Microstiff - Microsoft Outings of the Third Kind

Saturday, October 28, 2006

How Now, Cash Cow? – A Pragmatist’s Analysis of Projected Microsoft Vista Sales, Revenues and Profits

Microsofties, be afraid, be very afraid. Why, because based upon some very simple anecdotal conclusions, Vista’s grand entrance may be the very first half-step in turning the Microsoft OS Cash Cow into a Pig in a Poke.

Vista Sales as Installed on New PC’s

Steve Ballmer says that there are, on average, “200 million new PC sales each year” as of 2006. Whatever that number is, the pragmatist sees that sales of Vista through this channel represent no significant change in Microsoft sales and revenue and, more likely, a drop in profits. Here’s why:

  • Vista has no significant buying proposition for users. This means, PC sales will unlikely be influenced by the new OS features. Thus, there will be little if any incremental PC sales resulting from Vista features.
  • Given that XP and Vista have similar selling prices, installed Vista PC sales represent no “new and increasing sales revenues.” In other words, business as usual.
  • Profits will be lower per copy because of administration costs involved in promoting and supporting the new OS.
  • PC sales, irrespective of OS, are expected to slow in 2007.

CONCLUSION: Little if any incremental 2007 OS sales from Installed PC sales and most likely, a drop in profits resulting in the 2007 sales from this market sector.

Vista Consumer Retail Sales

Of course, there will be retail consumer sales of Vista in all its forms, in 2007. The early adopters and techno freaks will buy it, sight unseen. They’ll, no doubt, fumble through its installation because…well…because…it’s what they do! What about Joe Average? Anecdotal evidence points to…”Not so fast!” Here’s what I'm hearing:

  • “No Features” – No compelling reason to buy. Aero looks nice but “gimmicky” and won’t be used that often. Gadgets? Just that. Security? Mine is all in place for free and updated daily.
  • Gotta buy more ram and video to make Aero fly – Thank you very much, Microsoft, but $200 - $300 more for a $200 to $300 OS puts me at $400 to $600 outa pocket! For what?
  • Bloggers are saying “install Vista from scratch”. You gotta be kidding! My apps all work great with XP and I don’t want the hassle!
  • Bugs, bugs, bugs - SP1 is when it first all shakes out for any Microsoft OS.

CONCLUSION: Retailers sold 250,000 copies of Windows XP in November, 2001, its first full month of availability, down from 400,000 in October of 2001. Anecdotal information above indicates these figures will surely be lower for Vista. Hey, these reasons are quite compelling, wouldn’t you say? Expect very slow consumer adoption. Revenues will fall short with profits down because of marketing and support fixed costs.

Vista Business Sales

Of course, there will be business sales of Vista in all its forms, in 2007. The early business adopters will buy it, but not nearly in the same numbers that consumers do. Hey, we're running a business here!

But, what about the average SMB? Anecdotal evidence points to…”Not so fast!” Here’s what I'm hearing:

  • “No Features” – Again, no compelling reason to buy. Aero looks nice but “gimmicky” and won’t be used that often in the biz environment. Gadgets? Just that. Security? We’re happy with ours; we spent beaucoup time fine tuning it. No time saving features. No productivity enhancements. No business proposition. No buy!
  • Gotta buy more ram and video to make Aero fly – Thank you very much, Microsoft, but $200 - $300 more for a $200 to $300 OS puts me at $400 to $600 outa pocket! For what?
  • Bugs, bugs, bugs - Again, SP1 is when it first all shakes out for any Microsoft OS. We’ll wait the year or two, or three?.
  • “If it Ain’t Broke, Don’t Fix It” – Why bother? No compelling reason to buy. No time saving features. No productivity enhancements. What one company said in a CNET news article back in 2001, would seem to apply today:

“One company likely to take that route is Koch Industries, a diversified oil and gas investment and trading company that employs 11,000.

‘We would wait for the first service release to deploy Windows XP, so that would be early 2002 before we'd be willing to deploy," said Michael Korgie, Koch's director of infrastructure planning. The company is about six months along in a three-year migration to Windows 2000, he said. "We are not accelerating our normal PC refresh cycle to upgrade the OS.’”

CONCLUSION: Vista will be a non-player for businesses until the features arrive and bugs go away, even more so than XP was! And, the buying cycle today, for Koch Industries above, would likely be 3 years or more, if at all! Expect very slow business adoption. Revenues will fall short with profits down because of marketing and support fixed costs.

FINAL CONCLUSIONS:

  • Don’t expect stock values to soar.
  • Don’t expect that raise you had hoped for.
  • Don’t expect your company to do anything different but protect its ever drying up Cash Cow!
  • Don’t expect the same amount of respect from the outside world that you once had.


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