How Much Does Microsoft Make From Office 2007 and Vista?
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In a research note released this week, Goldman Sachs analyst Sarah Friar put some hard estimates on Microsoft's revenue take per copy of Office 2007 and Windows Vista. There is potential profit in the number of new versions. |
Goldman Sachs expects Microsoft Business Division to generate more revenue during fiscal 2007, which ends on June 30, than Windows client -- 31 percent and 29 percent, respectively.
"About 40 percent of Office revenues are from fully packaged product and volume license agreements, 40 percent are from annuity contracts, and 20 percent are from OEM sales, compared with about 5 percent, 15 percent, and 80 percent for [Windows] client revenues, respectively," Friar wrote.
That means more copies of Office are sold through volume licensing, while Windows is generally bought with new PCs. For both products, higher-end SKUs could add to revenues. The bigger upside would be for Office, at least initially.
Goldman Sachs estimates that, worldwide, consumers bought 1.9 million Vista upgrades in the second quarter and will buy 1.5 million upgrades in the third quarter. The expectation is based on the idea that upgrades will dramatically diminish after the first six months of widespread Vista availability.
While most people will buy Vista on new PCs, "adoption in the beginning will likely be slower than for Windows 95 or Windows XP," Friar explained.
Minding the Office
Goldman Sachs estimates that one in eight PCs ships with Office Standard.
Goldman Sachs sees new SKU Office Basic cannibalizing sales from Standard. However, the expectation is that higher Basic volumes—some replacing pirated older Office versions—will lead to a net revenue gain.
"We believe the introduction of the lower-priced Office Basic 2007 SKU can add about 1 percent to Information Worker (now part of MBD) revenue growth in FY2008," Friar wrote.
Her observations about the Office consumer market is sensible. "Consumers tend to not pay for most copies of Office, but instead bring it home from the office, purchase lower-priced academic versions, or purchase one copy for many machines. While Office is widely used by consumers, it is not widely paid for."
NPD Group estimates that Office "Student"—with "Teacher" for version 2003 and "Home" for 2007—commands 80 percent retail share of the desktop productivity category.
What I find interesting is how the OEM revenues for Office and Windows compare. Goldman Sachs estimates put the OEM category highest for Office, whereas Windows upgrades generate more revenue per copy. That said, the higher OEM volumes lead to greater overall revenue.
Related Posts:
- Stacking Vista Licenses Too High, Microsoft Watch, March 26, 2007
- Office Trial Could Cause Channel Conflict, Microsoft Watch, Feb. 14, 2007
- Early Office 2007 Sales Exceed Predecessor, Microsoft Watch, Feb. 13, 2007
- Windows Family Discount Is No Ultimate Bargain, Microsoft Watch, Jan. 18, 2007
- A Lesson in Office Student and Teacher Edition, Microsoft Watch, Jan. 2, 2007
Comments (16)
I would love to see the data for retail, OEM and volume licensing for Windows and Office. I suspect the real money for Office is in the volume licensing -- what companies pay to have Office on every PC. For Windows, this report confirms that most consumers don't purchase Windows but rather they purchase a PC with Windows preinstalled. Small businesses are similar, while I suspect that larger businesses purchase volume licenses for Windows, too.
Posted by Greg | April 12, 2007 8:06 PM
"Will Microsoft profit from Office 2007 and Vista ?" is indeed a stupid question posted by a "professional" writer
Microsoft have been making its profit since desktop OS Windows 95 , Windows 98 , Windows 2000 Professional , Windows XP and now Windows Vista.
Windows desktop OS success is a fate, whether you like it or not as we don't have another reasonble alternative .
Don't even try to mention that Apple is a "reasonable" alternative as it is designed as proprietary hardware whereas PC compatible hardware are avaliable anywhere on this planet.
Generic PC hardware design is equivalent to Open-source software.
Be realistic, please try to argue with fact and figure but not sentiment
Joe , by the way , please tell me you are using Linux desktop and Apple daily !
Microsoft is going to discontinue OEM XP at January 2008 , let me know that you have found a solution not using Windows Vista eventually
Posted by Eder | April 13, 2007 2:54 AM
Eder
You won't like this news at all Apple has "DELAYED" the release of OSX "Leopard".
Is it our turn to taunt you like you most likely taunted Windows.
And yet it wasn't that long ago that APPLE assured everyone that there would be NO DELAY !
Well now there is ! ! !
Guess you guys will just have to get used to it !
When Apple says it will be ... it will be ... BS to that !!
Posted by Neil | April 13, 2007 3:05 AM
I am totally agree with Eder. Articles does not look professional at all. "Will Microsoft Profit from Office 2007 and Vista?" - Ha.ha.ha... so stupid question !!! Come..on..eWeek...Retire this guy...
Posted by DD | April 13, 2007 7:33 AM
I agree w/ Eder. WTF are you overreacted on Microsoft's profits. The truth of the matter is you really hit another low level of articles. Some how, eWeek or Ziff Davis should just shut down this site as everybody notice how Joe writes really poor writing.
Posted by Steve M.D. | April 13, 2007 10:18 AM
Don't even try to mention that Apple is a "reasonable" alternative as it is designed as proprietary hardware whereas PC compatible hardware are avaliable anywhere on this planet.
Actually, Apple hardware has been pretty non-proprietary for years now. You can drop in standard RAM, IDE/sATA devices, PCI & PCI-X & PCI Express cards, plug in your standard USB or IEEE1394A/B devices, etc.
Tom's Hardware even demonstrated replacing the original dual core Woodcrest processors in the Mac Pro with the four core Clovertown models. It was a drop-in replacement.
So, Apple *is* a very reasonable alternative. And many people (who know how to question what the've been taught) are discovering that fact.
Why else do you think Apple's Mac sales are climbing like crazy?
You won't like this news at all Apple has "DELAYED" the release of OSX "Leopard".
Actually, I do like that news... because it means Apple did the right thing instead of releasing a barely useable turd like Microsoft did with Vista. Vista should have been delayed *yet again*. Let's see, Vista was originally slated for release in late 2003... Vista was delayed *over three years*. Apple's delaying Leopard *five months*.
Let's get some perspective, folks.
Posted by policy police | April 13, 2007 12:41 PM
Eder wrote: "Will Microsoft profit from Office 2007 and Vista ?" is indeed a stupid question posted by a 'professional' writer."
Actually, I didn't pose that question, Eder. Near as I can figure, a copy editor changed original title: "How Much Does Microsoft Make From Office 2007 and Vista?" The URL reveals the original title.
Once I determine why the change, the title will either go back, or to something else. But the question will go. Interesting: The headline on the eWeek page--"MS' Take From Office 2007, Vista"--is in line with the original title.
I agree that it's kind of a lame question to ask. Office and Windows are what makes money for Microsoft.
Joe
Posted by Joe | April 13, 2007 12:43 PM
Joe, indeed the title " Will Microsoft profit from Office 2007 and Vista ?" was what I read. The current title is altered by whoever which I am not interest to find out as we do aware that the current sordid state of journalism
The drop-in replacement of Apple mentioned by Policy Police is purely on parts replacment, eg RAM , Processor, HDD-- NOT the whole motherboard. As a result , there is no Apple compatible motherboard which enable us to build a whitebox system as compared to PC-compatible parts. However, while we condemn Microsoft on proprieray software, what abot Apple ? Will Apple allows other system hardware vendor to compete with its hardware business.
Do all of you think that Linux will be popular if it not able to run on Intel X86 processor ?
Apple and Microsoft are promoting proprietary system , one on hardware and the other on software , but they are still engaging in a similar strategy.
Apple profits from proprietary hardware
Microsoft profits from proprietary software
WE are forced to choose one of the devil , there are no angels around !
Joe, may be your next title should be " Is there is angel around to save us from Apple and Microsoft ?". Please nail your title on your column so that it will not be altered this time
Posted by Eder | April 13, 2007 10:07 PM
Joe
What a really lame excuse !
"Actually, I didn't pose that question, Eder. Near as I can figure, a copy editor changed original title: "How Much Does Microsoft Make From Office 2007 and Vista?"
Did you wite the story or not, if not why not ?
It's got YOUR NAME on it !!!
Remember the "Crane Incident" Joe ? Was that story yours or some "copy editors" too !
You really apologised for that piece of "gutter" journalism did you ??
Posted by Neil | April 14, 2007 3:39 AM
I agree it is not a terribly deep article and it attacks the issue from too high a level. The question is HOW MUCH net profit Microsoft makes on those two products, not IF they make money (we know they do). I would like to see how much profit they get vs. the development and support cost. I would also like to see how their core server products (Server and Exchange) AND their MSDN subscriptions figure into it.
Some of you have good comments but some of you should lay off Joe and put away the keyboard. Steve M.D.'s writing, for instance, is barely intelligible...put away the beer and the self-prescribed pain pills when you're writing.
Posted by Brian | April 16, 2007 5:19 PM
I agree it is not a terribly deep article and it attacks the issue from too high a level. The question is HOW MUCH net profit Microsoft makes on those two products, not IF they make money (we know they do). I would like to see how much profit they get vs. the development and support cost. I would also like to see how their core server products (Server and Exchange) AND their MSDN subscriptions figure into it.
Some of you have good comments but some of you should lay off Joe and put away the keyboard. Steve M.D.'s writing, for instance, is barely intelligible...put away the beer and the self-prescribed pain pills when you're writing.
Posted by Brian | April 16, 2007 5:19 PM
Office 2007 Home and Student comes with a pretty good sales incentive. A license for three PCs. My home, and I am sure many other homes have mutiple PCs now, and although there are good and bad features within Office the incentive met my PC inventory perfectly. Microsoft is going to make money - no doubt about that - but they sold me on upgrading from my Company-Licenced Office XP because now all our PCs are running the same "work-like" applications. A smaller profit based on volume works as well as a larger one based on per-unit mark-up. Let a business be a business!
Posted by Steve | April 18, 2007 9:22 PM
Wow. People sure are reading a lot into this blog posting. Joe put in almost no opinion or anything; he just quoted a bunch of numbers and data and such. Nowhere in it did Joe mention Apple or Linux, and yet somebody said this:
"Don't even try to mention that Apple is a "reasonable" alternative"
Don't worry, he didn't. In fact, he wasn't saying anything good or bad at all about Windows and made no mention of whether there should be an alternative. He was simply stating sales numbers.
Posted by Jeff | April 20, 2007 2:28 PM
...and all of us resellers out there struggle to make 5-10%!
Posted by Wasatch Software | April 23, 2007 5:47 PM
Interesting analysis.
(submitted into queue @ tweako.com)
Posted by Mike | April 24, 2007 5:03 PM
Here's the 'crane incident' Neil referred to:
http://www.microsoft-watch.com/content/vista/when_a_crane_flys_duck.html
Posted by Tom Bombadil | February 12, 2008 6:22 AM