The winds of change can undermine even the very powerful.
Every developer has a choice to make when they plan a new software application: they can build it for the web or they can build a "rich client" application that runs on PCs. The basic pros and cons are simple: Web applications are easier to deploy, while rich clients offer faster response time enabling much more interesting user interfaces.
Web Applications are easier to deploy because there's no installation involved. Installing a web application means typing a URL in the address bar.
But there's a price to pay in the smoothness of the user interface. ...things you can't really do well in a web application.
So the Web user interface is about 80% there, and even without new web browsers we can probably get 95% there. This is Good Enough for most people and it's certainly good enough for developers, who have voted to develop almost every significant new application as a web application.
Which means, suddenly, Microsoft's API doesn't matter so much. Web applications don't require Windows.
It's not that Microsoft didn't notice this was happening. Of course they did, and when the implications became clear, they slammed on the brakes. Promising new technologies like HTAs and DHTML were stopped in their tracks. The Internet Explorer team seems to have disappeared; they have been completely missing in action for several years. There's no way Microsoft is going to allow DHTML to get any better than it already is: it's just too dangerous to their core business, the rich client. The big meme at Microsoft these days is: "Microsoft is betting the company on the rich client." You'll see that somewhere in every slide presentation about Longhorn. Joe Beda, from the Avalon team, says that "Avalon, and Longhorn in general, is Microsoft's stake in the ground, saying that we believe power on your desktop, locally sitting there doing cool stuff, is here to stay. We're investing on the desktop, we think it's a good place to be, and we hope we're going to start a wave of excitement..."
The trouble is: it's too late.
None of this bodes well for Microsoft and the profits it enjoyed thanks to its API power. The new API is HTML, and the new winners in the application development marketplace will be the people who can make HTML sing.