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Michael Silver and Neil MacDonald from Gartner analysts told a conference audience on last April 10 that Microsoft Windows operating system is collapsing unless Microsoft making radical changes to it or risk becoming dead. Silver and MacDonald specifically pointed out the slow adoption rate by businesses, just 6% to date, and the fact that the Vista code base is “so large”, which means changes take years, and only “high end” computers can really take advantage of it.

Apple introduced its iPhone running OS X, but differently, Microsoft requires another new operating system for handhelds because Windows Vista or Windows XP is too large, which makes application development, support and the user experience all more difficult.

Today’s trend for most early adopters, only the web browser is increasingly part of the operating system that matters. Windows in its entire operating system is not really that relevant any more, just because of the increasing utility of online (office) applications like Google Docs or the free open source Open Office suite, which competes with Microsoft Office. Vista could have been perfect but it still wouldn’t matter, but the fact that it is flawed only makes the situation worse(!).

Microsoft makes most of its revenue on sales of software that sit on desktop computer. Estimated $15 billion a year for Windows alone plus another $16 billion for Office and Exchange Server in 2007. That’s 60% of Microsoft’s total revenue, and profits from those groups float the rest of the company. This basically tells Microsoft relies very heavily on their consumer and business desktop software profits. Even If Windows and Office were perfect, would they be enough to keep Microsoft relevant in the medium term? The answer to that question might be still no. That is probably the single reason why Microsoft want to buy Yahoo so badly, online advertising revenue is Microsoft only real hope of long term survival.

Microsoft has recently granted Windows XP Home a reprieve from its June 30 OEM cut-off, saying it would let computer makers install the older, smaller operating system on ultra-cheap laptops through the middle of 2010. It will also add a hypervisor to Windows, albeit the server version, in August, and there are signs that it will launch Windows 7, the follow-on to Vista, late next year rather than early 2010. During its announcement yesterday Microsoft would extend the availability of Windows XP Home for low-cost laptops, Microsoft said it would retire the operating system only after June 30, 2010, or one year after the release of Windows 7, whichever comes later.