Microsoft Corp. (Nasdsaq: MSFT) introduced the biggest overhaul of its flagship Windows software in two decades, reflecting the rising stakes in its competition with Apple Inc. and Google Inc. for the loyalty of customers who are shunning personal computers and flocking to mobile devices.

“This is the biggest product we’ve ever done,” Chief Executive Officer Steve Ballmer said Thursday in an interview with Bloomberg Television, comparing it with the arrival of the PC in 1981 and the introduction of Windows 95.

Microsoft packed the new Windows with touch-screen capabilities, designed to vault the company into the tablet market dominated by Apple’s iPad. To avoid being left behind as computing increasingly shifts to mobile devices like tablets and smartphones, the company radically altered Windows’ familiar design and scrapped a strategy that had it relying entirely on partners to produce Windows computers.

“In creating Windows 8, we shunned the incremental,” Windows President Steven Sinofsky said at an event to mark the product’s release today at New York’s Pier 57. Windows 8 and the company’s first-ever computer, the Surface tablet, go on sale tomorrow.
Microsoft shares were little changed at $27.90 at 12:51 p.m. in New York. Through yesterday, the shares had gained 7.5 percent this year.

1,000 Computers

More than 1,000 computers have been certified for Windows 8, Sinofsky said. That will include the first Windows machines capable of running on chips with technology from ARM Holdings Plc, instead of Intel Corp. Besides Microsoft’s own Surface, the list of ARM-powered machines includes computers from Dell Inc., Samsung Electronics Co., Lenovo Group Ltd. and Asustek Computer Inc. These run a version called Windows RT.

Still, Surface and the other Windows RT machines will be constrained in competition with Apple because they don’t work with some of the most widely used downloadable applications. The RT-based machines can only run apps from Microsoft’s new Windows store, which won’t feature applications for Facebook Inc.’s social-networking service or Apple’s iTunes music store.

The Windows store does have some popular apps, including those from media-streaming companies Hulu LLC and Netflix Inc. Still, Microsoft won’t say how many apps are available for the operating system, and the lack of a broad range of games, tools and other downloadable software will detract from the Surface in a head-to-head comparison against the iPad and its more than 275,000 apps.

‘Promissory Note’

“Part of me had hoped that we’d see more killer apps,” said Wes Miller, an analyst at Directions on Microsoft in Kirkland, Washington. “Consumers who buy into the platform on Friday — unless we start seeing an abundance of apps — are buying into a promissory note that the apps will arrive.”

Machines with Windows 8 that run chips from Intel can run older Windows programs.

Downloadable applications have become central to the way customers use tablet computers, and one of Apple’s selling points is its leadership in apps. The company introduced a smaller, lower-cost version of the iPad earlier this week, part of CEO Tim Cook’s effort to keep budget-conscious shoppers from turning to inexpensive tablets sold by competitors such as Inc. The iPad mini is available for early orders tomorrow, the same day Surface hits stores.

Consumer Defection

The PC market will contract by 1.2 percent to 348.7 million units this year, according to IHS ISuppli. That would be the first annual decline since 2001. Microsoft is relying on the new operating system to revive interest in the PC and carve out a position for Windows in the tablet market, which is picking up consumers defecting from PCs.

Microsoft has had a lot of interest in writing applications for the operating system and has had to add staff and computers to process and approve the submissions, Antoine Leblond, the vice president in charge of the Windows app store, said in an interview.
Because apps written for the program can be sold not just to tablet users but to hundreds of millions of customers who will get Windows 8 on PCs, Microsoft has a chance to win over more developers, Leblond said.

“Microsoft feels pretty strongly that the platform they have built is compelling to both users and developers,” Directions on Microsoft’s Miller said. “Time will tell if both are true.”

Miller’s own examination of the Windows app store indicates there were 7,873 apps worldwide earlier this week, with hundreds being added daily.

Facebook Decision

Still, Facebook, for example, only writes apps for Apple’s iOS and Google’s Android operating system, and the company opted not to do Windows, a person familiar with the matter said in May. Microsoft could have written a Facebook app on its own using Facebook’s open standards, which is what the Windows Phone group did when similarly faced with a possible dearth of apps in 2010.

“Facebook will or will not decide to write an app,” Leblond said. “That’s their decision to make. We’re not going to build a native app for them.”

Leblond also notes that Windows RT customers can go to Facebook’s website through their browser and get a similar experience to the app.

Instead, the Windows group focused their budget on workshops to train developers and resources to help them write apps, Leblond said. More than 400,000 people have attended developer camps run by the company, he said.

Besides Hulu and Netflix, the new Windows will also have apps such as the Skype Internet-calling service and Evernote Corp.’s note-taking tool. A version of Rovio Entertainment Oy’s Angry Birds game will be available Nov. 8.

“When the store opens, we will have more apps in it than any other store when it opened, and to me that’s a great sign of momentum,” Leblond said. “I’m much more interested in the momentum that we’re seeing than what that absolute count looks like.”