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January 29, 2007

Prelaunch shopping for a Windows Vista PC and Microsoft’s revenue stream

Posted by David Hunter at 3:08 PM ET.

There’s a lot of Microsoft hoopla planned today and tomorrow ([1], [2]) for the Windows Vista consumer launch, but since I have a tendency to count the house and not watch the show, I was pleased to see Joe Wilcox’s report on the Windows Vista PC’s available for preorder at on and offline retailers. The hook for the story is the notable absence of systems with preloaded Windows Vista Ultimate except for a pricey laptop from HP. That’s understandable given how pricey Ultimate itself is, but I was more interested in the delineation between Vista Home Basic and Vista Premium. Starting with Circuit City:

The situation is pretty much the same at the company’s online store. The 16 desktops offered there come with Windows Vista Basic or Premium–12 of the latter. Thirty-two of the 40 notebooks come with Premium.

I had been concerned that retailers would continue their strategy of offering mostly lower-selling SKUs, which would mean strong proliferation of Windows Vista Basic. Sorry, but Windows Basic isn’t all that exciting compared to even Windows XP Home. Many low-cost SKUs I observed with Windows Media Center Edition a week ago today had either Windows Basic, which is a big step down in terms of performance and features, or Premium.

I saw no Ultimate SKUs, which is consistent with CompUSA’s online store. There, three of the 13 desktops come with Windows Basic. Among the seven notebook models, CompUSA offers two with Windows Vista Business and four with Premium.

What about Dell? Dimension desktop PCs come with Windows Basic or Premium, in base configurations. On the high-end XPS systems, where Ultimate would seem a good fit, Dell offers Windows Vista Premium or–get this–Windows XP Media Center Edition.

There’s much more by following the link, but the good news is that Vista Premium has generally replaced Windows XP Media Center Edition. In the 10-Q filing for last quarter’s financial results, Microsoft reported that the percentage of premium XP versions (i.e. not XP Home) was now 67% percent driven by the continued growth of Media Center systems (after Microsoft stopped requiring special media hardware) which is now seem to be the consumer sweet spot.

The bad news is that some of the bargain Media Center systems fell back to Vista Home Basic. I am suspicious that Vista Home Basic will be a source of continuing consumer unhappiness due to its lack of the distinctive Aero desktop graphical user interface. While it may be that the demographic buying Vista Home Basic systems won’t even care, they may also end up paying for a Premium upgrade after the sale which will be an unwelcome surprise to them if not to Microsoft.

So what’s the net? If Ed Bott’s report on Vista prices for smaller OEMs is any guide as to what the big vendors are paying Microsoft, Home Basic is equivalent in price to XP Home, and Premium is equivalent to Media Center. Therefore, the only way Microsoft is going to increase per system revenue with Vista is to further increase the premium mix. The stripped down nature of Vista Home Basic may well accomplish that.

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

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One Response to “Prelaunch shopping for a Windows Vista PC and Microsoft’s revenue stream”

  1. First Vista sales stats -- Microsoft News Tracker Says:

    [...] However, sales of PCs with the most full-featured and expensive consumer version of Vista, Windows Vista Ultimate, were lackluster in the first week, accounting for a mere 1.2 percent of PC sales. Actually, in the last quarter all premium versions of Windows XP came in at 67% of total sales, so if 70% is a surprise it is because it is low given that Vista Home Basic is relatively much weaker than XP Home and Vista Premium is mostly what retailers are offering preloaded in any case. More interesting: The release of Vista boosted overall PC sales, giving the PC market the best week it’s had in four years, Bhavnani said. PC unit retail sales increased 173 percent for the week ending Feb. 3 compared to the previous week, and were up 67 percent year over year, according to the report. [...]

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