Vista Pushes Volume Licensing

During Microsoft's annual financial analysts conference today, the company's chief operating officer boasted about increases in Windows volume licensing.

It's the "best rate we've seen in many, many years," Kevin Turner said of annuity licensing contracts. He acknowledged that Windows Vista Enterprise and MDOP (Microsoft Desktop Optimization Pack) were major drivers. Both products can only be purchased by way of volume licensing contract. By contrast, Windows XP Professional and supporting tools could be purchased without a volume licensing contract.

Turner said that about 42 millions PCs are covered by volume licensing. Among midsize businesses and enterprise, Windows annuity contract penetration is 19 percent, he said.

"I think it moved a point of two." Turner said about Windows volume licensing increases.

Historically, about 80 percent of Windows client revenue comes from OEMs. Microsoft wants to shift—some could say force—customers to volume licensing, which would further smooth out Microsoft's balance sheet.

Turner also gave an update on Vista sales: "60 million units sold to date...into the marketplace." Meaning: Microsoft has shipped 60 million Vista licenses. Those are sales going into the channel or through volume licensing. Sales in don't necessarily mean sold or deployed.

Microsoft's COO spent some time talking about the importance of Windows expansion into emerging markets.

The company expects between 16 percent and 19 percent PC shipment growth in emerging markets through fiscal 2009. This compares to low-to-mid single digit growth in established markets like the United States.

Turner noted that Windows growth in established markets had a CAGR (compound annual growth rate) of 10 percent over the last three years. By comparison, CAGR was 26 percent in emerging markets.

In established markets, Microsoft compensates by driving more customers to "Premium" SKUs such as Windows Vista Enterprise and to purchase through volume licensing. For fiscal 2007, Premium SKUs accounted for 68 percent of Windows licenses.

I don't see how Turner could understate the importance of emerging markets to Microsoft. About 57 percent of revenue comes from outside the United States, he said.

Growth is slowing in established markets and growing in high-piracy markets.

In emerging markets, Microsoft has a multi-faceted strategy, such as Unlimited Potential and anti-piracy efforts.

Even so, "Our revenue for license is lower there," Turner said of emerging markets.

Point: Microsoft will need to squeeze more revenue out of existing markets, even as it expands into high-growth emerging markets.