If tech companies were school students, Apple would be that cool guy who's the center of attention, dates the head cheerleader, drives the fancy sports car and is invited to the hottest parties. The one who talks big and even though he doesn't always live up to his promise we forgive him for it. Teachers favor him because they can't resist his eloquence and good looks. So if Apple is the popular kid where does that leave Microsoft? That's an easy one, he would be the committed student, the one who is no genius but will do something over and over until he either gets it right or you give him a grade just to make him stop. He doesn't care that he's not a natural talent and he'll beat you to death with his determination. Yes he lacks the charm of Apple but he has studied both the game and the players, calculating and weighing each outcome before moving them around like chess pieces. We've head technology pundits going on and on about how brilliantly Steve Jobs and Apple have performed this year so why don't we take a little time to glance at Microsoft's report card for 2007. First ignore the obvious subjects like Vista and let's instead review its performance in three other extracurricular activities that helped shape the company this year.

Social Skills
After getting beaten up in the technology schoolyard by the heavyweight search bully, Microsoft finally got the courage to give Google the finger. The company won its bid for a slice of the Facebook pie, injecting $240 million into the privately held social network in exchange for a 1.6% stake and the exclusive international advertising rights. This values the fledgling social network at a staggering $15 billion; a lot of zeros for a company without a proven business model that is headed by a 24 year old. The Facebook deal garners Microsoft some much needed bragging rights since it managed to beat out Google, Yahoo and a host of other contenders. Whether this coup will turn out to be a mistake in the long run is debatable but right now it gives the normally staid software giant a big leg up into the hot field of social networking. Rival Google's own homegrown social networking service, Orkut has never managed to break out beyond its niche markets of Brazil and India.
Microsoft's deal as it stands does not include the potentially lucrative business of search but it does give them control of banner ads overseas, where about 60% of Facebook's 49 million active users live. This is in addition to Microsoft's standing contract to sell all U.S banner ads for Facebook until 2011. Google already forged its own $900 million advertising deal last year with social networking superpower MySpace. The agreement made Google the default search engine and also handed it control of all contextual advertising on the website. Although Facebook may be the current tech darling, MySpace receives about 76% of U.S. traffic compared to Facebook's 15%. There is so much hyperbole right now with social networking being touted as the holy grail of web advertising that I wonder whether Microsoft may have overspent in its eagerness to get in on the action. Truth be told, $240 million is just pocket change to a software behemoth that had $23.4 billion in cash as of June 2007. The only clear winner here may be Facebook CEO Mark Zuckerberg because his company is now considered to be worth a ridiculously high amount. The multibillion dollar valuation makes the $580 million News Corp paid for MySpace look like a bargain basement sale. Facebook is performing quite admirably. It is growing at a smart clip of 200 000 registered users a day, traffic has doubled in the last year and this October it received nearly 1% of all internet traffic. That is all good but to help you put it in perspective, consider this; Facebook is on track to make $30 million in profit this year, so if it were a publicly traded company, a valuation of $15 billion puts the company's worth at an unheard of 500 times earnings. Now compare this to Google which is valued at around 53 times earnings and you will understand why I am skeptical about the whole thing. Usually conservative Microsoft is placing its bets on Facebook living up to its hype and I applaud their chutzpah.

Musical Talent
As I said before if Microsoft knows how to do one thing, it's to stick to something and hang on as if its life depended on it, which let's face it sometimes it does. One sector the software maker took a bite out of was portable music players. It found the market very tough but it has not stopped chewing. After falling flat on its face with the 'Plays for Sure' effort, Microsoft introduced a similarly dull iPod pretender called Zune a while ago. The underachieving Zune got a full revamp this year and by November there were four different models on the market ranging in capacity from 4 to 80 gigs with the most expensive one, an 80 gig black model coming in at $250, comparable to Apple's market leading iPod. In its previous incarnation Zune's performance was less than stellar. It sold a paltry 1.2 million to iPod's 41 million units in the same time span.

So Microsoft went back to the drawing board. It threw out the old Toshiba developed design and gave the Zune a ground up in-house makeover. Zune part deux is smaller and sleeker with new navigation buttons and gone is the dull brown model replaced by fruiter, green, red, black and pink. The device's software was another big development. Microsoft sought to inject a social aspect into the product figuring that if it made music sharing part and parcel of the Zune experience this would catapult the player from the category of also-rans straight into iPod territory. A social networking site, Zune Social was developed to pump up the player's appeal and make it attractive to consumers that were knee deep into the MySpace experience. Zune Social allows users to wirelessly share their recent playlists and song samples with friends and to check out what they have been listening to even if they are 'non- Zuners'. They can then listen to any song on the playlist for free up to three times per Zune player before getting a message prompting them to purchase the track. Microsoft also boosted its digital music library to over one million DRM free songs.

Despite all this it failed to significantly raise the temperature of analysts, techies or customers. The revamped Zune was strangely reminiscent of an old iPod nano and could not hold a candle to Apple's slicker new iPod releases. But all is not lost, given time and a ramped up advertising campaign Zune could make some inroads and maybe steal market share from the trinity of Samsung, SanDisk and Creative who collectively hold 16% of the digital player market that Apple hasn't yet grabbed.

Gaming Ability
Ten years and billions of dollars later Microsoft may finally show a profit on its game console, now called the Xbox 360. The company is hoping to mint serious money from three Xbox related sources, the games, Xbox Live and peripheral sales. Sales of the gaming console itself do not count. Microsoft would be glad to break even or at worst not make too much of a loss. The money will come from sales of the games that go into the console. It keeps profits from titles that it produces in-house and the latest installment of the Microsoft developed blockbuster 'Halo 3' arguably the best game of 2007, promises to put them firmly into the black. 'Halo 3' has a big iPhone like following of fanatical disciples who can be counted on to snap up copies of the title. These sales will be supplemented by royalties from third party created games produced by vendors like Electronic Arts or Activision. The subscription based online gaming service; Xbox Live also brings in revenue from advertising and sales of downloaded games, movies and shows. This is rounded off by the sale of gaming peripherals, like controllers, steering mechanisms, cameras and the like.

Among the highlights of the critically acclaimed Xbox 360 are its s uperior selection of games, including several exclusives like the aforementioned 'Halo'; all games come in high-definition, it has an intuitive interface, supports Windows Media Center and lets you purchase and download full version games, mini games, movies and TV shows. It also enjoys first -mover advantage, having put 5 million units in US households before the Sony Play Station 3 and Nintendo's Wii even got off the ground. In addition the Xbox Live service has 6 million users signed up adding to the popularity of the platform.
But not everyone lives happily ever after in Xbox 360 land. Many Xbox owners have come face to face with the dreaded 'Red Ring of Death', a circle of flashing LED lights around the power button that indicates a massive hardware failure. Gamers have been complaining about the 'Red Ring of Death' since 2005 with some returning their consoles up to four times for repairs. Though it refuses to disclose the number of units that have been affected or what the specific underlying problems are, Microsoft admitted that there have been a number of frequent hardware failures. It extended buyer warranties from one year to three years, decreased its unit sales estimates from 12 million to 11.6 million and claims it has already begun making hardware changes to the system. The warranty extension was unprecedented and set a new standard for the gaming industry, doing a lot to help quell the displeasure of Xbox customers. Microsoft took a loss of $1.15 billion as a result .

Then in a move reminiscent of the iPhone discount, Microsoft slashed the price on three Xbox 360 models in Japan, just two months after dropping the US retail price. In Japan you can get a stripped down Xbox 360 for almost the same price as the usually cheaper Sony Wii. This is part of Microsoft's strategy to entice the many Japanese gamers that it covets. These consumers typically support Japanese manufacturers, Nintendo and Sony. But Microsoft has their work cut out for them. As of September, Nintendo had sold 3.57 million units of the Wii in Japan, Sony had moved a respectable 1.21 million units of the PS3 while the Xbox only managed to sell 460 000 Xbox 360's. But that could change very soon. With its cool digital media features, a well developed online service, and a formidable library of games, the Xbox 360 remains the game console to beat. Safe to say, they can start celebrating victory early in Redmond.

So let's review the report card thus far. Compared to other deals this year the Facebook contract may seem like small change but to a company that has traditionally sat back while others took risks this was big time and it nets them a solid B for bravery. When it comes to the new Zune, they made a noble effort considering that they were up against the unstoppable iPod and this merits a C+ for persistence; who knows maybe third time will be the charm. Finally for taking their Xbox 360 to the top of a competitive gaming market, while shouldering a billion dollar loss and dodging a PR crisis in the process they merit another well earned B. It may seem like the software giant had a less than remarkable year but let's not forget that Microsoft has a thriving software business to fall back on, one which just got a boost from the launch of the latest edition of the windows operating system. It is on track to report a net income of $3.8 billion on sales of $13.3 billion up from last year. So while it may not look as sexy or as slick as Apple, when it comes to churning out the big profits few can compare. So for sheer money making muscle Microsoft gets a passing grade of A+.