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February 3, 2006

Microsoft looks for a pot of gold at the end of the Vista rainbow

Posted by David Hunter at 9:29 PM ET.

Mary Jo Foley at Microsoft Watch:

Microsoft executives already are counting their Vista chickens before the next-generation Windows release has hatched.

On Wednesday a Microsoft vice president detailed for attendees of Merrill Lynch’s IT Services & Software Conference Microsoft’s reasons for its high expectations for Vista, the release of Windows client due to ship in the latter half of this year.

The VP in question was Michael Sievert and while he paid obligatory homage to “exciting” new Vista features, his rationale for the high expectations was more sensible:

Sievert identified four reasons that Microsoft is so bullish about Vista’s prospects. Overall industry and PC growth; Microsoft’s plans to combat software piracy; a change in the mix of the types of PCs being sold; and the Redmond software maker’s plans for improving its customer “relationship after the sale” all will be key drivers for Vista growth, he said.

Taking them in my own order:

Industry and PC Growth:

Client OS revenue is almost entirely tied to PC shipments as Joe Wilcox explained succinctly this week and since Microsoft will get paid whether it’s XP or Vista on the machine, you have to find another twist to claim a benefit for Vista. One way would be if Vista drove upgrades on already installed machines, but no one seems to be expecting a big jolt from that source, although Sievert oddly mentioned the unlikely possibility that Windows 2000 users would be good candidates.

Change in version mix:

If the unit numbers are mostly fixed by the PC hardware market, then the Vista revenue per unit has to increase to realize those high expectations. Wisely, Sievert indicates that Vista prices will remain much the same as XP, but Microsoft will try to encourage purchase of higher end SKU’s like the Vista equivalents of XP Media Center and XP Professional. There may be some play here as with the recent growth in cheap XP Media Center systems, but again it’s not really Vista specific or clear how much revenue is available from this source. Perhaps there is some creative Vista versioning going on, but Microsoft certainly doesn’t want to make it look like they are taking away XP Home features in order to force users to buy a more expensive Vista version. The article does mention some other possible swizzles to achieve this end.

Piracy reduction:

This is certainly another way to increase the revenue per PC unit:

In the coming months, Sievert said to expect Microsoft to continue its Windows Genuine campaign in order to “make piracy harder.” Via Windows Genuine, Microsoft requires users to validate their Windows copies in order to obtain downloads. To entice them to do so, Microsoft throws in offers of free software and other incentives.

Last year, one third of the Windows PCs that shipped worldwide included pirated versions of Microsoft’s software, he said.

Cutting down that number would surely be a windfall, but again it has little to do with Windows Vista unless it has more piracy reduction features than have been revealed.

Improved customer relationship after the sale:

This seems to be an effort to make volume licensing more attractive. They’ve got a ways to go as Joe Wilcox notes in the article linked above:

But there is a perception that many more customers buy through volume licensing than is the case. I am frequently asked what impact Windows Vista delays have had on or could have on Microsoft volume licensing revenue. I usually chuckle in response. Typically, the smaller number of businesses that acquire Windows through volume licensing are operations looking to downgrade to an older Windows version.

Actually, the desire for downgrades might well be Vista specific, but I doubt that’s the market Microsoft really wants.

To net it all out, Mr. Sievert laid out a nice plan for increasing Microsoft client OS revenues and there may be some gold there, but it has very little to do with Vista.

Filed under Financial, General Business, Licensing, Marketing, OS - Client, Windows Vista

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2 Responses to “Microsoft looks for a pot of gold at the end of the Vista rainbow”

  1. Microsoft News Tracker » Microsoft starts anti-piracy campaign in UK Says:

    [...] It’s hard to get excited about anti-piracy campaigns, but look at it this way. If Microsoft VP Michael Sievert is correct and “one third of the Windows PCs that shipped worldwide included pirated versions of Microsoft’s software,” an effective anti-piracy campaign might do more for the Microsoft bottom line than a whole bunch of new products. [...]

  2. Looking for the money in Vista -- Microsoft News Tracker Says:

    [...] The basic underlying fact is that a Microsoft operating system will be installed on well over 90 percent of all new PCs that are shipped and that this is the vastly predominant way in which Microsoft sells Windows client licenses. Vista doesn’t seem to be so compelling that significant numbers of users will demand operating system upgrades on their existing hardware and Vista doesn’t seem so defective that users will turn away to a non-Microsoft operating system. While there may be temporary blips in anticipation of and then in reaction to Vista’s release, the Windows cash machine will just keep on dispensing at the usual rate tied to new PC sales unless Vista can help Microsoft can increase their revenue per new PC sold and the only way to do that is to reduce piracy and/or charge more per PC. [...]

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