Microsoft: Five things to look for in 2012

Next year is one of those years that can't come soon enough for Microsoft.

It's not that 2011 was a particularly difficult year. The company posted record revenue for the fiscal year that ended June 30. And its 2-year-old PC operating system, Windows 7, hit 500 million copies sold, further embedding it as the most widely used operating system in the world. But 2011 had few big product launches at the company, Office 365 and Internet Explorer 9 notwithstanding.

Next year will be altogether different. Microsoft is prepping the big kahuna of its product arsenal, Windows 8. The company hasn't set a date, though most analysts expect the flagship operating system to debut before the end of the year, and perhaps in time for back-to-school shopping. From that product, much else from Redmond flows.

So here are five things to look for from Microsoft in 2012:

1. Windows 8 tablets

Windows 8 is one of the boldest bets Microsoft will make, radically changing the interface on the operating system to the company's tile-based Metro look, first used by Windows Phone 7 last year. The familiar desktop photo covered with application and file icons will be available to PC users who want it. But Microsoft is pushing the new touch-friendly interface to convince consumers to buy tablet computers that will run it.

It won't be an easy sell. Microsoft will be coming to the tablet market more than two years after Apple iPad launched and quickly became a commercial success. And this holiday season, Amazon debuted its Kindle Fire, which became the first non-Apple tablet to gain a meaningful foothold. Market analyst Forrester recently reported that consumer interest in Windows tablets is waning.

As the core of computing moves beyond the PC, Microsoft needs Windows 8 tablets to succeed. It's all the more pressing as PC growth sputters and the tablet computer market soars.

The market muscle of Microsoft and its partners will help propel Windows tablets at their debut. But unless Microsoft can convince developers to create tablet-specific apps that users can't live without, the devices will have a hard time making a dent in iPad's massive lead.

2. Xbox moves farther into live TV

Even in its earliest days, Microsoft's video game console business was pegged as a Trojan Horse to bring the company's technology from the office to the living room. But the brains behind Xbox knew they had to make a great gaming experience job No. 1. Now, leading the United States in console sales in 2011, Xbox is pushing in earnest beyond gaming.

Microsoft just brought the first hint of live TV to Xbox consoles with an updated look to its Xbox Live service earlier this month. In addition to introducing the Metro-style look to Xbox, it also let customers of Verizon's Fios cable television service choose from 26 different live TV channels--Comedy Central, HBO, and Nickelodeon. A handful of other partners are offering live programming through Xbox as well.

That's clearly just the start for Microsoft. The company is moving toward the goal of getting consumers to fire up their Xbox whenever they flip on their TVs, not just when they want to play a game. Next year will see more live television content come to Xbox Live. It's a foundation that Microsoft will build out as it readies the next version of the Xbox console, something a source on the Xbox team says will happen in 2013.

3. Windows Phone: We're No. 3

It may be a measure of the decade-long struggle to succeed in mobile telephony that, for Microsoft, a victory would be grabbing the third place spot in terms of smartphone market share for its Windows Phone software. While the company has wrestled to arrive at a winning formula, rivals Apple and Google have introduced mobile-phone operating systems that have seized business that Microsoft had hoped to grab.

Microsoft rebooted its phone effort at the end of last year, introducing a passel of new phones from partners running its brand new operating system, Windows Phone 7. The slick-looking software, refreshed in September with an update dubbed Mango, has won plaudits from reviewers for its animation and app integration.

While the technology is catching up with rivals, Windows Phone's market share hasn't. According to market research firm Gartner, just 1.5 percent of the smartphones worldwide run Microsoft's operating system. And rivals aren't standing still. Apple's new iPhone 4S has outsold every other mobile phone since its debut in October. And despite the market fragmentation of Google's Android, with different handset manufacturers running different versions of the mobile operating system, it continues to pull ahead in the marketplace.

There's little doubt that Windows Phone share will grow, if only because of the marketing push Microsoft and partners, particularly Nokia, will make, coupled with the tiny toehold it currently has. But it's most likely to grab customers from Research In Motion's foundering Blackberry business rather than established Apple and Google customers.

4. Patent litigation aggressor

The ground Microsoft hasn't been able to take away from Android in the marketplace may well be covered by the revenue it's able to generate through the threat of litigation. The software giant has persuaded several handset makers--including HTC, Wistron, and Compal-- to pay it a vig for each Android device they sell to settle allegations that the mobile operating system violates Microsoft's patents.

The Android device makers that don't pay? Microsoft's taking them to court. Two high profile cases will move toward resolution next year-- Microsoft's suit against Barnes & Noble, whose Nook e-reader runs Android, and a separate suit against Motorola. (Google is in the process of acquiring Motorola Mobility.)

The tactic has proven so successful that in 2011, Microsoft started collecting fees from companies that make devices running Google's Chrome operating system as well, including Acer and ViewSonic. Expect Microsoft to continue to press device makers that use its rival's technology. Likewise, count on those manufacturers, particularly the smaller ones, to pay up rather than face Microsoft in the courthouse.

5. Growing search through social

Like the mobile-phone business, Microsoft has bounced from one strategy to the next in a bid to be more relevant in Internet search. It's re-branded its search engine a few times, added key partners, and cycled through senior executives, and still significantly trails market leader Google.

There's one Microsoft partnership that could start to pay off in 2012, and it's not the deal to handle search queries from Yahoo. It's Microsoft's deal with Facebook. In May, Microsoft began including recommendations from Facebook friends into its Bing search engine, creating customized results by elevating the ones that receive a "like" from someone in the searcher's Facebook network. So when someone is looking for a Thai restaurant in Seattle, for example, a spot that earned a like from a Facebook friend will rise in that person's particular search rankings.

Google is on to the same formula too, creating its Google+ social network to infuse its search results with customized answers to Web surfer queries. But in social networking, Facebook remains king. Using Facebook "likes" are just the first step. Microsoft clearly plans to add more social signals to Bing in 2012. And while that won't topple Google, it does offer the opportunity to grab a large slice of the search business by providing more relevant results.

by Jay Greene | news.cnet.com