Windows 7 is getting a lot of good buzz.

Apple's Problem
Apple PCs (and, yes, Macs are "PCs"; look up the term and consider the fact that Apple got you to think Macs weren't PCs -- that's marketing) have gained a lot of market share recently, largely from two things: the perception that Vista sucks; and Apple's ability to manipulate the perceptions of both Microsoft's and its own offerings. However, Windows 7 is getting a lot of good buzz. In fact, among the influencers I follow, many who had gone to Leopard have now moved back to Windows 7 since getting access to the Windows 7 RC (release candidate) or RTM (release to manufacturers). On top of that, Jobs and Apple know, thanks to seeing Microsoft's current advertising campaign, that Microsoft is capable of executing at Apple's level now. The launch has more Apple-targeted products -- all-in-ones and premium notebooks -- than have ever existed in the market.
To Apple, this likely looks like a tsunami threatening not only its anticipated growth but also its ability to hold onto recently acquired customers who haven't been aboard long enough -- and are likely struggling with the initial incompatibilities -- to stay, in the face of what could be an impressive wave.
Microsoft's Exposure
As good as Hall and her team are, they don't run Microsoft, and they don't even run Windows. And Microsoft, as a company, doesn't really understand marketing.
To give you an idea of how this is ingrained in Microsoft: At an analyst event last week, a story was told of a recent meeting with Bill Gates where he was asked about the Mac vs. PC Apple ads and went off on how they were based on a pack of lies and exaggerations. Engineers are like that; they don't get that ads aren't based on reality -- they are designed to change the perception of something.
Look back at Apple's original "1984" ad, which is widely considered one of the best ads ever created. At the time, IBM (NYSE: IBM) was the most respected and loved company in the world. With one amazing ad, Apple repositioned it as a despotic, evil, excessively controlling firm -- without even saying its name. Five years later, IBM took a nosedive, and that ad was a surprisingly big contributor to its downfall (I wrote one of the post mortems back then).
Apple's Reality-Distortion Field
Snow Leopard, if you think about it, is what Microsoft would call a "service pack" (no major changes, just minor tweaks) and at Microsoft, service packs are free.
In addition, Apple is not a software company -- it is a vertically integrated hardware company. It could give its OS away for free -- as IBM used to do -- without much trouble, because it lives off hardware revenue. (What does an iPhone or iPod OS cost, for instance?)
Apple is effectively charging US$29 for something Microsoft typically gives away for free -- and it does give away for free on other products -- in a way that makes Microsoft look like the one overcharging.
That's marketing.
Apple's Legendary Head Fake
Microsoft made a critical mistake, for while it actually had its product ready before Apple did, Microsoft delayed its release until late October -- two months later than the ideal launch date for a perfect holiday season.
What Apple has pulled off will likely go down in history as one of the greatest head fakes in history (I'm borrowing a term that Michael Gartenberg used to describe this). Apple initially signaled a launch that would precede Microsoft's by 30 days, knowing that Microsoft would move aggressively to roll out its own campaign early to offset Apple's timing advantage. Then, last week, Apple announced it would launch on Friday, catching Microsoft unprepared and with insufficient time to move media buys and shift the campaign yet again.
Wrapping Up: Judo Marketing
Apple is doing some of the best work it has ever done -- this new ad is classic; even the use of a "Seinfeld" actor Patrick Warburton is top art -- and that's saying a lot. Microsoft has fielded the best marketing team, product, and vendor-coordinated launch it has had since Brad Silverberg and Brad Chase launched Windows 95 and nearly snuffed out Apple. But Apple didn't have Steve Jobs back then.
Jobs is turning Microsoft's size and engineering focus against it, and by so doing, it's unraveling much of Windows marketing team's work. This is a "come to Jesus" for Microsoft in that it has to decide if it really wants to fight at Apple's level or, as is often the case with big firms, start working on the list of ways it can say "Apple doesn't fight fairly" to explain why it bled shares like a stuck pig.