

Such debacles received the lion’s share of press. But in reality the software giant had several successes. Most every other iteration of Windows had a strong year, either with good execution (Windows Server 2008, Windows XP) or good buzz (Windows 7, Windows Azure). And from the ashes of the Yahoo failure emerged some smart hires for Microsoft that could boost the company’s search business and set the tone for a possible future deal with Yahoo.

O’neill goes on to emphasize that there were indeed four areas where Microsoft got it right and these were :

 1. Windows 7(”Microsoft did a good job of building anticipation for Windows 7 in 2008, and did so without the overpromising and overhyping that weighed down Vista’s debut”)

2. Hiring Yahoo! Talent (”Microsoft’s failed attempts to buy all or part of Yahoo dragged on for most of 2008. Much of it was an embarrassment for both companies, but Microsoft’s recent hiring of Yahoo’s top search talent is turning out to be a smart move.”)

3. Windows Azure & he move to The Cloud (”Microsoft’s necessary transition to a cloud computing platform is Chief Software Architect Ray Ozzie’s labor of love. At PDC in October, Ozzie unveiled Windows Azure, an operating system that lets companies run Windows applications in the cloud and store files and data using Microsoft’s data centers. “)

4. Windows Server 2008 gets Raves (”While Windows Vista languished in 2008, its server-side brethren Windows Server 2008 quietly flourished.

Microsoft’s server operating system, released in February, received accolades for performance, reliability and new features. (It shares the same code base as Vista SP1, which did much to improve Vista.”)

Stuart J. Johnston of Internetnews.comis quick to point out that lingering legal issues stemming from the so-called “Vista Capable” lawsuit could be a bomb under the system for Microsoft’s 2009 performance as it is set to go on trial  in April 2009 :

The case is built on the question of whether Microsoft’s promotion of less powerful PCs as “capable” of running Windows Vista before Vista shipped in 2007 was actually a deceptive business practice meant to spur holiday computer sales in 2006, even though those PCs could only run the simplest edition of Vista.

Since many of those PCs could only run Vista Home Basic edition, they could not display Vista’s new Aero Glass user interface. The plaintiffs insist Aero Glass is a major feature of Vista, and therefore insist that customers who bought PCs thinking they were truly “Vista capable” had been tricked because without the graphics it wasn’t really Vista. Microsoft’s lawyers, of course, strongly disagree.

Although discovery ended in late 2008, additional phases of the trial, such as motions, could draw it out further into 2009 or even later. Additionally, if Microsoft loses the class action suit, appeals could drag out well beyond the useful lives of those “Vista incapable” PCs.

On the positive side Johnston humorously reminds us that Microsoft is very much a cash rich company with plenty in the bank coffers:

One positive for Microsoft – the company still has $25 billion in the bank – enough to bail out the Big Three automakers on its own in the unlikely event it wanted to.

Whilst Johnston also acknowledges that Windows 7 is soon ready to ship (i.e. mid 2009) he points out that recent surveys on US companies has shown that a very large per centage of them are not finding any compelling reasons to shift from the established XP platform to the new Windows 7 OS despite good beta reviews :

Microsoft is likely to pull in its bullish horns as the new year progresses, however, as more IT shops fall under the budget axe. Indeed, a recent independently-funded survey found that 46 percent of IT shops are planning on sticking with Windows XP for now and then migrating directly to Windows 7.

Given that Windows 7 will not be for sale until at the very least the second half of calendar 2009 – which coincides with the first half of Microsoft’s 2010 fiscal year – it is likely that the company won’t see major revenue from Vista’s replacement until at least the holiday sales period.

Worst case, shipment of Windows 7 could slip to the first calendar quarter of 2010, which Microsoft has said might happen. Although that is not expected to happen again – as it did with Vista – it’s still in the realm of possibility.

Meanwhile other observers point out that Microsoft’s major attempt and effort to get into the Search advertising market and take on Google on its home turf has failed and does not appear to be changing for the better despite MS having hired real Search talent from amongst others Yahoo!:

According to comScore’s November 2008 search market data, Microsoft had an 8.3 percent share of the U.S. search market, down from 8.5 percent in October. Meanwhile, Google had 63.5 percent, up 0.4 percent from October, and Yahoo had 20.4 percent, down 0.1 percent.

Microsoft spent much of 2008 devising ways to increase its search market share, and may be planning to re-incarnate its Live Search offering as ‘Kumo.’ But according to recent search market statistics, Microsoft’s multipronged push to instill some life into its struggling search business isn’t paying off.

This blog will continue to monitor Microsoft in 2009 and it remains to be seen which of its major battles the software giant will win and which it will lose - it remains a fact that Microsoft is heavily exposed on many fronts but also well-equipped to take on even the biggest. Time will also show if Microsoft can do without its founder or whether he will make a necessary come back in order to help Mr Ballmer.