Vista Blues Weakens Microsoft's Influence On Software Market

Vista Blues Weakens Microsoft's Influence On Software Market

DOW JONES NEWSWIRES
May 7, 2008 2:08 p.m.

By Jessica Hodgson and Ben Charny
of DOW JONES NEWSWIRES

SAN FRANCISCO (Dow Jones)--Microsoft Corp. (MSFT) wants to stop selling its XP operating system June 30, but a crescendo of complaints about the software giant's replacement is making it nearly impossible.

The world's major computer manufacturers, reacting to gripes about Vista's performance, plan to continue offering the XP software inside their computer for years after Microsoft stops selling it.

The strong response shows how manufacturers can, in essence, veto Microsoft's decision to upgrade its key software product and instead, keep the old one going. It also illustrates how Microsoft is losing its ability to dictate the pace of business software upgrades, which may force the software giant to re-examine such practices.

Chief Executive Steve Ballmer hinted as much when he said XP may live on because of the customer feedback.

"We can always wake-up smarter, but right now, we plan an end-of-life for new XP shipments," Ballmer said recently in Belgium.

Such a move is sure to be welcome by PC makers.

"This a large issue for every personal computer maker," said Bob Rosin, senior vice president of computer maker OQO Inc. "Microsoft's got to adjust to that, and seems to be."

Manufacturers are responding to their customers, who in uncertain economic times and with questions over whether investing in Microsoft's new Vista operating system is worthwhile, want to hold off on Vista entirely. They would rather wait for the next Microsoft operating system's debut, which is at least two years away.


Vista Misunderstood

The unpopularity of Vista isn't likely to present any immediate major risks to Microsoft's earnings profile, analysts say, because the Microsoft Windows operating system is so ubiquitous in most workplaces that, according to Forrester Research analyst Benjamin Gray, there is "no viable alternative" in most large corporations to deploying Vista.

Big companies typically buy a blanket license to use the Windows operating system on a per-seat basis. That means even if that company doesn't deploy Vista but retains Windows XP, it will effectively be paying for Vista, and Microsoft's client unit sales are unlikely to suffer, said Lee Nicholls, global solutions director for Getronics, a $3.4 billion IT services company that counts itself as one of Microsoft's biggest systems integrator partners.

Nonetheless, there is dissatisfaction among Microsoft's key customer base over Vista, which could become a longer-term threat as disgruntled IT managers delay their upgrade cycles as it creates more ill will among the Windows user community.

That was evident in how Microsoft's client division third-quarter sales, which includes the XP and Vista operating system, fell 24% compared with the year earlier period. Although the decline was expected because of a one-off revenue gain of around $1.6 billion in the year-earlier quarter, client revenues were lower than analysts expected.

At the time, Microsoft denied that the lower client revenue was associated with Vista, pinpointing instead issues around piracy management.

Yet InfoWorld, an online magazine aimed at the IT community, launched a campaign designed to persuade Microsoft to halt plans to stop supporting XP, and has more than 175,000 signatures.

"People are consistently saying to us 'We don't understand the benefits of Vista,'" said Galen Gruman, executive editor of InfoWorld.

Even supporters of Vista have concerns. Getronics' Nicholls, who likes Vista, said "the business argument for upgrading to Vista is distinctly lacking."


New Hardware Required

One of the specific charges leveled at Vista is the fact that getting optimum performance requires IT managers to install new hardware. "For a big organization, this means effectively you're faced with buying a new computer for every employee," InfoWorld's Gruman said.

IT research company Gartner noted recently a number of organizations delayed their decision to implement Vista.

"Most users do not see Vista as being better enough than Windows XP to make incurring the cost and pain of migration worthwhile," Gartner analysts Neil MacDonald and Michael Silver wrote.

In addition to the weak Vista response, Microsoft is also seeing increased competition in its core office tools marketplace from competitors such as Salesforce.com Inc. (CRM), which makes software targeted primarily at sales executives and sold over the Internet, and Google Inc. (GOOG), the Internet search giant.

In order to kick-start Vista sales, Microsoft last month said it would stop selling Windows XP in June. As it has done since 2001, though, Microsoft lets computer makers obtain "downgrade rights," which let them ship computers with two versions of Microsoft's operating system on board. The rights only pertain to business computer systems, thus limiting their potential impact. Consumers may still be able to buy machines with both operating systems but, in some way, must request the XP downgrade.

Representatives for No. 1 computer maker Hewlett-Packard Co. (HPQ), No. 2 Dell Inc. (DELL), Acer Inc.'s (2353.TW) Gateway and Lenovo Group Ltd. (0992.HK) say they will be shipping computers post June 30 with both XP and Vista on board.

"We appreciate Microsoft's flexibility in meeting the needs of customers," a Dell spokeswoman said.

Through at least July 30, 2009, H-P will ship its business desktop computers, notebooks and workstation with XP on board, and the right to upgrade to Vista. More so than any complaints about Vista, H-P's decision was due to the time it takes its customers to transition to Vista, a spokeswoman said.

-By Jessica Hodgson, Dow Jones Newswires; 415-439-6455; jessica.hodgson@dowjones.com

-By Ben Charny, Dow Jones Newswires, 415-765-8230; ben.charny@dowjones.com