Vista: Expect a Premium Push (With Premium Prices)
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Microsoft is still holding many specifics about Windows Vista — pricing among them — close to the vest. But Redmond's reticence to talk isn't stopping company watchers from speculating. Goldman Sachs & Co. analyst Rick Sherlund issued a research note earlier this month, noting that Goldman is now figuring Microsoft could garner an extra $1.5 billion per year in revenues simply by persuading users to buy the premium Vista versions.
Goldman Sachs estimates that Microsoft is charging PC makers roughly $45 per copy of Windows XP Home and $85 per copy of Windows XP Pro. While the Vista SKUs do not line up, feature-by-feature, with their XP predecessors, Goldman is estimating that Microsoft might charge PC makers $45 per copy of Vista Home, but about $65 per copy for Vista Home Premium, which includes Media Center, Tablet and other functionality built into a single SKU. (It is up to PC makers to determine how much, if any, of a Microsoft Windows price increase they will pass on to customers when selling new systems preloaded with Vista.) "We think most of the Home market would elect the Premium version since this has the Aero/Glass interface and ability to burn DVDs and related multimedia," said Sherlund. "We have been more focused on the incremental upgrade revenues from Vista, but the bigger benefit over time is the mix shift to a higher-priced Windows SKU." Goldman is estimating that about 75 percent of the Vista consumer demographic will go for the Home Premium version of Vista, as opposed to Home Basic. If that $20 extra per copy for the premium home edition calculation holds, Microsoft will earn $1.5 billion a year in additional revenues, just by switching its product mix, Goldman reasoned in its April 3 research note. The change in its Vista revenue forecast led Goldman to revise its Microsoft projections, increasing its Microsoft fiscal 2007 earnings-per-share figure from $1.54 to $1.57, and its 2008 estimate from $1.75 to $1.78. On the enterprise side, the calculation is not quite as clear-cut, but the logic still holds. If Microsoft can convince business users to flock to the Enterprise rather than the less-feature-rich Business variant of Vista, Microsoft will be able to reap significant revenue returns, even if the actual price per copy increases little or none. Stick, Meet Carrot Microsoft is using more of a stick than a carrot on the business side to convince customers to go with the premium Enterprise SKU. Microsoft has decided to make a number of the Vista features that it has honed for enterprise users -- specifically, the BitLocker drive encryption; Virtual PC Express virtual-machine support; the Subsystem for Unix-based Applications (SUA), which is designed to allow Unix applications to run on Vista machines; and access to all worldwide languages supported by Vista via a single deployment image – only available to users who agree to sign up for Microsoft volume-licensing agreements, such as Enterprise Agreements and Software Assurance. One enterprise user, who asked to remain anonymous, said his company recently decided to bite the bullet and sign a Software Assurance license to get these features. He called Microsoft's premium upgrade tactics "extortion."
In addition to overcoming these kinds of negative perceptions, Microsoft has some other issues with which to contend before its premium push will work, company watchers said. "It would appear that (Microsoft's) goal is get people onto Vista and as they use it, get them to pay to move to the next edition," through programs such as Windows Anytime Upgrade, said Michael Cherry, an analyst with Directions on Microsoft. "But the problem here appears to be the unknown hardware requirements. Consider the case where a customer has one of the lower editions, say Home Basic. Conceptually it is possible to upgrade to Ultimate, but what will the experience really be like? Will the computer they have with Basic really run Ultimate? What will it be like without a high-end graphics card or TPM (Trusted Platform Module)? So in the end, the customer may end up disappointed." Cherry added that the customer set for which the effects of Microsoft's planned premium strategy is most murky is small and mid-size businesses. "What is really unclear here is how this will play out for the small to medium sized business, who are not likely to have (volume-license) agreements, but rather buy from OEMs. Will they be forced to buy (Vista) Ultimate (edition)?" It's also still uncertain the extent to which Microsoft will up Vista's street and OEM/PC maker prices by the time it launches the product in January 2007. While many industry watchers are not expecting Microsoft to jack-up wildly Windows' prices, there is some wiggle room. According to Microsoft's own Windows research, cited by company officials at Microsoft's 2005 Financial Analyst Day meeting, users base their operating-system purchase decisions on first on compatibility, followed by feature set, security and quality, cost, availability and brand preference. In other words, operating-system pricing is only fourth on users' lists, when evaluating new systems. |
Comments (8)
All I want to know is,whats it going to take to upgrade from XP to Vista? Or is it going to be cheaper to go out and buy new PC's? If Microsoft is going to get between $45 and $65 per copy for a new PC with a "Vista version" installed and probably around $300 for a upgrade from XP to Vista it looks like they would publish "System Requirements" to make this upgrade work from a XP machine. Because if we need to upgrade our PC or PC's to make "Vista" work,it would be nice if we could start upgrading now to prepare for a "Vista" install.
Posted by Randy Kelley | April 18, 2006 12:47 PM
"We think most of the Home market would elect the Premium version”Home users are getting more savvy all the time. Most of the people at my office that have purchased new PCs in the last year have actually done some research before buying! I don’t think there going to be willing to whip out 200 or 300 dollars for transparent windows and an interface that will reduce the fastest of PCs to a crawl. All most users need windows to do is run there software, and that doesn’t require Aero/Glass. “ability to burn DVDs and related multimedia" With all the Content Management Bull that MicroScrew has overloaded windows with they wont be Ripping or Playing DVD’s or music with it anyway. Third party software from comanys that are not in the pocket of the Motion picture or Movie industry will produce faster less complex (and lets not forget working) software.
Posted by Brian Grant | April 19, 2006 8:37 AM
As a computer consultant, I have users that have difficulty with purchasing software that has no affect on there bottomline. Most small business use only 10% of the capabilities of the O/S and Office Suites they own. How in the world is MicrosCrap going to convince even a techie that he absolutly needs Vista Premium. Windows 2k and XP will more than likely be on networks for lonnnnggggg time.
Posted by Wingz | November 24, 2006 6:53 PM
I know how their going to get every one to switch. they will no longer provide support for xp after next christmas. their giving time for the change over but how many people will use an os that dosent have suport. the only ones that will are going to be to poor to up grade and those that know what their doing with computers (aka those that have played with linux and unix).
Posted by iceman | November 28, 2006 10:02 PM
All that I have to say about windows vista is that it requires excessive memory while it keeps the cpu under a load 87% of the time.
The average person that has a computer that is 3 years or older is going to have some issues, mainly capacity or strain on both memory and cpu.
So here is the bottom line.
Spend an average of $800 on a New Desktop with an option of upgrading fromr $65-$199 or
Spend an average of $320 in upgrading your memory, video card and cpu and that is only if your motherboard will handle the upgrades and after all that you must add the cost of an OEM operating system price that for my understanding can go up from $199 to 329.00. I won't knock the program it looks good and it has good fitures but at what expense, the OS program uses after the updates an average of 5 GIGS of hard drive and it uses 37% more memory while also loading your processor 18% more then the Windows XP Program.
What ever you choose it will cost you an average of $700, Is it worth it.
Posted by Gringo | November 29, 2006 10:55 PM
The majority of people that own a PC will probably only need to purchase a faster video card, which doesn't have to be a highend solution, just something with 128 MB, or more of video memory. In some cases, maybe increasing RAM to 1 gig would be wise as well. Remember you can turn Vista's more advanced visualizations off for added performance.
Posted by Average Joe | December 8, 2006 6:09 PM
I AGREE: SPARE A THOUGHT FOR 'DOWN UNDER' (AUSTRALIAN USERS)! Personaly I will be waiting six months to a year at least (remember XP), until I decide to purchase a copy. You can bet there will be unforseen changes, like pricing, technical, and upgrade options. It took almost 4 years for XP to become fully accepted by the buying public, sooner for the 'IT community'. Regardless of the sales pitch, Microsoft like any business is subject to market forces, and if things like reliability, and especially pricing become an issue, we will see things like changes to licensing/price excetera! If Microsoft licensed their product 'per copy per person' (because it is already overpriced) instead of 'per device' we would see a lot less piracy and a lot less complaints voiced towards the company. They can only get away with this type of commerce because they are the only dominant player left in this particular market. Apple blew it buy trying to keep everything in-house (greed). Apple could of held a much more competitive position, which would have made life a lot more fun for the average enterprise/business/PC consumer, in which case none of us would have been held to ransom in such a brutal commercial manner.
Posted by Obadiah | December 14, 2006 3:51 AM
In the final analysis, none of this matters. Performance, pricing, features, etc. -- none of it mattered with 95, 98, ME, 2000, XP, and it will not matter with Vista, regardless of how loudly people complain about any of it. When Microsoft got hold of the PC makers by the short-hairs (back in the early nineties), they won.
Posted by Anthony | February 14, 2007 11:32 AM