Who won't buy Vista now, and when won't they buy it

The damage to Windows Vista's sales, our analysts believe, will be across the board, and some of that loss will take effect immediately. Already, decisions are being made or already have been made that affect how many PCs will be running Vista during 2007.

"The people I have the most empathy for, the people I think are hurt the most, are the small- to mid-size businesses," said Michael Cherry of Directions on Microsoft. In Jim Allchin's conference, he confirmed that Vista's code base will be ready in November, and could conceivably have been ready for release to manufacturing (RTM) at that time. Some volume licensees will see it soon afterward, but consumers will have to wait until January. But where's the dividing line between a consumer and a business, in Allchin's mind?

To get some insight into that question, Cherry asked Allchin, what will happen to Vista Ultimate Edition, the top-tier version (or "SKU") that will incorporate all the features of both consumer and business segments? Will it wait until January as well? "We're not changing the SKU plan," Allchin replied, "and we are releasing all SKUs internally at the same time. So when we're done, we're done, and it's just a question about how it's being provided to the particular channels, if you will." It was almost an answer.

Yesterday, Microsoft confirmed to TG Daily that only Vista Business and Vista Enterprise will be available to volume licensees in November, not Ultimate. This got Cherry to thinking, what is it about Ultimate that would prevent volume licensees from having access to it as well? And what is it about the other two SKUs that particularly suited themselves to volume customers, but not the rest of the world, including small businesses that purchase operating systems that are pre-installed on their PCs?

"If you're a mid-sized business today whose machines are aging, and you wanted to replace them out of this year's budget," argued Cherry, "you probably are buying a machine that's capable of running XP SP2. And if your kind of rule of thumb is [that you] buy machines with what the OEM put on them, and then leave them alone until you buy new, you're going to stay with XP SP2 for the next four to five years."

In other words, small businesses are often forced by their own budgets to make new PC purchases before year's end. And for those businesses that must purchase PCs by the end of 2006, they may be locked into Windows XP Service Pack 2 for the next several years. Info-Tech's Carmi Levy confirmed that assessment: "If your lease is ending on December 31, you don't have a choice," he said. "You have to get a new box on your desk before December 31, or you risk running your business for a couple of months without one. That's not acceptable."

Very small businesses with just a few employees, explained Levy, will opt to stick with XP for now, because that's all they can afford. But some slightly larger businesses may wait until January to pick up one or two Vista systems for the top executives, rather than the dozens or more they might have purchased under the superseded purchasing plan. The executives' systems will get passed down to middle management, the managers' systems will get passed down to the mail room, and the mail room PCs will end the cascade by winding up on the admin's desk. "Not optimal for these companies, but they don't really have much of a choice," he continued, "because at the end of the day, it really doesn't matter what operating system you're running; what matters for a business is that the applications that it runs are supported.

"The truth of the matter is, if you buy XP in December or you buy XP in June of next year, it'll still deliver the same business functionality that it does today," Levy added, "so the applications that you have been running for years will continue to run. Vista is not going to change that." What's more, businesses that rely on applications that were designed for XP will need to beta test those apps to work with Vista. If the earliest time they can test those apps is January - well after their own budget period - then it might as well be June. "If you haven't tested your apps under Vista," Levy said, "then any delay - even if it's a quarter or three months long - is irrelevant to you. You don't care. [As] a business, all you care about is if the OS runs your apps. And XP will do that on January 1 as it will on December 31."

If the outlook for small business sales appears bleak, the forecast for consumer sales looks like Vista just dropped off the planet. "Leaving aside debates over how much better [Vista] really is, it will be a new thing to sell," described Illuminata's Gordon Haff, "and having new things to sell is something that companies like to have, and that's not going to be there. So on the one hand, [Vista's absence] takes away a reason that people might have bought a new PC for Christmas, and in fact, it puts a real reason why you might want to hold back on getting that new PC: mainly that the new operating system that everybody, or at least Microsoft, had said is so great, isn't available."

"Let me give you a challenge," proposed Michael Cherry. "Go to any Web site today, or go into any store - Best Buy, CompUSA - buy a Windows machine today. Leave that store, and then call me and tell me you are confident you have a machine that will run Vista. Because I don't believe you can do that."

It's perhaps Microsoft's own fault: The company had been promoting Vista as a launch vehicle for an entirely new class of premium consumer PCs - a class whose value would be substantiated by an all-new Windows System Performance Rating (WSPR). Top-tier systems, such as Dell's new ten-grand XPS Renegade 600, would probably be rated a "5" - at the top of the scale. These are systems that are best sold with bows and ribbons, which does not go well with the month of January.

"If you're buying a new machine today, you don't want a machine that can 'run' Vista. You want a machine that can exploit Vista," said Cherry. "You cannot buy that machine today."

To provide a little bit of evidence to that end, Cherry used Microsoft's own WSPR performance ranking tool to assess the relative value of his Turion 64-based system with 1 GB of memory, an ATI Radeon Express graphics card, and two hard drives. The ranking came back a 2. "I have a whole problem with this kind of argument that Vista is going to help my productivity. I pretty much produce as many articles in a week as I can. How does a 2 relate to what I do?"

If there was ever a time to make an argument in favor of what makes a "5" a "5," the holiday season was the perfect - if not the only - time to do it, argued Cherry. "The thing about the Christmas season was, if Vista really had any excitement to it, if they could get a kind of 'wow' factor about it, that was the time to strike with [consumers], because they were already somewhat predisposed to spending. When you [catch them] with the 'wow' factor, and they're not predisposed to spending, they go, 'Well, that's nice.'"

One temporary solution which Cherry proposes is for Microsoft to offer current consumers forced to buy XP SP2 systems a kind of voucher, which would authorize them to trade up to Vista for a low - or for no - price. He advises Microsoft, "Why don't you just guarantee that anybody that buys a PC with XP SP2 on it today gets some sort of reasonable upgrade? Maybe it's free, maybe it's cost of the Vista media, which would be around twenty bucks, tops. Why not make that kind of an offer?"

Carmi Levy believes that route could be dangerous. A voucher system relies on customers' willingness to upgrade, which pretty much sets the agenda for customer support, he argued. "That's just a recipe for help desk disaster. The way Vista is going to be optimally shipped, in order to be optimally a stable and viable platform, is if it's pre-loaded. The upgrade path is always the path of least preference, because consumers upgrading their own operating systems will generate the kind of activity through the help desk that's going to cut the margin."

So instead, Levy predicts, "demand for PCs - for desktops and laptops - through the holiday season, is going to flatten, [while] a certain percentage of the market that does not need computers before year's end, stands on the sidelines and waits for Vista to ship. For them, I think the lineups at Circuit City are going to be a little bit less deep leading up to Christmas and on Boxing Day."

Cherry perceives a kind of nightmare scenario for PC makers, where the money that consumers would have spent on a new Vista-based PC doesn't get postponed along with the operating system. "It doesn't come back," he pronounced. "Because it's the holiday season, let's say that a person had n amount of dollars that they were looking to spend. I don't think they're going to put a little note under the Christmas tree to Johnny that says, 'Hey, we'll get you a computer in January.' They're actually buying something else this year, and they're going with whatever they had." The only PC sales that Vista is likely to recover in January, Cherry believes, comes from first-time buyers - and those are the buyers who may be in the market for a "2," not a "5."

The Vista scheduling change, in Cherry's opinion, leaves the consumer saying, "'Maybe instead of buying that computer, we'll buy that big flat-screen TV for the family.' I think that a certain number of the dollars will just be diverted to other electronics purchases. They won't come back for a computer, either. Once those dollars that were apportioned for [a PC] are spent for this year, they are spent for this year."

Carmi Levy agrees. "I think what's ultimately going to happen is, some of the discretionary gift buying budget that families and individuals would have devoted to Vista-loaded PCs for the Christmas 2006 season, will instead go out of the PC market and go to other alternative forms of electronics and home entertainment," he remarked. "You can't come home Christmas Eve and not have something to put in the stockings for the kids to come downstairs and find the next morning. I'm sorry, but if I'm a kid, a voucher for a fully loaded Vista PC that's going to ship in a couple of months, isn't going to do it on Christmas morning."