Mister Softee's Revenge

February 26, 2010: 9:39 AM ET

Don't look now, but the year's most buzz-worthy tech company might be Microsoft.

Microsoft's comeback began with Bing search last year, and CEO Steve Ballmer plans to keep the momentum going. Photo: Jon Fortt.

Microsoft went around with a big, fat target on its forehead for a couple of decades. It was the tech giant we loved to hate. The company deserved the scorn; in the 1990s it crushed pipsqueaks Apple (AAPL), Netscape and Palm (PALM), and still found time to push around a few hapless PC makers who seemed to barely make a buck anyway. It got to the point where rooting for Microsoft (MSFT) was like rooting for the Yankees. Why bother?

But while they were running roughshod over rivals, the bad boys in Redmond got a little lazy. Let's face it: aside from the Xbox console and incremental tweaks to business software, for a long time much of Microsoft's stuff just wasn't that great.

PC operating systems? Windows XP came out in 2001, and it took another nine years to serve us a decent replacement.

Phones? Windows Mobile brought us waves of mediocrity before Apple came along and kicked the industry in the pants.

The web? Google (GOOG) and Yahoo (YHOO) make money at it, Microsoft still doesn't.

Lately, though, something has changed. For the first time in recent memory, it's becoming ... well ... cool to root for Microsoft.

The shift arguably began when Ballmer & Co. unveiled the new Bing search engine last year. Google wields such power in search, and is so convinced of its inherent righteousness (see Street View, Books, Buzz), that it was refreshing to see a new entrant shake things up, if only a bit. (Bing is gaining on Google, up about three points of market share in half a year.)

The momentum continued with the high-stakes Windows 7 operating system launch, which ushered in a bang-up holiday season for PC sales. Microsoft has also scored several key moral victories: its innovative handling of 3-D imagery in online maps has won raves, and its latest effort in smartphone software, now called Windows Phone, incited a geek droolfest after its debut at Mobile World Congress in Barcelona earlier this month.

Even the mainstream tech bloggers, who normally bash Microsoft out of pure reflex, were smitten. "To us, it's rather exciting," wrote the Engadget blog. "This OS looks nothing like anything else on the market, and we think that's to its advantage." And: "Windows Phone 7 is more than the Microsoft smartphone we've been waiting for," Gizmodo crowed. "Everything is different now."

What's with the sudden Microsoft love?

It helps that the technology is good. With Windows 7, Microsoft rethought its development process to produce a streamlined, elegant operating system; similar thinking seems to have gone into Windows Phone 7, which bears no resemblance to the much-maligned predecessor, Windows Mobile 6.5.

Then there are intangibles -- like attitude. Even at the top, Microsoft seems to be embracing something close to humility. When I sat down with CEO Steve Ballmer last month at the Consumer Electronics Show, he didn't dance around the fact that Microsoft had some catching up to do in critically important areas. "We've got a lot of room between here and #1," he said, referring to his mobile efforts. "Not as much room as we have in search, but we've got a lot of room." Maybe --  just maybe -- that realism is yielding more carefully crafted products.

It's also worth noting that some of the pipsqueaks Microsoft pushed around years ago have become pretty muscular in their own right. Take Hewlett-Packard (HPQ), the top brand in computer hardware; these days HP's not afraid to experiment with building computing devices that run Android or other flavors of Linux, because it's a big, diversified company that isn't dependent on Microsoft. Apple is top dog in mobile software and digital media distribution with its iTunes Store, and its computers bring profit margins that are the envy of the industry. And then there's Google. Its dominance in search has lately drawn attention from the same European antitrust regulators who once collared Microsoft.

All that has given Microsoft a status it couldn't have dreamed of a decade ago: underdog. With 2010 shaping up to be a year when corporate PC sales rebound and with so many strong products in its pipeline, it might not be an underdog for long.

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