By Duncan McLeod

Next year will be a decisive one for Microsoft as it readies new products to fend off challengers in the consumer technology market. Its upcoming touch and tablet-friendly operating system, Windows 8, will be an important part of its plan to win back the hearts and minds of consumers. Success is not guaranteed.

A 10-year chart of Microsoft versus Apple paints a sorry picture of the once high-flying software company. In that time, Microsoft’s share price has declined by 25%, while Apple’s stock has risen more than 3 000%. Even next to long-established technology stalwart IBM, Microsoft has underperformed badly.

Last year, it lost its title as the world’s most valuable tech company to Apple. Then IBM overtook it, pushing it into third place. And now Google is snapping at its heels.

In recent years, the calls from analysts and investors for Microsoft to replace its long-serving CEO, the brash and ebullient Steve Ballmer, have grown steadily louder, but the company’s board, chaired by Ballmer’s predecessor, co-founder Bill Gates, has stood firm in its support of him. This is in spite of the rapid gains Apple and Google have made at Microsoft’s expense in everything from tablets to smartphones to Web browsers.

Though the software maker remains thoroughly dominant in business computing — to pervert an old phrase about another tech company, no one ever got fired for buying Microsoft — in the consumer space it’s under sustained attack from brands that consumers perceive to be cooler and better designed.

Apple’s co-founder, the late Steve Jobs, once famously said of Microsoft that its only problem was that it had “absolutely no taste”. And, he said, “I don’t mean that in a small way — I mean it in a big way, in the sense that they don’t think of original ideas, and they don’t bring much culture into their products.”

That may have been true then. Windows was never a particularly sexy operating system, especially not next to Apple’s Mac OS X. But in the past year, something’s changed. Maybe it’s Steven Sinofsky’s leadership of the Windows division at Microsoft, where he took the reins in 2009, or maybe it’s that the company always excels when, like now, it’s backed into a corner. Remember how it came from behind in the great browser wars of the late 1990s?

Whatever it is, Microsoft has been producing great, consumer-friendly software lately. The new version of its Windows Phone platform for smartphones is arguably the best-looking and most innovative operating system for mobile devices available today.

And the developer preview of Windows 8, with its Windows Phone-inspired interface, looks gorgeous and should be a real treat to use on devices like tablets with large touchscreens. I, for one, am looking forward to the first widespread test release in February. It’ll tell us whether Microsoft is going to stage a dramatic comeback in the consumer software space or whether it’s bound to play second fiddle to Apple and Google, the new giants in consumer technology.

Rumours last week — quickly debunked — that Gates was planning to return to Microsoft, replacing Ballmer as CEO and leading a Jobs-style comeback to the company he co-founded, generated a fair amount of excitement. But where attention should be focused is on the revival that Ballmer is trying to engineer. The company is making good strides. But it still needs to convince ordinary consumers that it’s not uncool to use Microsoft products.

If he gets it right, both his and the company’s futures are secured; if not, Microsoft will spend another decade treading water. Or worse.