Will Longhorn rope everything together?

The company revealed elements of this strategy at its financial analysts meeting Thursday. Much of these efforts are tied to the development of Longhorn, the next major version of the Windows operating system.

At about the same time that Longhorn is shipped, the software giant will have new versions of Office, server software and many other products tied to the release of the operating system, Microsoft Chairman Bill Gates said. The company also has said it plans to boost its research spending by 8 percent in the coming year, adding roughly 5,000 jobs.

To get Microsoft's various units talking more, the company has implemented a new senior leadership group that comprises executives from across the company.

"We didn't try and synchronize a lot of things with Windows XP," Microsoft CEO Steve Ballmer said. "We did with Windows 95."

Although development work is closer among the operating system and other software units, the company is maintaining distinct products.

"Office is not part of Longhorn, but there is a Longhorn version of Office," Ballmer said.

The company is also planning a server version of Longhorn, the details about which Microsoft executives were mum, except to say that the software represents the next major release of its server OS and will be released at about the same time as the launch of the desktop version of Longhorn.

Separately, Microsoft executives said the company is moving ahead with integrating its business software unit, which is comprised largely of products acquired through its acquisition of Great Plains Software and Navision.

Doug Burgum, senior vice president of Microsoft's business solutions unit, said the business software market is ripe for consolidation, with the top nine players in the market controlling about 30 percent of sales.

"This is one of the last really fragmented markets in software," he said.

As for Longhorn, Gates did not provide a date for the final version, but other executives said the first full beta, or test, version will ship next year. The operating system will feature a new filing system as well as a revamped user interface.

"It's a big bet for us. We don't know the exact timeframe," Gates told analysts. "It's clearly many years of work we are engaging in."

One of the concerns of the tighter integration, analysts have said, is that Microsoft's product releases are increasingly tied to one another. If one product is delayed, there is a good chance that other launches could be pushed back as well.

Ballmer acknowledged that tying so many pieces together is a risk. "Every piece has a set of challenges," he said.

Furthermore, although Microsoft has settled some of its antitrust concerns, it's not out of the woods yet. The company still faces a suit from Sun Microsystems as well as the potential of a broader inquiry from the European Union. Microsoft Chief Financial Officer John Connors last week cited these legal concerns as the driving factor behind Microsoft's decision not to share much of its $49 billion in cash with shareholders.

Ahead of Longhorn
Not all of Microsoft's integration efforts are waiting for Longhorn, though.

For example, the company on Thursday previewed Outlook Connector, a piece of software that allows customers to simultaneously work with e-mail and calendars stored on an Exchange server as well as personal information stored on MSN's servers. The project links Microsoft's Office team with its MSN unit.

Microsoft executives also offered details on more near-term efforts. Group Vice President Jim Allchin said a second service pack for Windows XP is due to launch in the coming financial year, as are updates to its Tablet PC and Media Center editions. The service pack for the main Windows XP operating system will not include many new features, Allchin said.

The company also wants to make it easier for corporate customers to update their software. Currently, new components of Microsoft software are located on at least seven different places on the company's Web site.

"It's a key objective of ours to simplify that," Eric Rudder of Microsoft's server and tools unit said.

Microsoft also delivered an update on sales of its current server OS, Windows Server 2003, which launched in April. As previously reported, sales of that software during its first 90 days have reached three times those produced by its predecessor in the same time frame.