In a speech to fellow CEOs at Microsoft's 14th annual CEO Summit, Microsoft's Steve Ballmer said something that gives us an insight into what went wrong with Vista.
Taking about the operating system, he said:
"We tried too big a task and in the process wound up losing thousands of man hours of innovation."
The problem with Microsoft (specifically in the pre Windows 7 days) is that the company had a huge track record of vaporware announcements. During the development of Longhorn (the project that led to Vista), there was an almost daily flow of announcements and new features from Microsoft. Longhorn was going to be everything to everybody.
Then there were external pressures. Not only was Longhorn having to keep up with what Microsoft wanted from it, it also had to keep up with the tech industry and the changes and developments there. Feature creep built on top of feature creep, and eventually the project collapsed under its own weight and Microsoft threw out the existing code, took the Windows Server 2003 Service Pack 1 codebase and added to this the features that would transform it into Vista.
Overall, Vista cost Microsoft around $6 billion to develop.
Microsoft knew what Vista should have been - it should have been Longhorn. The sobering thing to take away from this is that Microsoft, with all that cash and brain-power and experience, bit off more than it could chew and ended up having to retreat and regroup.
And what about Windows 7? Well, it's a leg up from Vista. It could be argued that Windows 7 is what Vista should have been, but that's beside the point. Users seem happy with Windows 7, and whether that's down to it being a better operating system, or that people are just glad to have cash to spend on shiny new PCs and software, it doesn't matter one bit to Microsoft!