Microsoft sent shock waves through technology equity markets this week after it delayed the release of Vista - its next generation operating system - until early next year because of engineering problems.

The news was not only a disappointment to Microsoft. PC makers will be worried that consumers will put off buying new PCs until after the Christmas holiday period - although they tried to put on a brave face - while tech geeks are getting impatient for a system that has been in development since Windows XP was released five and a half years ago.

Bloggers backed up this view, saying the delay was expected but could have a knock-on effect in demand for Vista-backed PCs.

While this isn’t really a surprise to the consumer world, retailers will not be very happy that Microsoft didn’t have Vista ready for the 2006 holiday season for those anxious early adapters…I think the real question in all of this is; Will this delay erode the demand for Vista?,”said Jason Dowdell on Marketing Shift, an online advertising blog.

Ed Bott, a Microsoft insider, said he hoped the three-month delay would ensure that Vista was a “a solid release instead of a shrink-wrapped final beta”.

Mike Barton was more worried: “It’s a gigantic issue for the computer industry - possibly a catastrophic one for some vendors. It’s not just that a new OS is a huge incentive to buy a new PC; it’s also that the lack of a new OS is a strong disincentive to buy, since the simplest way to get a new version of Windows is to buy a system that has it preinstalled.”

Joe Wikert calculated that there was an unwritten law to Microsoft release:

“You’re no doubt familiar with Moore’s Law and how it explains how processing power roughly doubles every 18 months. I have a completely separate theory I like to call “Microsoft’s Law”. It states that you cannot lock down on a major product release unless the projected release date is within the next 6 months

“…If January remains the official target release date, we can’t be assured it will stick until we’re within 6 months of then, or till approximately 7/31,” he added.

He added an alternative theory - ”Don’t trust any announced ship schedule from Microsoft until an actual date has been put on it”.

Windows unit reorganised

But the software giant was quick to take corrective action, announcing a shake up of its Windows division that is overseeing the move to Vista.

The platforms and services unit - one of three core divisions set up by chief executive Steve Ballmer last November - will be reorganised into eight business units to “deliver the best possible experience to customers”.

Microsoft is trying to sharpen up its competitive edge faced by competition from Google and others which are having success by offering advertising-supported free services. Bill Gates has already made it a new priority to develop services along these lines.

Among this week’s changes include the creation of a new online business group that will steer Microsoft’s move into online advertising.

IPTV deal

There was better news for Microsoft in another area though, after the company scored its biggest deal yet to provide software to support digital television over the internet.

Deutsche Telekom, Europe’s biggest telecoms operator, picked Microsoft’s Internet Protocol TV software - called Microsoft TV - to power new internet based TV services due to be rolled out in 10 German cities this year, expanding to 50 cities by 2008.

Although no figures were provided for the deal, the move was a further sign that Microsoft is stealing a march over rivals in providing the back up for what looks to be a prominent development for operators looking to replace falling traditional fixed-line revenues with new multimedia revenue streams. The company has signed 13 IPTV deal so far with telecoms groups including AT&T Corp and BT Group.

Microsoft claims to be the only company offering an end-to-end IPTV product, while rival software can only supply parts of the solution which must be linked together.

EU affair rambles on

Meanwhile, the wearying Microsoft/EU saga rolls on with the software company offering to give up more ground, saying it will offer rival companies “unlimited, free technical assistance” to help them develop products that work smoothly with Windows - even to the extent of sending experts to their offices to help in the process.

The European Commission described the offer as “constructive” but said the company had so far “failed to draw up complete and accurate documentation”.

French take bite out of apple

French legislation threatening Apple’s supremacy of the music download market sparked a chorus of furious and divergent comment from tech-watchers, with some celebrating the development as a victory for consumers and others decrying it as protectionism against a successful - and American - company.

“Socialist France strikes again,” ranted one blogger, after approval of a law that will force the iTunes music store to remove the software barriers that now prevent customers playing tracks on any digital device other than Apple’s own iPod player.

It would not be the first time the French government has sought to limit the grip of Anglophone IT giants. In January, President Chirac launched the Franco-German Project Quaero, aiming to create a European search engine that could rival Google.

But Leander Kahney offered a different interpretation, arguing on Wired News that “French lawmakers want to protect the consumer from one or two companies holding the keys to all of its culture.”

He said the copyright law, which will also impose the concept of “interoperability”on Apple’s rivals, would in fact increase competition. “There are few Mac users prepared to argue that Microsoft’s monopoly in desktop PCs has been a good thing for the technology industry; why would an Apple monopoly of digital entertainment be any different?” he wrote.

A respondent backed him up, saying, “The tech industry is littered with non-standardised failures measured over time.”

IT trade representatives argued that the law would deprive authors and publishers of their rights, while Apple itself called it “state-sponsored piracy.”

Yet the law also introduces fines for illegal downloading and prison terms of up to three years for running an illegal file-sharing system.

It appears to be widely unpopular in France, where students and young people are already on the streets to protest against new employment laws. If, as analysts suggest, iPod decides to close down its French iTunes site, they will have a fresh cause of complaint.

Sony takes on Xbox Live

Sony finally unveiled the new online gaming network it will launch in November, six months later than planned, as a rival to Microsoft’s Xbox Live.

Sony’s president, Phil Harrison, trumpeted the shift to a network-based system allowing players to download games for themselves rather than buying discs from retailers. The move risks incurring the wrath of middlemen finding themselves bypassed.

Gamers grumbled at Mr Harrison’s admission that on launch, there would not be enough Playstation 3 consoles to go round - which he called “an inevitability of a hardware launch.”

But they welcomed news that the next-generation consoles would let them to download imported games not yet on general release, though pointing out that without “finding somone who’s actually fluent in Japanese, you’re in for some big problems.”

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