In a lengthy piece, titled “Microsoft’s Lost Decade”, Kurt Eichenwald of Vanity Fair profiled CEO Steve Ballmer and his role in the company’s steadily decreasing dominance. The piece includes interviews with current and past executives of the company, thousands of internal docs and legal records, and, not surprisingly, Apple’s role in the decline of Microsoft makes up a large part of the story:

Truly, for senior management, the problems didn’t make sense. Microsoft had some of the smartest people in the technology business. It had billions of dollars at its disposal, and the ability to throw that money into any project the executives chose… Current and former executives said that, each year, they tried to explain to Microsoft’s top executives why the company was struggling in the quality of its innovation compared with Apple… Exhibit A: today the iPhone brings in more revenue than the entirety of Microsoft… One Apple product, something that didn’t exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion.

One anecdote covered in the story comes from emails that circulated around Microsoft following the introduction of Tiger:

Then, in June 2004, Steve Jobs announced that Apple was releasing its new operating system, called “Tiger.” And inside Microsoft, jaws dropped. Tiger did much of what was planned for Longhorn—except that it worked.

E-mails flew around Microsoft, expressing dismay about the quality of Tiger. To executives’ disbelief, it contained functional equivalents of Avalon and WinFS.

“It was fucking amazing,” wrote Lenn Pryor, part of the Longhorn team. “It is like I just got a free pass to Longhorn land today.”

Vic Gundotra, another member of the group, tried out Tiger. “Their Avalon competitor (core video, core image) was hot,” he wrote. “I have the cool widgets (dashboard) running on my MAC right now with all the effects [Jobs] showed on stage. I’ve had no crashes in 5 hours.”

The videoconferencing function? “Amazing,” Gundotra wrote. Scripting software? “Very cool.”

The Gundotra e-mail was sent to executives throughout Microsoft headquarters, including Allchin. He forwarded it to Gates and Ballmer, adding his name and one word: “Sigh … ”

You can read the full story at Vanity Fair…