Microsoft's Windows 7 Tried to Vanquish Vista Memories in 2009

 
 
By Nicholas Kolakowski  |  Posted 2009-12-15
 
 
 

Microsoft's Windows 7 Tried to Vanquish Vista Memories in 2009


Microsoft's 2009 was a pivotal year for the company, to say the least.

The economic recession that gripped much of the tech industry did not spare Redmond, which was forced to report a 17 percent decline in year-over-year revenue for the fourth quarter of fiscal 2009. Earnings came in at $13.10 billion, around $1 billion below Wall Street estimates. Much of that decline in revenue could be tied to sluggish PC sales, which in turn lowered demand for Microsoft's products.

In response, Microsoft cut many of its legacy programs, including Encarta, and embraced a corporate strategy of pushing the new versions of its flagship software, including Windows 7. 

Microsoft CEO Steve Ballmer announced that Windows 7 had entered beta during CES 2009 in January. By throwing the beta version into the wild, Microsoft subsequently told eWEEK and a number of other tech publications, the company hoped that it could solicit a groundswell of feedback that would allow it to fix any issues with the operating system ahead of its October release. Microsoft has subsequently followed a similar beta strategy with a number of other upcoming products, including Office 2010.

It's easy to see why Microsoft would attempt to release a final version of Windows 7 that appeals to as broad a base as possible. Simply put, the company had quite a bit riding on consumer and business adoption of Windows 7, especially considering the reluctance of both those groups to embrace the operating system's predecessor, Vista. Although Service Packs addressed a number of user issues, Vista found its reputation soiled by the sheer scope of issues that had accompanied its retail release in January 2007-namely, that it was a buggy memory hog that lacked backward compatibility with many Windows XP applications and forced users into excessive authorization procedures related to the User Account Control.

As a result of these perceived issues, Vista adoption rates have historically been slow. According to Net Applications, which monitors the market share of operating systems, Vista occupied some 18.55 percent of the OS market by the end of 2009, while Windows XP continued to occupy some 69.05 percent. In the same survey, Windows 7 occupied around 4 percent. But even if its entire share came at the expense of Vista, it still means that Vista managed at best to take up less than a third of XP's total share.

On the eve of Windows 7's Oct. 22 launch, Forrester Research reported that Windows XP continued to run on 80 percent of all commercial PCs. Despite the aging of Windows XP, its stability and prevalence within the enterprise made it a system that many IT administrators were reluctant to give up, especially when the cost of a tech refresh and training workers on a new operating system were thrown into the mix. 

Microsoft attempted to address those concerns early by highlighting Windows XP Mode, which runs XP-based applications within a virtual environment. Introduced to assist businesses running older proprietary programs in transitioning more smoothly onto the new platform, it is intended as a "last ditch" fix for any programs that managed to elude Windows 7's focus on backward compatibility.

The lack of a linear upgrade path between Windows XP and Windows 7, a point of potential stickiness for businesses that choose to upgrade, was something that Microsoft attempted to address on its Website with step-by-step instructions for making the transition. In theory, a clear upgrade path exists for Vista and Windows 7.

Will Businesses Rush to Adopt Windows 7?


 

Over the summer, a number of surveys and studies by analysts put into question whether businesses that chose to stay with Microsoft-based infrastructure would rush to adopt Windows 7 or wait until later in 2010. A Forrester survey of 653 PC decision makers at North American and European enterprises and SMBs found that six out of 10 companies planned on moving directly to Windows 7, while 1 percent of respondents reported that they planned "to migrate from Windows to a different platform."

However, another survey by ScriptLogic said six out of 10 companies would avoid purchasing Windows 7 upon its Oct. 22 debut, with 34 percent planning to hold off on adoption until December 2010. A survey by Deutsche Bank suggested that Windows 7 could reach within 12 to 18 months the same market penetration rates as Vista and XP two years after release.  

If Windows 7 fell flat on its face, metaphorically speaking, in the weeks following its release, then Microsoft would have had a substantial problem on its hands. The rise of Google Apps and other browser-based applications has led pundits throughout 2009 to declare that the age of cloud-based computing has truly arrived; within that context, the failure of Windows 7 would be perceived as the beginning of the end for the robust desktop model.

Microsoft was determined to not let that scenario play out, especially since roughly a third of its 2008 revenue-or around $20 billion-came from operating system sales. Throughout the summer, the company attempted to play up the variety of discounts and promotional offers tied into Windows 7, including plans to sell the new operating system for roughly 10 percent less than Vista, and make the platform widely available through Amazon.com, Best Buy and the online Microsoft store starting on June 26.

On July 7, Microsoft also announced that it would sell a Windows 7 Family Pack, with three Windows 7 Home Premium licenses, for $149. Although Microsoft said the package would only be offered in limited quantities, some consumers held out hope that this was lip service; accordingly, when Microsoft pulled the Family Pack from sale on Dec. 7, the move was greeted with howls of derision.

During Microsoft's Worldwide Partner Conference in New Orleans, which kicked off July 13, Ballmer suggested during a Q&A session that an industrywide tech refresh was inevitable.

"Even if you take the assumption that [the economy] won't turn around for a long period of time," Ballmer told the audience, "we're building a pent-up demand for IT."

That conference also saw Microsoft taking a more aggressive stance against rivals Apple and Google. During a July 15 speech, Microsoft Chief Operating Officer Kevin Turner said Microsoft's then-new ad campaign, which focused on the supposed inexpensiveness of PCs when compared to Macs, was having an effect.

"Two weeks ago, we got a call from the Apple legal department saying, 'Hey'-this is a true story-saying, 'Hey, you need to stop running those ads, we lowered our prices,'" Turner said during his speech. "I did cartwheels down the hallway. At first I said, 'Is this a joke? Who are you?'"

Microsoft Opening Retail Stores


 

Turner and other Microsoft executives at the conference suggested that Microsoft's renewed push into the consumer space will be boosted by a series of Microsoft retail stores set to open in the fall. Despite Apple's relatively small portion of the overall PC market-analysts have pegged it in the realm of 7 percent-Microsoft's executives often act as if Apple were a more directly threatening competitor. 

"Apple's share, globally, cost us nothing," Ballmer insisted to the room at Microsoft's Financial Analyst Meeting on July 30. "You can't be high priced. That doesn't get us to the high volume that we aspire to." That meeting also featured a chart by Microsoft claiming that 18-to-24-year-olds perceived Microsoft products as having a better value than those produced by Apple.

As the launch date for Windows 7 approached, though, Ballmer seemed to couch his earlier bravado with more nuanced statements about the operating system's probable affect on the industry.

"There will be a surge of PCs, but it will probably not be huge," Ballmer told a news conference in Munich, Germany, in early October. In a Sept. 29 speech during a company event in San Francisco, the executive also said that some business customers would likely deploy Windows 7 in a more piecemeal basis. 

On Oct. 22, Microsoft launched Windows 7 at a high-profile event in New York City headlined by Ballmer. During the launch, Ballmer discussed Microsoft's "three screens and a cloud" strategy, which would see Windows services ported through the cloud onto multiple devices ranging from PCs and smartphones to televisions.

In the weeks following the release, early indications suggested that Microsoft managed to avoid a Vista-caliber failure: A report by NPD Group said sales of the operating system had exceeded those of Vista by 234 percent, thanks at least in part to a combination of widespread discounts and a fairly large marketing push. Those discounts, though, weighed down on Windows 7's gross revenue, which was 82 percent higher than for Vista.

In a Nov. 5 statement, NPD Group analyst Stephen Banker said that "in a slow environment for packaged software, Windows 7 brought a large number of customers into the software aisles." Meanwhile, PC sales spiked 95 percent over the week previous to the operating system's rollout. By comparison, Vista's release caused a 170 percent bump in PC sales.

At the same time, daily tracking by Net Applications showed Windows 7 gaining market share, starting at 1.99 percent on Oct. 22 and reaching 3.67 percent by Nov. 1. At that point, according to the statistics firm, which collects data from around 160 million visitors per month to its clients' Websites, Microsoft's various operating systems held 92.52 percent of the overall market.

But the cutting of an additional 800 employees from Microsoft's payroll, completing a 5,000-layoff cycle announced earlier in 2009, indicated in stark terms the economic doldrums still affecting the tech industry. In a statement to eWEEK at the time, a Microsoft spokesperson said those "additional headcount adjustments" were a consequence of "continuing to manage our business closely."

Adding to that stark picture, Microsoft reported on Oct. 23 that its revenues for the first quarter of fiscal 2010 had declined 14 percent year over year from 2008, to $12.82 billion. At the same time, operating income, net income and diluted earnings fell 25 percent, 18 percent and 17 percent, respectively, year over year. That decline was exacerbated by Microsoft not including revenue deferred due to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before Oct. 22, in which case the revenues rose to $14.39 billion, representing a much shallower 4 percent decline.

Analysts also suggested that a Windows 7-pushed tech refresh would kick to life sometime in 2010.

"It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through early 2013," Katherine Egbert, an analyst with Jefferies & Co., wrote in an Oct. 12 report. "We expect new hardware purchases to precede the software upgrades by about 6 months."

In an Oct. 23 earnings call, Microsoft Chief Financial Officer Chris Liddell said the company was still "reasonably cautious" about the prospect of a tech refresh. Other Microsoft executives have suggested to eWEEK that sales of Windows 7 will ultimately be in line with a rise in PC purchases through 2010 and beyond-tying in Microsoft's fortunes tightly with those of the larger economy.

In other words, how Windows 7 will ultimately fare-not to mention face off against any upcoming operating systems such as Google's Chrome OS-is something that will be decided in 2010 and beyond.


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