Windows Gets Back to Basic

Whether or not there is coal may depend on the elf. Some OEMs are offering surprisingly good Vista SKUs and even no Windows Basic configurations.

That said, in a rush to drive down notebook prices even further, some OEMs and retailers are pushing Basic SKUs for the holidays and continuing the trend of integrated graphics. While most retailers offer many more Home Premium SKUs than Basic, the biggest advertised sales are for laptops with Windows Basic. Surprising: The operating system is finding place in higher-priced SKUs, which is a holiday trend.

"For Black Friday week, everybody's trying to get certain price points, and everybody's going to dumb down" some SKUs, said Stephen Baker, NPD's vice president of industry analysis. "It's more likely that you're going to see stuff like Basic."

Notebooks are the consumer computer of choice; desktop PCs are also-rans. Year to date, notebook sales are up 32 percent, according to NPD, while desktop sales are down 7 percent. At retail, notebooks started outselling desktops more than two years ago.

Two larger OEMs stand out for the number of Basic SKUs offered: Dell and Toshiba. Best Buy sells three Basic laptops, priced between $400 and $500, all Toshiba models. Circuit City's two Basic SKUs are $450- and $550-priced Toshiba laptops. Over at Toshiba's direct Web site, most lower-cost SKUs are either Windows XP or Windows Basic. But the Basic SKUs aren't basic pricing, at least compared to many other OEMs. Example: The $914 Satellite A200-0ES016.

All Dell's advertised notebook specials come standard with either Windows Basic or Windows XP Home. These aren't loss-leader portables, either. The Inspiron 1520 is available discounted to $699 from $914. Either price is fairly high for Windows Basic, when compared to other manufacturers' configurations. Dell also offers Inspiron 1501 and 1521 models with Windows Basic for as low as $499 and $599, respectively.

Two manufacturers stand out for their aversion to Windows Basic: Gateway and Sony. Both OEMs have pretty much standardized on Windows Vista Home Premium—Gateway so much so there are no Vista Ultimate SKUs.

"For the retail market, the value of Ultimate is not clearly defined," Glenn Jystad, Gateway's senior manager of consumer desktop products, told me last week. "We're planning no Vista Ultimate on any retail SKUs. I wouldn't expect any real uptake even in direct either."

Gateway and Sony put greater emphasis on design than operating system or base features. Like Dell, Gateway now offers some color options. But Gateway uses a color-infused process to diminish scratching or chipping. Sony goes further than straight colors with something it calls "Graphic Splash" designs.

The design tact is important given the state of the US consumer PC market. When asked if Vista had any impact on PC sales, Baker gave a firm, "No. But we've said this before. Does a new processor do anything for PC sales? The value proposition is about the usage model, not the speeds and feeds." Attributes "like design and look and feel of the products are more important than the OS."

HP's approach falls somewhere between Dell-Toshiba and Gateway-Sony. HP pushes Home Premium, even on lower-cost Pavilion notebook SKUs but hasn't differentiated as much in industrial design. All HP's advertised Pavilion retail SKUs come with Home Premium or better. One Compaq model comes with Windows Basic.

The Graphics Quandary
Where all these manufacturers come up short is integrated graphics. By a more-is-better measure, no OEM delivers adequate graphics for Vista. One of the more popular integrated options, at least among lower-cost notebooks, is Intel Graphics Media Accelerator X3100. Even SKUs with ATI or nVidia graphics typically top out at 128MB of dedicated memory, with the rest being shared with system RAM.

In personal testing and in-store checks, most notebooks with 128MB of dedicated graphics chalk up a Windows Experience Index rating between 3.4 and 3.8, out of a possible 5.9. Those laptops with integrated graphics typically rate between 2.0 and 3.1, depending on configuration.

HP offers better graphics options on more SKUs than other OEMs, other than build-to-order notebooks. While plenty of HP portables come with X3100 integrated graphics, many other laptops pack ATI or nVidia discreet graphics. On Black Friday, I saw one 17-inch HP notebook, with 128MB of dedicated graphics, for $599 at the local Fry's. The system also packed Vista Home Premium. The features are impressive compared to aforementioned Dell and Toshiba notebooks selling for more and with Windows Basic.

The approach is working for HP. The above chart shows combined desktop and notebook growth for major OEMs. Most of HP's growth comes from notebooks, which sales are up 63 percent year over year, according to NPD.

Baker believes the shift to integrated graphics is an inevitable part of a trend: the dramatic shift in how PCs were sold and they will be sold in the future. "The market is becoming more segmented," he said. "One size doesn't fit all. It used to be one, two or three sizes fit all. Now things are more segmented, like [they are with] consumer electronics."

The ubiquitous PC of the past, with all-purpose operating system, is giving way to increased differentiation and trade-offs consumers, OEMs and retailers will have to accept.

"There's an awful lot of balancing act with price and performance," Baker said. He joked: "How much graphics can I add without melting the notebook?"

OEMs and retailers operate under the presumption that "the mainstream consumer doesn't need huge graphic capabilities, especially since so many notebooks tend to be the second or third PC in the house," Baker said. "The idea is that people who want that higher level of graphics are willing to pay more for it."

That's a nice concept in theory, but a tough sell for consumers expecting that at certain price points the computer will have sufficient power to run Windows Vista. Consumers are more used to the ubiquitous one-size-fits-all model.

More importantly, the segmented approach shows a fundamental disconnection between Microsoft's approach to Windows and how OEMs or the channel want to sell new PCs. Granted, Vista SKUs are more segmented than earlier Windows versions. But Business, Enterprise, Premium and Ultimate editions all have similar graphics requirements. OEMs are differentiating in an area where Microsoft planned for more modest variations (e.g., Vista will scale down some features to accommodate less-powerful hardware). Less graphics memory means more trouble with the Aero user interface and, more importantly, applications tapping into Windows Presentation Foundation.

For holiday 2007, the Vista experience depends more on OEMs and retailers than Microsoft, although the company could be faulted for ever wasting development resources on Windows Basic. But who will get the blame, if coal comes in the holiday stocking? The OEM elves, or Microsoft Santa Claus?