Microsoft released key details on Tuesday of the next generation of software that it hopes will run the world's computers.
The software giant, whose dominance is under threat, said Windows 7 will replace the disappointing Windows Vista in January 2010.
Microsoft said the new operating system was designed to function like a tighter version of Vista, which launched in 2006 but was widely derided as a "system hog" that slowed down computers with features that most users never accessed.
Speaking to participants at a Microsoft developers' conference in Los Angeles, Steven Sinofsky, senior vice president of Windows, said Microsoft was learning its lessons from Vista, by making sure that Windows 7 would be fully compatible with all relevant devices and applications on launch.
Among the innovations unveiled by Microsoft was a touch-screen capability that will allow users to select folders and control programmes without using a mouse.
Windows 7 will also feature faster boot-up times, an updated task bar that includes previews of open windows, a new desktop look and a set of features optimised for laptops. The new operating system also makes it easier to coordinate and access files over networks and to automatically configure settings for different networks.
The new software will ditch some prominent features included in Vista including Calendar, Windows Mail, Movie Maker, Contacts and Photo Gallery, which will now be available for free download from the Microsoft website.
Microsoft operating systems still power some 90 percent of the world's personal computers, though Vista has only racked up an 18 percent share since its launch.
Microsoft has been hit by the growing success of Apple's Mac computers and by the long-term switch of many computing functions to mobile phones and the internet.
Google is threatening Microsoft's cash cow, the Office Suite of programmes, with online word processors, spreadsheets and presentation programmes.
Microsoft Tuesday said it would launch free online versions of Office that would be supported by advertising. Many analysts fear that offering an online version could cannibalize Microsoft's most profitable line of products.
But Rob Helm, a senior analyst at research firm Directions on Microsoft, said that both Windows 7 and Office Online should work out well for the company.
"Both are good improvements," he said. "Windows 7 will help Microsoft overcome the weakness of Vista, while Web-based Office is a direct response to Google. Many businesses will like it because they have lots of users who don't use many of the Office features."