A giant human billboard on a frosty January morning marked the long-anticipated mainstream launch for Microsoft's two flagship products--Windows Vista and Microsoft Office 2007.

"The 'wow' starts now," the software maker promised. However, response outside of Redmond was more muted. Reviews for the software were decidedly mixed, while consumer demand for Vista remained tepid, prompting some computer makers to bring back Windows XP, while other PC makers started including XP discs in the box with Vista machines. Microsoft also agreed to let big-name PC makers sell XP longer than originally planned.

The company also missed its goal on the business side, with business uptake for Vista roughly on par with that of XP in its first year. Microsoft had hoped to see an adoption rate double that achieved by XP in its first year.

Meanwhile, Microsoft continued to move ahead with its "Live" services push. On the Windows Live front, the company finally hit send on a new version of Hotmail that was years in development. After spending much of 2006 launching a range of disparate services to see what stuck with consumers, Microsoft attempted to unify and refine many of the tools it launched over the past year. It also began opening up a bit about its longer-term plan to offer developers the ability to build their own applications on top of core Microsoft services such as storage and authentication.

On the Office Live front, Microsoft moved beyond small businesses and in December started testing Office Live Workspace, an online tool for viewing, storing, and sharing--but not editing--Office documents.

Even as it looked to find ways of taking its existing software online, Microsoft continued to branch into new areas. In May, the company took the wraps off its surface computing effort, a product that it had worked on for years, in uncharacteristic secrecy.

In business computing, the software giant continued its move into telephony. In October, the company released its Office Communications Server, a move that put the company in competition with Cisco System and others in the "unified communications" market.

Microsoft was also busy on the acquisition front. In March, it bought Tellme Networks.

That deal was followed up by the company's largest-ever purchase, its $6 billion bid for Aquantive, an online advertising company that few outside the industry had ever heard of. Late in the year, the company beat out Google to take a stake in Facebook.

During the year, Microsoft also continued to strike deals with the open-source community, including agreements with Samsung, Fuji Xerox, and TurboLinux. However, the company continued to raise the hackles of the Linux world, particularly with its claim that open source violates 235 of its patents.