Microsoft's Y2K Deja Vu

Removing support for Windows XP might boost sales of newer versions, but it won't save Microsoft's operating system business.
Photographer: Justin Sullivan/Getty Images

The warnings of what might happen when Microsoft Corp. stops supporting its aging Windows XP operating system are giving me Y2K deja vu.

Remember the Y2K problem? Computer consultants warned that the world could be plunged into chaos on Jan. 1, 2000, because systems everywhere would misinterpret the date jump from "99" to "00." Companies and governments spent billions of dollars to make sure electricity grids and missile systems would keep functioning. In the end, only a few glitches occurred. One affected 150 slot machines in Delaware; another hit bus ticket validation machines in Australia. The "millennium bug" may have caused so little damage because everyone was prepared, or it may have been overblown in the first place. It's hard to tell.

Now, computer consultants are warning that using the outdated Microsoft operating system will be extremely dangerous. Microsoft will no longer provide security patches for it, and patches for newer versions will give hackers the clues they need to attack the older version, which is based on the same code and has never been completely debugged. About 28 percent of all desktop and laptop computers, and about 95 percent of all automated teller machines, still run Windows XP. ATMs are being targetedin attacks that involve installing a malicious program, hooking up a mobile phone and receiving two text messages that prompt the machines to spit out cash -- a breach that an upgrade to Windows 7 or Windows 8 could have prevented.

Windows XP was Microsoft's best operating system ever. It was simple, intuitive, a workhorse on the cheapest hardware. It held its own against the earlier versions of Mac OS X. It is still perfectly fine for office applications and Web browsing, and some games run better on it than on later versions of Windows. Information technology departments are reluctant to drop it precisely because it works fine and users are not complaining, whatever operating system they might prefer at home. And when they do drop it, they like Windows 7 better than Windows 8.

In short, Microsoft -- lulled into complacency by its 90 percent-plus market share on personal computers -- failed to deliver improvements compelling enough to make people switch from XP in the 13 years since it hit the market. Perhaps the task was insurmountable: An operating system designed in the late 1990s or early 2000s does everything most users want to do on a personal computer. Since then, breakthroughs have come in the world of mobile devices, where system upgrades come free and devices and applications have eclipsedoperating systems in importance.

Still, unwilling to give up on the enormous Windows business, Microsoft keeps trying to sell what people do not want to buy. In this context, a scare like the one accompanying the demise of Windows XP is a legitimate marketing ploy. At the very least, it forces big clients, such as corporate IT departments and banks running XP on their ATMs, to pay Microsoft for upgrades or extended support that will cost $200 per system for the first year. These will not be happy customers: Faced with a Microsoft-manufactured replay of the Y2K problem, they will be grimly submitting to blackmail.

That is a bad foundation for market dominance. Alternatives are gradually presenting themselves in the form of Android PCs and light systems such as Chrome OS that allow users to run cloud-based apps in a browser. Someday soon, Microsoft will be forced to take the plunge and start giving Windows away for free, with upgrades, support and all. Its business model will have to shift toward selling apps and cloud services, possibly even ads. If the company waits too long, the Windows brand will simply become irrelevant.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.