Windows Vista Sales Are Hot, Hot, Hot! Microsoft Says

Published: March 27, 2007

by Alex Woodie

Perhaps it was an inevitable occurrence. The "triple release" of Office 2007, Exchange Server 2007, and business versions of Windows Vista last fall was dubbed by Microsoft as its biggest launch event in history, a happening so huge it was outdone only on January 30 with the consumer introductions of Vista and Office '07. That's why it came as no surprise this week when Microsoft revealed that sales of Windows Vista have been so strong that they put Windows XP's launch to shame.

According to Microsoft, more than 20 million copies of Windows Vista were sold during the first month of availability--from January 30 through February 28. That rate was more than twice the initial sales pace for Windows XP, which debuted October 25, 2001.

However, to be fair to Windows XP--which was by far the most stable and secure release of the Windows client OS at the time--PC upgrades weren't front and center in consumer's minds during the fall of 2001, when the nation was reeling from the terrorist attacks of 9/11 and still feeling the hangover of the tech bubble's burst. Only 17 million copies of Windows XP were sold during the first two months of that product's availability, although it's gone on to sell more than 400 million copies through January 2006.

But there's no arguing with the fact that people are buying Vista. Such a "positive consumer response" is music to the ears of Bill Veghte, the corporate vice president of Microsoft's Windows Business division. "While it's very early in the product lifecycle, we are setting a foundation for Windows Vista to become the fastest-adopted version of Windows ever," he says. "Working with our partners, we are helping our customers leverage new tools and programs to accelerate the transition and provide a great user experience."

To be sure, Microsoft has gotten its large OEMs--including Dell, Hewlett-Packard, Sony, Toshiba, Gateway, and Fujitsu--in line with its Vista strategy. A trip to Best Buy, Circuit City, or Fry's Electronics will reveal that most of these companies' PCs are pre-loaded with Windows Vista Home Premium, which carries a premium in price over Vista Home Basic, and is also more expensive than Windows XP. You have to hunt to find the cheaper Vista Home Basic operating system, let alone Windows XP, which has basically disappeared from retailers' shelves.

Selling the premium grade Vista OS is a smart move because it keeps OEMs' and Microsoft's revenues flat or growing while PC sales are slowing. Current estimates from Gartner and IDC peg year-over-year PC sales increases for 2007 and 2008 to register around the 10 percent mark. IDC last week announced that the worldwide PC growth rate for the fourth quarter of 2006 slowed to 7.3 percent. But better times are ahead.

While the double-digit PC growth rates are expected to return, nobody is seeing them rise to the 15 percent year-over-year increases in PC sales we were seeing in 2004 and 2005--when Vista was originally slated to ship, by the way. Who knows what kind of impact the release of Vista would have had during the peak of the last PC sales cycle, if Microsoft had gotten it out on time.

And now that Vista is here, don't expect to it having much of an impact on PC sales, because we're on the back-end of the most recent PC upgrade cycle. "Vista's effect on PC shipments ultimately depends on the number of consumers and small and mid size businesses (SMBs) that find its new features compelling enough to buy a new PC," says Mikako Kitagawa, principal analyst for Gartner Dataquest's client computing markets group. "While Vista includes a number of interesting features, these features just don't have enough 'must have' appeal with the average home and SMB user to spark a significant rush of new PC sales."

Laptops are currently the hot, hot thing in the PC market (and on your lap if you're not careful), and Vista, together with Intel's more efficient Core 2 Duo processor, will have its share of success and boost the OEM's bottom line, keeping the channel satisfied. But the OEMs are nowhere near as fat and happy as they'd like to be, and it's largely due to poor sales rates and price wars on the desktops, which are purchased in large quantities by big businesses.

Making it even worse for Microsoft is that most of what little growth there will be will come in emerging markets, where it claims to have a huge piracy problem. "Slower growth in desktops and in relatively mature regions changes the market dynamics a bit," says Loren Loverde, director of IDC's worldwide quarterly PC tracker. "While more replacements and Vista adoption may provide a brief respite for desktops in 2008, essentially all desktop growth will occur in emerging regions."

But businesses just aren't buying Vista. Not yet anyway. Gartner doesn't expect to see much Vista deployed in businesses--the larger of the two halves of the PC market, along with consumers--until the middle of 2008.

And when businesses upgrade to Vista, it won't be because there are any "must have" features in it--it's because that's when they will have completed testing Vista, and that will start the next PC upgrade cycle, Gartner says.

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