Yesterday’s announcement on the Windows Home Server blog about the decision to pull Drive Extender functionality from Vail/Aurora/Breckenridge is just yet another example of how Microsoft, while perhaps doing the right thing in the short term for their business, continues to appear to fail to understand the basics of dealing with, attracting, and satisfying consumers.

The core of the problem isn’t with Windows Home Server code-named Vail at all, or with the Drive Extender per se (although there may be more to this than meets the eye).  Drive Extender has worked in Windows Home Server for years, and provides functionality (ability to add and remove drives, data redundancy, ease of use) that simply don’t exist in other similar products.

The problem is with small business use.  Early on in the Home Server lifecycle, Microsoft identified interest from small and medium businesses for a similar product, something that a non-IT enabled business could easily set up and use to back up, and also serve documents etc. from a single source.  An (over) simplification of the problem with Drive Extender in these scenarios is that 3rd party apps used by small businesses, which would otherwise be a good fit for a WHS/small business scenario don’t work very well with DE, due to how DE doesn’t provide a typical drive letter/address combo expected by these apps.

So instead of realizing that there are two audiences here, with two separate and incompatible sets of needs, Microsoft forged ahead with their “all or nothing” cost saving consolidation of a Windows Home Server and Small Business backup server plan, knowing full well that a) Drive Extender wasn’t going to work for small business, and b) that removing DE was going to cause a ****storm amongst Home Server enthusiasts.

These decisions still aren’t necessarily bad, but what is bad is the inability for Microsoft to understand the power of not only capturing, but engaging and delighting consumers, and the effect that has on its other sales.

Microsoft lost a significant advantage, in the face of multiple cries for attention, in the days of IE6, when it couldn’t justify the metrics of spending money on a newer, more web compliant browser and allowed its market share (and more importantly its perception in the market) to fall dramatically over the next number of years.  It did the same with Hotmail, allowing it to languish at 2mb and spotty service until Gmail came along, gave the consumers what they wanted, and painted a picture that “Microsoft doesn’t get the consumer, but Google does”.

It did the same thing with mobile.  Steve Ballmer laughed off the iPhone, thinking he had corporate users in his pocket, and that consumer adulation of the iPhone didn’t matter.  Instead, corporate users revolted, refusing to use Microsoft’s stodgy and hard to use but secure devices, and flocking to a sexy, easy to use, and consumer friendly device, one that not only worked, but made them look cool among their peers.

In all of these instances, Microsoft had market share, but lost it due to the inability to comprehend the power of the consumer, and yet again, it’s doing it with Windows Home Server.  If you looked at the metrics in all of these instances, Microsoft chose the “correct” path, but what Microsoft fails to understand is that the lines between consumer and corporate have blurred.

The very fan base that Windows Home Server built up (due in large part to Charlie Kindel, who does understand the consumer and has brought that awareness to his new job with Windows Phone), has been alienated, and instead of championing WHS Vail in that blurry area between consumer and small business, they’ve been lost.  As of this writing, there are 1676 votes in a petition on Microsoft Connect to bring back Drive Extender.  That’s 1676 votes against Microsoft, by decision makers and influencers, that will trickle (flood?) out into the marketplace with the same damning perceptions that Microsoft is fighting against with mobile, with IE, and with Hotmail.  You’d think they would learn.