Who says Microsoft has turned the corner?

It's unusual for me to disagree with Microsoft's most infamous, anonymous employee blogger. Mini-Microsoft says that "Microsoft has turned the corner." In his dreams, or perhaps some Xbox 360 role-playing game, Microsoft has turned the corner and found a hallway and door to the outside sun. But in this universe, if Microsoft has turned the corner, it's into a wall.

Microsoft has got big problems for which there are no easy solutions; I'll get to those later in the post. Mini rightly identifies some things that Microsoft is doing right, and they are certainly commendable. They're just not enough. I'll give his shortlist with my perspective:

"Windows 7": The version that should have been Vista is soon releasing to manufacturing. It's a great day coming. But volume-licensing customers won't get the software until September 1, and the official launch isn't until October 22. Meanwhile, Google is talking about forthcoming Chrome OS, and Apple is preparing Snow Leopard for September launch. The only sense I can make out of Microsoft making volume-licensing subscribers wait another six weeks to get Seven is PR bang against Apple's operating system. Cute, Microsoft.

"Bing": Google search is still better, by leaps and bounds. College Humor's "Googling with Bing" video aptly identifies the huge branding problems Microsoft must surpass. That said, Bing shows how Microsoft user-interface design is improving by huge strides. The UI changes foreshadow a future where more Microsoft products make tasks -- that is getting things done quickly -- a top user priority. Microsoft will probably get more search share gains from Bing marketing than it would have from buying Yahoo -- measured over the long term.

"Silverlight": Version 3.0 officially launched on Friday. If Mini's measure of turning the corner is H.264 support but no real mobile application, Silverlight 3.0 turns the corner.

"IE EU chutzpah": Microsoft's approach to the European drama is quite novel, and shows that somebody in Redmond really is smart. By proactively removing Internet Explorer from EU distributions of Windows 7, Microsoft has effectively taken the loaded gun from the European Competition Commission's grubby hand. Problem: The European Commission has got a knife in the other hand and a smaller pistol strapped to a leg.

"Award worthy, coherent ads that aren't a demonstration of how best to destroy millions of dollars quickly": Here's the one I agree most with Mini. Microsoft advertising is way better in 2009 than anything seen since the launch of Windows 95. Good, effective marketing will be crucial to successfully launching Windows 7 and building brand awareness for Bing. I'm a huge fan of marketing as a tool for selling products.

But advertising can only go so far. Products must deliver the right priorities. Based on early financial analyst assessments, Apple 13-inch and 15-inch MacBook Pro sales are shockingly strong, considering the economy. Among the reasons for MacBook Pro: New battery design that delivers hours more performance. Battery life is the laptop's killer application. Microsoft must get back to "killer application" basics. Can you name any Office 2010 or Windows 7 killer applications? Please answer in comments.

Microsoft Must Break Through the Wall
Here's what is hugely significant about Mini's post -- and perhaps where Microsoft has turned one corner: Employee sentiment, assuming other employees share Mini's hope and enthusiasm. Companies fail or succeed sometimes more based on morale than actual business strategy.

But these inspired employees must still contend with harsh realities, which is where Mini and I hugely disagree about "that corner." I'll condense Microsoft's problems into what I see as the three biggest challenges:

The econolypse: Simply put: Businesses aren't spending much on new technologies and US consumers are in debt. PC sales are way down, including emerging markets, even as Microsoft readies Windows 7. For Microsoft's third fiscal quarter, Windows Client revenue fell 16 percent year over year to $3.4 billion, while income plummeted 19 percent to $2.5 billion. Windows performed below expectations in both reported quarters since the late September 2009 economic collapse.

Microsoft reports fiscal fourth quarter and yearly results on July 23. I expect Business and Client divisions to report continued sales weakness tied to slower PC sales and tightening IT budgets. Microsoft's position would be better if:

• Still frozen credit markets weren't keeping businesses from financing needed to buy new technology.
• The threat of layoffs and actual furloughs weren't making technology managers fearful of making buying decisions that might risk their jobs.
• Corporate downsizing hadn't reduced business eagerness to renew volume-licensing contracts, or, if doing so, for fewer seats because of layoffs.
• Microsoft's core business was growing, rather than reselling new software versions to enterprises that already use the company's products.

Microsoft is ill-prepared for the econolypse because so many customers already own its software. Situation would be much better if emerging markets had more spending power. Bit of hope: Businesses and consumers in most emerging markets took on much less debt during the boom than their counterparts in the European Union and United States. Recovery should be much quicker in emerging markets.

Antitrust oversight: Microsoft has agreed to yet another two-year extension of oversight in the United States. Meanwhile, the European Commission is ready to slap around Microsoft over Internet Explorer bundling with Windows. While Microsoft's IE removal -- Windows 7 E -- was bold, the EC will still have final say. Competitors like Google and Opera are lined up behind the European Commission. Even if the EC were to agree that Windows 7 E is remedy enough, antitrust oversight would continue. Microsoft would have to second guess different bundling and other product strategies, even as Google cranks up the competitive pressure with Chrome OS.

My analogy: Grown-up Microsoft suddenly must get permission from daddy before going out for the evening. Daddy sets the curfew, too. By comparison, teenager Google needs no permission and is bound by no curfew. Who do you think is going to be the better party animal?

Mobile computing: Microsoft controls the last-generation application stack, which also is being whacked by the econolypse: Office-Windows-Windows Server. Microsoft has by the most generous of measures a tenuous foothold on the rapidly emerging, next-generation application stack: Mobile device to cloud. Microsoft's major problems:

• Windows Mobile is a train wreck. In 2005 and 2006, Microsoft was on track to winning the mobile market through the enterprise. For example, Exchange sync threatened BlackBerry's e-mail dominance. But Windows Mobile development languished, and more recently hardware partners are deserting to rival operating systems. such as Google's Android.
• Upstarts deliver the goods. Mobile OS newcomers Apple and Google are storming the cell phone market. Apple had nothing to offer before mid 2007 or Google before late 2008. Yet they're wooing customers, developers and partners. Windows Mobile is where? Who's talking about it? Who's deploying it?
• Windows Mobile has no scale. Apple, Google and Nokia have operating systems that can run on handsets and netbooks and, for Apple, notebooks. Windows Mobile doesn't currently scale up from handsets to larger form factors. This fragmentation of Windows versions works against developer adoption, continued hardware partnering and future enterprise deployments.

As carriers open up more 3G and 4G bandwidth, business users and consumers will be able to do more with mobile handsets. In a December report, Pew Internet predicted that "the mobile device will be the primary connection tool to the Internet for most people in the world in 2020." I disagree. The transition will happen much faster, easily by 2015. The mobile device is better suited for the cloud and light, Web-connected apps than heavy applications like Office. Then there is mobile search, which right now plays more to Google's strengths than to Microsoft's.

Microsoft is a hugely successful company, and it will continue to be for the foreseeable future. But Microsoft also faces continued challenges -- many outside its control -- that will continue to block some endeavors.