It seems like every journalist is writing something about Vista sales numbers. The only thing I find surprising is the surprise of others. Vista’s not selling well in retail, it’s boosting OEM sales however, and digital downloads are more popular than 5 years ago (when they didn’t exist..). How can this be a surprise?
Yes, in the last 5 years, the computer industry has changed. The average user is completely different. As a percentage far fewer users are interested in “tinkering” with software or hardware, so they just buy prebuilt machines. Even in sheer numbers I expect there are fewer tinkerers because the economics of building your own system changed too. Often you can buy a prebuilt system for as cheap or cheaper than you could buy the parts if you’re system is in the “value” range.
Beyond this, XP with Service Pack 2, was good enough for many users. Vista is a lot better, but fewer users really know much useful about it. They know it’s late, or know that WinFS was dropped, but ask the average person and the only feature they are likely to mention is the graphics. In time they will learn, but most likely it will be after they buy and new machine with Vista preloaded, and finally get an honest impression, by using it.
OEM Sales
Vista will make its money from three sources. Number one is OEM sales. This should have been obvious from observing XP revenue numbers. 2007 will have higher new PC sales than normal, but eventually those numbers will return to normal, and there will be a corresponding lull at some point, so this revenue is really just maintaining the status quo. Considering the margins on the status quo, strengthening its position is a good enough reason to release an update by itself.
Enterprises
Businesses will also buy plenty of licenses. Some will get their licenses through new PC’s, some through their software assurance agreements. These are status quo as well, but there will also be significant number of companies without software assurance, but with corporate policies that choose to upgrade. Expect these companies to make their purchases at the end of 2007 or beginning of 2008, not the beginning of 2007. Virtually no one planned for Vista during 2006. Half of all the IT staff had been convinced that Vista would be delayed another year by various IT analysts. The other half either didn’t care, or knew that fighting against that first half would be like pushing water up a mountain.
But over the course of 2007 the planning will progress. Some lucky companies will have IT budget surpluses at the end of 2007, which they will merrily spend on Vista, others will get it into the 2008 budget. Some won’t plan all through 2007 either, and will start to regret that decision as 2008 turns and they realize they’re corporate structure means they won’t be able to correct that mistake for another year.
Anytime Upgrade
The third and final source hasn’t been discussed much, but it may turn out to be one of the most important to Vista revenue growth. While OEM sales will temporarily boost revenue, and software assurance will strengthen volume license agreements, and business upgrades will provide a onetime boost, what I’m sure Microsoft is looking for is sustained revenue growth.
The Anytime upgrade system may be the key to that. Most users buying a new PC will choose the Home Basic, or in some cases Home Premium editions. When you’re buying a $600-$1,000 computer on a budget, choosing between a faster chip for $100 and a higher end Vista edition, you’ll usually choose the hardware. The next year however, you may be willing to throw $100 at the computer to “spruce things up a little”. The vast majority of users won’t even consider $100 of hardware because they don’t tinker. But entering a code is well within their comfort zone.
If just 10% of the consumers that purchase a system in 2007 with Home Basic preloaded upgrade to Premium in 2008, that’s a substantial revenue increase. Better yet, it’ll happen in 2009, 2010 and so on for as long as Microsoft continues the strategy. The only disruption to this revenue stream will be new releases, because who’s going to upgrade Vista Home Basic to Premium, when Windows 2009 (or whatever it’s called) is available?
Future Releases
There is some talk that Microsoft will switch to smaller, more common releases, but I really doubt it. Not because they’ll be disrupting the Anytime Upgrade revenue, but for the same reasons they haven’t done this in the past. The reason Microsoft plans for 2 years between releases has nothing to do with internet distribution vs. retail distribution, or product maturity, or any of the factors that are being broken down and allowing other products and companies to release smaller, more common updates.
The fact that no one else gets this shows exactly how out of tune analysts and the entire community is to what Windows role in the computing world is. The reason that Windows will not go to smaller, more common updates is backwards compatibility, in its many forms. I know corporations that haven’t managed to switch off Windows 2000, I know plenty more which just this December deployed Service Pack 2. More common updates? What use would that be.
Consumers might superficially benefit, since the systems they buy would be preloaded with whatever was the most recent update. But consumers operate in a much larger ecosystem in which they interact with developers who must make a choice about what is the “Least Common Denominator” of their product. If there are 6 or 7 different versions out there not only does that make the developers choice more difficult, but it suggests often the users will be on the wrong side of that equation. This might sound great for Microsoft, because those users would be forced to buy the Windows upgrade, but those purchases are going to make more enemies.
And developers are perhaps the most important piece here, because fundamentally their applications is what makes the value of Windows incomparable to OSX or Linux. Applications will always be the driving force behind the success of any platform, and at the moment Windows, as an operating system is the primary platform for more popular AND valuable applications than any other by a margin as great or greater than its own market share.
Developers, unlike the IT staff do welcome frequent upgrades, but one thing they don’t welcome is segmenting the user base up into hard to target chunks. When upgrades are frequent, they therefore must be free, like Service Packs. And that is why I don’t see any major change in the release schedule for Windows anytime soon. I’m sure the next one will be closer to 2 years than 5, but 5 was the plan with Vista anyhow.
It might be tempting to counterpoint this with OSX’s release schedule, but you’d be missing the point entirely if you did. OSX doesn’t have the business users, OSX doesn’t have the legacy application, OSX has a smaller user base, and OSX users are on average far more willing to plop down for constant upgrades. They aren’t more willing because of some fundamental difference in OSX, they are more willing because they are fundamentally different people. There are just as many people like them in the Windows world, but that doesn’t matter the Windows world is so much larger, the other 80% is completely different. Changing OS’s will not change the goals, capabilities and nature of that 80%, or any user for that matter, so it’s pointless to theorize that what works for the OSX user base would work well for the Windows user base, or developers for that matter.
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