Windows Vista – What will it mean for Microsoft?

As everyone who hasn’t been secluded in a cave for the past couple of weeks knows by now, Microsoft recently announced release of its new Windows Vista operating system to its large business clients. I’m sure that the timing of this announcement has been well thought out-and who am I to question it, really?

But on the surface at least, it’s pretty curious.

CURIOUS INTRODUCTION STRATEGY

First of all, they didn’t shipping the consumer versions first, even right before the Holiday shopping season, the period during which the bulk of the annual volume of PRACTICALLY ALL RETAIL PRODUCTS is sold. This is a huge hit to Microsoft’s sales, as well as their retail partners, system manufacturer partners, peripherals manufacturers, etc. Really, its a major hit to the whole Windows eco-system, because Windows upgrades drive upgrades of everything else.

In addition, they DID ship it to their large customers–right as the Holiday Season started. First of all, these large customers are notorious for lagging in terms of Hardware and Software upgrades of any sort. They are large, and everything takes them a while to do. But they also need to test and modify custom internal applications, and with something as fundamental as a major OS upgrade, IT shops really want to wait and make sure most of the bugs and issues are worked out, prior to undertaking massive upgrade conversions. I’ve seen estimates that this customer class won’t start upgrading until the 3RD Quarter of 2007. It seems like a delay of a few weeks wouldn’t make much of a difference.

So what was the hurry? Beats me. Again, on the surface, it seems like a case of misplaced priorities. Sure looks like I would have put every man possible on getting out the consumer versions, and saved the Enterprise versions for later. But I’m sure that there are good reasons that and outsider like me is not privy to, why this wasn’t desirable of possible. I’m guessing that Microsoft would probably say that the consumer versions have more testing/QA required, and it just wasn’t possible to get the consumer versions on the shelf by the Holidays, no matter the resource allocation. They’ve already missed several Holiday Seasons with the extreme delays on Vista, so what’s one more, anyway? So I’ll give them a pass on this one.

WILL MICROSOFT REMAIN DOMINANT?

But the bigger question here, besides the nitpicking about timing, is what will Windows Vista mean to Microsoft in the longer term? Will this launch, much hyped by the company for what seems like forever, be a point of inflection for their fortunes–refreshing their sales momentum, and restoring their dominance? Yes, I realize that the guys in Redmond aren’t exactly on the way to bankruptcy at this point. Microsoft remains a cash machine, enjoying outsized margins, generating enormous profits, and remaining a feared competitor for MOST of the software industry.

But it does seem like the company has slowly lost a bit of its edge the last few years. People in the industry retain a healthy respect for them, but it’s not quite the same. It wasn’t too long ago that VC’s were designing their portfolio’s around NOT competing with Microsoft. If you put a company together that was going to compete with them head-on, you risked being laughed at, and having your spouse nervously requesting that you see a psychiatrist. For quite of while, going out of your way trying to compete with them just WASN’T DONE.

That has all changed.

VISTA HELPS MICROSOFT, BUT WHAT IS WORKING AGAINST ITS CONTINUED DOMINANCE?

1) The OS is still important, but the Internet and Web-based application development has changed the landscape considerably. While the OS is still extremely important, instead of being a POSITIVE competitive weapon that Microsoft controlled to provide advantage for their own applications, it has come to be perceived as a high-cost security problem that has left the company on the DEFENSIVE. The application platform of choice for end user interfaces going forward appears to be the Web, for a lot of reasons that we won’t go into here.
2) Even on the OS server side Microsoft is under attack, with “free” Linux providing a much lower cost solution with greater stability and security–according to many large corporate IT shops.
3) The Web has evened the playing field for the competition. Like most large companies, Microsoft has struggled to keep up with the changing rules of the game. They have been a step or two behind for a while, but have always been able to catch up in important new markets, using the fast follower approach. But with a continuously lessening advantage from their near-monopoly platforms, it’s getting harder for them to come from behind and dominate markets. Google is currently kicking their butts in Search–the most high profile example.
4) The final major threat is the advent of advertising-driven business models, which threaten to put a large dent in the classical paid licensing model that is a huge cash cow for Microsoft. It is always hard for the large, entrenched leader to obsolete their revenue model/streams.

I believe that Microsoft is struggling greatly with these issues.

Finally, the fear of the company just isn’t there anymore. People will still tread carefully in their footsteps, but the company is definitely going to be facing increasing competition by upstarts using novel approaches in the coming years. This will stretch the company that much further, as they are required to respond to competitive threats across a much broader landscape than in the recent past.

HOW GOOD IS WINDOWS VISTA-THE PRODUCT?

What about Windows Vista the product? How good is it? I haven’t gotten my hands on a copy personally, but everything I have read to date leads me to believe that it is a solid–but fairly pedestrian at this point–step forward for the Windows OS. One major IT magazine’s analysis was that the code is solid, and it should prove to be a good platform for improving security in the long run. There is also wide belief that it will help IT shops manage their PC assets more easily and cheaply. But others have stated that everything Vista enables concerning an IT shop could today be implemented by a well-run IT department with Windows XP. This is hardly a ringing endorsement after 5 years, and many slipped intro dates. While it may be fundamentally better for security, Microsoft has a huge problem with the Windows OS, no matter how well they design and code security changes. Any system can only be “hardened” so much. With such widespread use, Windows has a big target on its back from every hacker in the world. Also, as the OS becomes more naturally complex and sophisticated in capability over time, that many more holes open up for people to attempt to exploit. I believe it is ultimately a game Microsoft cannot win.

From a consumer’s perspective, the sexiest new feature is the 3D user interface, which requires a very high end graphics subsystem. But the problem here is that for most people, this is projected to be a $500-700 upgrade. Again, systems and peripherals manufacturers will love it because it pulls hardware sales–but the new hardware requirements should slow adoption by consumers.

Of course, much of the fancier improvements to the Longhorn project had to be dropped as the coding slipped. So I’m sure there are many incremental improvements that will occur in Vista in the coming years. But remember, this was billed by Microsoft as a great leap forward, for many years. It looks at this point like an incremental upgrade–not a revolutionary one.

THE BOTTOM LINE

So what’s the bottom line for Microsoft with its new Windows Vista OS? It’s always very dangerous trying to predict the future in high tech. The law of unintended consequences looms large, and those consequences usually aren’t readily appare
nt until much later. But if I had to project today, I’d say that Vista will provide Microsoft with a nice short and medium term sales boost. But I also believe that it will do nothing to slow down the powerful forces already in motion, that are slowly eroding the Microsoft near-monopoly, and may eventually make it simply a “mortal” company again.

That’s how I see it–post a comment and let us know your view.

Phil Morettini
PJM Consulting
www.pjmconsult.com