Vista Missed Its Cue—Now What?
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In comedy, timing is everything. A hit performance or sitcom often hinges on good timing. The same can be said of product introductions. With analysts saying Windows Vista will have no immediate impact on PC sales, one reason may be that Microsoft missed its cue. |
Microsoft really needed to ship Windows Vista in 2005 to catch the crest of the PC sales wave, with holiday 2004 being even better. Between about mid 2004 to mid 2006, many U.S. businesses—and even consumers—replaced existing PCs with new ones.
Microsoft's own financials tell the story. For about eight consecutive quarters, during earnings calls, Microsoft executives told how PC shipments had surpassed estimates, particularly among U.S. consumers and in emerging markets. The sales were good to Microsoft, as about 80 percent of Windows revenue comes from OEM licenses. But those sales also meant purchases of an older Windows version.
Fourth-quarter 2006 PC shipments reflect a trend. Worldwide PC sales declined more than 15 percent compared to 2004 and 2005, according to IDC. Commercial purchases fell short of expectations, particularly in markets like the United States. Manufacturers shipped 64.7 million units during the quarter.
Delay, Delay, Delay
Repeated delays put Vista's real release in 2007, after the major buying cycle ended, and with a product that actually demanded heftier hardware. Upgrades are a tougher sell to an IT organization that recently completed a major PC refresh.
"On the enterprise side it's been kind of slow," said Mark Margevicius, a Gartner research director, about Vista adoption. Margevicius qualified that businesses would eventually go to Windows Vista.
However, given the arduous testing needed to deploy Vista, most businesses would have to go about it slowly. Gartner recommends that most businesses wait 12 to 18 months from Vista's Nov. 30 launch to begin serious Vista deployments.
The anticipated—at least by Microsoft—Vista boost to PC sales isn't going to happen, say analysts. From a Gartner press release issued this week: "Vista is forecast to have virtually no impact on PC shipments to larger businesses in 2007."
Gartner does expect a nominal Vista PC-sales boost among consumers and small businesses, but nothing like masses of buyers rushing to buy new computers because of the new operating system.
Eighteen months earlier could have been better for Microsoft and PC manufacturers, had Vista actually shipped as originally planned. In 2003, when I worked as an analyst, I wrote a report predicting that Vista wouldn't ship until 2006. It was a bold prediction at the time, because there was still some expectation of 2004 shipment and most certainly 2005.
But my prediction was wrong, unbelievably, because Vista shipped even later. No one was really predicting a 2007 shipment in 2003. I won't play games of semantics as Microsoft has done with the Nov. 30 Windows Vista launch for businesses. Microsoft can claim 2006 release, but to whom? Since most customers acquire Windows on new PCs and Vista wasn't available on new PCs until 2007, I predicted wrongly.
Good Growth, Wrong Place
Microsoft's silver lining in the PC doldrums is the laptop. Both Gartner and IDC foresee strong laptop shipments, which are helping to offset overall sluggish sales in established markets.
Unfortunately for Microsoft, strongest PC shipment growth occurs in emerging markets, where piracy rates are high. While the sales may be welcome relief for OEMs and system builders, emerging market growth is a real problem for Microsoft.
According to Microsoft, about 55 percent of its revenue comes from U.S. sales. However, based on IDC projections for 2007, less than 30 percent of PCs shipped worldwide will go to the United States. Manufacturers will ship an estimated 253.9 million PCs this year, 184.4 million of which will go outside the United States.
More than 50 percent of desktop PC shipments go to geographies with fairly high piracy rates, according to IDC.
For reasons that make no sense to me, IDC groups desktops, notebooks and x86 servers together for its PC projections. The potential piracy problem should be at the same regardless of the hardware. The point: There is a sizable disparity between where Microsoft gets most of its revenue and where customers are buying PCs. Mix in markets with 70 percent or more piracy, and it's not a rosy picture for Microsoft.
Assessing the Emerging Problem
Over the last week, Microsoft has suddenly started talking about its emerging market strategy. Actually, I have been asking for an update on the strategy since November, with no real response. Now that Microsoft is promoting its strategy, I've gotten some instant messages and e-mails with canned copy but still no response to my continued request for interviews.
I'm not surprised. The emerging market PC sales/piracy situation is a big problem for Microsoft. The company must carefully craft a strategy—and make it sound good, too.
On Wednesday, Microsoft launched a new Web site, Emerging Markets, touting the company's overseas goodwill. There's even a video of Microsoft Chairman Bill Gates explaining the company's emerging market goals.
In the video, Gates says Microsoft is working with local governments and its channel partners "to facilitate social and economic opportunities for under-served communities throughout the world."
But a deeper look at the content, some of which is quite interesting, reveals little more than a sales brochure for Windows Starter Edition.
If the PC is going to continue to be Microsoft's growth engine, the company has got to do better in the markets where people are still buying their first computers. Maybe matters would have been better if Vista shipped 18 months ago and possibly spurred a longer refresh cycle in established markets, particularly the United States. Maybe.
Comments (16)
> Microsoft can claim 2006 release, but to whom?
Whom: Businesses with multi-year license agreements expiring at the end of 2006 cared as their "rights to receive future versions of software products on a when-and-if-available basis under Open, Select, and Enterprise Agreement volume licensing programs" (per MSFT SEC 10-K) would have expired without Vista (and Office 2007) rights.
Also: You are aware that Vista shipped to consumers in January 2007 because of demands from the channel, right? Dell would have loved to ship Vista machines starting in late November as the channel would have been unable to supply Vista machines until after the Christmas season. Instead, machines shipped with an upgrade coupon to 'level the playing field'.
Posted by Jeff | March 23, 2007 10:32 PM
I'm from Jamaica, which I still consider to be an emerging market when it comes to the PC, a lot of homes and small businesses still don't have a PC but its changing. In June 2006, my brother purchased a new laptop from Dell (Inspiron) with XP Home Edition, it had a Vista Ready logo on the front, which he was excited about. In mid February of 2007 he purchased Vista Business (Full license) and upgraded from XP to Vista, which was a lack luster experience resulting in hardware upgrade, he purchased a 1 GB dimm and performance improved, even got AERO Glass effects. Been working well ever since, but lack of DVD play back support had left him frustrated, but needed Vista Biz for work since he joins a Domain.
This is where his wife comes in, this month she purchased a new laptop Dell (Inspiron) for 499 (after shipping - came up to 600), my brothers laptop was $700, 800 after shipping. Her laptop came pre-loaded with Vista Home Basic and I'm surprised how pleased she is with it, and I'm also pleased with it myself. My brother used her Power DVD 7 software to install on his Vista Biz so he could watch DVD's. She initially had memory issues with the laptop, since it came factory installed with 512 MBs of RAM, which was a nightmare, luckily my brother had an extra 256 dim left over from his memory upgrade and installed it in her system, improving Vista's performance.
Now, other employee's at her work place are aware of the deal Dell and are purchasing laptops too (orders have been placed), but have decided to do a memory upgrade of 1 GB. So, when I look at these real world scenarios, Vista is actually pushing sales and coming out on more systems and since its still early, I am sure by mid 2008, Vista will be the dominant OS. Just my take, real world experience. Of course, I'm an enthusiast and I'm running Vista Ultimate on 3 of my 4 systems, (2 (64-bit) and 1 (32-bit).
Posted by Andre Da Costa | March 23, 2007 11:23 PM
Interesting article, Joe, and you're right — Vista is not a must-have upgrade, much less one that makes you want to go out and buy a new PC for. (Although I did, but that's because my system was over four years old, and I needed a new Linux machine, ha!)
Microsoft hopes to ship Fiji/Vienna in 2009, but what more will be new then to lure users to upgrade, other than those in my similar aging hardware situation? I still think Microsoft could sell more by charging less. No, it wouldn't have much impact on piracy, but jeez, maybe they wouldn't have to spend so much time and effort on WGA silliness. Much like the republicans, Microsoft has made so many consecutive bad moves that it's catching up to them. The world is moving on, and without being an exciting OS and getting better, easier, and more fun, people are voting with their movement — toward Linux, OS X, or heck, just comfortably staying with XP.
Posted by Zaine Ridling | March 24, 2007 12:21 AM
I don't understand your point.
You're saying that by releasing Vista late, Microsoft missed the '04-'05 surge in PC purchases.
Furthermore, you said that now that Vista has been released, there is no Vista-induced PC sales boost.
Let me put those two observations together: PC sales surged even though Vista wasn't out yet and when Vista was finally released, PC sales were unaffected. The conclusion then is that there is no such animal as a Vista effect on PC sales.
Which means there is no point in lamenting the delay in Vista's release!
Yes, if Vista were released earlier, far more copies of Vista would have been installed and in use now. But that doesn't matter that much to Microsoft because what OS was being purchased by those folks who would have bought Vista? Windows XP! The sales revenues went to Microsoft anyway!
The delay in Vista also doesn't matter much to PC mfrs because there is no Vista effect on PC demand.
The Vista delay would have been significant if there was a non-Microsoft OS that offered real competition to an aging Windows XP. But there isn't one.
Posted by ardi | March 24, 2007 4:11 AM
For all the talk about how more PC shipments than Windows shipments to "emerging markets" equates to piracy... having lived in Malaysia and Vietnam over the last five years, I've seen incredible interest in free and open source software, at the small-business level, large corporations and governments. Malaysia was the first country in Asia, and one of the first worldwide, to set a national government policy on open source software. Granted, there is a fair amount of MS piracy here, largely at the screwdriver-shop level, but things are changing - and I don't think those changes will be beneficial in the long run to a Microsoft that's fixated on shipping operating-system and office-software boxes. Those products are now rightly viewed as commodities. If Microsoft wants to seriously grow those markets, they're going to have to concentrate on - and plausibly sell - a much higher-value (quality, usability, security, useful innovation) than they ever have before. And, having worked in Redmond and seeing what the long-term culture is like there, that amount of change will be painfully cathartic. Maybe the next CEO can clean house and turn things around; as a stockholder, that can't happen soon enough.
Posted by Jeff Dickey | March 24, 2007 9:29 AM
Joe -- Wonderful article. I expected after reading this artcle, which you're right that there would be a few "MS Plants" commenting harshly against this article.
I've been kicking around Vista' Business and I am telling you there is no reason for me to make the move from XP Pro. I run Office 2007 -- Now there's a wonderful product. Mark my words, Vista will turn out to be almost like Window's Me. Of course there is the matter of Vista SP1 and since I work with many different corperate clients. I can assure from my collegues in the IT business,"...were gonna wait (at least) until SP1 is released for a while and then we'll see..." I say safe bet.
Everyone in the "Know" and has been in the industry for a while knows Microsoft. I have to agree with another person on this topic, I don't think Piracy is as big as a problem with Microsoft , as Microsoft pretends to be to justify the cost of the dodgy operating system. I know piracy is a problem and serious in some areas of the world. I know open source is going to have a larger impact that MS cares to speak about. I also agree with Jeff, MS needs to focus on the topics this man mentioned, and come on, that aeroglass crap they (MS) can keep, boy does that make it look cheesy. I'll stick with my Zune Theme by the way.
Posted by Douglas S. Taylor | March 24, 2007 12:20 PM
I think that the extra time taken by microsoft was a good thing for their customers, and shows that they really did not care how long it took them so long as Windows Vista was as secure as it could be.
And here is something to prove it:
"Microsoft security strategy director Jeff Jones this week published a report comparing the security vulnerability profile for various high-profile operating systems in the 90 days of their existence. Surprisingly, Vista came out in front: Vista had 5 vulnerabilities in its first 90 days, one of them fixed, and one pending with a High severity rating. By comparison, XP had a total of 17 vulnerabilities in its first 90 days, 8 of which were rated High, when it shipped in 2001. The surprises, however, come when you compare the non-Microsoft competition. Mac OS X 10.4, a darling of the press, actually suffered from 20 vulnerabilities in its first 90 days, 8 of which were rated High. Worse, OS X 10.4 still suffered from 17 publicly disclosed but unpatched vulnerabilities at the end of those 90 days. "The data doesn't support [Apple's] marketing," Jones writes. Linux fared even worse: Ubuntu 6.06 suffered from a whopping 71 vulnerabilities in its first 90 days, 27 of those rated High. And there were at least 29 unpatched vulnerabilities in that OS after the 90 day period ended."
The source was bink.nu
Posted by Neil | March 25, 2007 7:57 PM
As for Mr. Douglas S. Taylor .... I am NOT a microsoft "Plant" as you put it !
And tell us something if you think microsoft is so bad why oh why do you go to a site called "MICROSOFT WATCH" ??
Why not go to Linux Watch or some other place like that, that loves to go against microsoft all the time.
Mind you for a place that is called "Microsoft Watch" it does do a lot of "Micorsoft Bash" doesn't it.
When MJF was doing microsoft watch it was whole different ball game, but now that Mr. Joe Wilcoz is here well... if it anyone thought that Joe was going to be even handed they were wrong, and even people who gave him the "benefit of the doubt" are in no doubt about Joe being anti microsoft it just permeates through the entire website.
Posted by Neil | March 26, 2007 7:57 AM
Nell is absolutely right about the low number of vulnerabilities! Even the hackers knew Vista was a bust and have ignored it so far.
Even with less current marketshare than OS/2 Warp, Vista still gets zeroday exploits, that's pretty impressive.
I get slightly different vulnerability numbers from Secunia, but alright, it's in the same ballpark.
Regarding the Linux thing, I have to remind people (who conveniently forget this fact all the time) that the bloated number of vulnerabilities are because they include all the applications that are available in the repositories.
Just browsing through the advisory list on Secunia: http://secunia.com/product/10611/?task=advisories
I see 'Ubuntu vulnerabilities' such as exploits for Inkscape, mySQL, libwpd, xine, ktorrent, gnupgp, python, tcpdump, Thunderbird, Firefox, php, imagemagick, samba, postgresql, gtk, squid, openoffice, fetchmail, xserver, avahi, mono, ruby, tar, libpng, QT, openssh, xorg, bind, and so on and so on.
So really to get an equivalent number you need to count the vulnerabilities on windows and every available program that runs on windows.
Or at the very least include the vulnerabilities in every program that works closely with the OS such as Outlook, IE, Media Player, ActiveX, Flash, Office, IIS, MSSQL, Exchange, etc.
Even that is still unfair considering the hundreds of supported Linux apps and the few dozen of Windows apps.
Posted by textureglitch | March 26, 2007 10:10 AM
I think part of the 05/06 PC buying boom was companies and people (including myself) who made sure they bought a new computer before Vista came out to guarantee they still got XP. There was a lot of fear that you wouldn't still be able to get XP. For me Vista isn't worth the hassle, I know how XP works and how to get all my hardware and software working, so replace both our home desktop and my wife's laptop ahead of Vista contributing to the 06 boom.
Posted by Steve | March 26, 2007 11:27 AM
A tidbit from todays news:
"March 26 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, said it sold 20 million licenses of the Windows Vista operating system in its first month of wide availability, topping some analysts' estimates.
The sales pace is more than double that of the previous Windows XP program, which sold more than 17 million copies in its first two months, said Bill Mannion, a director of Windows product management. Roger Kay, president of Endpoint Technologies Associates, had anticipated Microsoft would sell fewer than 10 million copies for the entire first quarter."
Source:
http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=MSFT:US&sid=alcGGm.q7xRk
I look forward to using Vista, when it comes preinstalled on my next computer.
Posted by TomT | March 26, 2007 3:04 PM
These latest sales figures from Microsoft show that they "HAVE NOT" missed their cue, as you put it Joe, and all rhetoric from Roger Kay, president of Endpoint Technologies Associates meant absolutely NOTHING !
Just like all the people saying that Windows Vista would not be released in November /January.
Yet again Joe your bias is showing !!!
When will you stop it, and become what you were supposed be "IMPARTIAL" because you know yourself that you are not, and if you cannot be impartial you should not be editor of "Microsoft Watch", which is "supposed" to be impartial, or at least it used to be when Mary Jo Foley was here !!
Posted by Neil | March 26, 2007 8:48 PM
Vista consumer sales will take off in for back-to-school and then again in xmas 2007.
Vista biz sales will take off after SP1 emerges and IT departments get comfy with it.
If a person has a stable win2000/XP/Office system, what's the rush ? I can do all the .NET stuff and Web 2.0 stuff and the amount of freeware and open source is vast.
Aren't there basically 2 issues with Vista:
price
hardware requirements
Why is there any debate about these near tautologies ?
Posted by chris fitzmartin | March 30, 2007 3:59 PM
I don't see a lot of people buying Vista PC's, and that means a lot, cause I am working at a PC chain reseller. A lot of people are asking if they can have a PC/laptop without Windows on it. My manager then usually allows me to sell the machine for $100 less or so.
People are saying Microsoft has a monopoly position. I guess they mean that there is only Windows installed on our PCs. I tell them that my brother has built his PC from parts, that did not have Windows installed. Thats one way to get around it.
Posted by jacinda | April 3, 2007 11:09 PM
I am quite satisfied with Vista, but many I know are not. There are some major issues that need to be worked out before full adoption can occur. One of the most notable is the slow transfer of files over a network. What would take a minute under XP now takes7 or more, even on a well-equipped PC. I would imagine that most corporate PCs currently deployed are going to be close to the specs on my newly purchased system, so the decrease in speed would then be abyssmal. For the benefits you gain in Vista, most do not likely see there being enough reward when they are required to make costly hardware upgrades. Finally, many are still having issues with Internet Explorer 7. My company is avoiding Vista just because of this browser and its incompatibility with many older web-based applications, which are either no longer supported, or going to take some time to make them IE7 compatible.
Posted by Felix the Cat | July 26, 2007 1:04 PM
"I would imagine that most corporate PCs currently deployed are going to be close to the specs on my newly purchased system, so the decrease in speed would then be abyssmal."
should read
"I would imagine that most corporate PCs currently deployed are not going to be close to the specs on my newly purchased system, so the decrease in speed would then be abyssmal."
Posted by felixthecat | July 26, 2007 1:08 PM