[Uploaded via flickr by Thomas Hawk]

With Microsoft’s stumbling with the lauch of Vista has come a litany of stories about the demise of Windows as the IT industries richest franchise. However it’s death, if evident, will be slow and painful and will be a result of lots of small cuts, not a wholesale shift to an alternative.

Windows is indeed the choice of most businesses as a convenient and well known path for cubicle life, and if you accept conventional wisdom, Microsoft has 90% of that market. But like large SUVs is that really the best measuring stick for tomorrows success?.

Where it counts for future success lies in the marketshare for education (tomorrows business people), media and Web 2.0 world. In this market, Microsoft’s advantage is greatly diminished. All of the best software for this world either is better on Mac OSX (read Adobe) or runs inside the Firefox browser (read AJAX). Because Microsoft did not court key influencers on Vista and then fobbed the launch, they left themselves wide open to criticism and allowed the media to create the narrative that is Vista perception today.

As a result, they now have accept costs that they did not have to as a pure monopolist and that is wooing customers and partners on the value proposition of Windows Vista (like the rest of us have too).

In the New York Times today:

Corps of Microsoft engineers, for example, have been dispatched to tweak hardware and software to make Vista PCs faster and less crash-prone. Microsoft has stepped into the world of PC retailers in a way it never has before, offering training and advice — and even paying to put hundreds of “Windows gurus” in stores.

This is a good example of the sort of marketing costs that they now have to engage in, in order to move people to new versions of Windows. These are not cheap exercises.The marketing costs that will now be required to maintain Windows will significantly increase. This has the effect of reducing the net returns that Microsoft enjoys significantly and return it to back to more earthly margins that other software companies have to live with.

What this means for Microsoft is that the lofty returns that they have enjoyed for the last couple of decades are returning to more normal levels and they definitely have to work harder for customers, something that they are not used to. All aspects of their business are currently underfire from the poor performance of the online businesses to the ongoing browser wars to which Google has recently joined.

It is not clear whether Microsoft understands that they are in transition, a transition that has largely been thrust upon them by a more deft group of competitors that they have ever faced before. Novell and Netscape were nothing compared to today’s crop of youngsters.

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