Vista Will Boost IT Industry Revenues, Computer Costs

Published: December 13, 2006

by Alex Woodie

Whenever a big new operating system comes along, it portends big changes to the IT ecosystem. In the case of Windows Vista, this means an infusion of revenue to IT vendors, to the tune of $70 billion next year, according to IDC. On the flip side, however, the inevitable feature creep and cycle bloat means businesses and consumers will plop down 20 percent more money for hardware upgrades to run Vista full tilt boogey, as compared to an XP machine, a recent analysis found.

Like the annual migration of water fowl or the seven-year cycle of ocean warming in the equatorial East Pacific known as El Nino, the new release cycles of Microsoft Windows operating systems is a natural force to behold. Because Windows is, by far, the most widely used computer operating system in the world, whenever a new version is unfurled upon the masses, you can't help but stop and marvel at the wonderful things that are about to be.

OK, maybe that's overstating things just a tad. But there's no denying that the X64 product line plays the biggest role in the trillion dollar IT ecosystem. With Windows Vista becoming the brains that run the bulk of today's cheap and plentiful X64 systems, Vista will not be denied its day in the sun.

Such a momentous event encourages the number crunchers to calculate just how big the impact will be, and this is what IDC has been up to. Last week, the analyst group released its forecast on the economic impact Vista will have on the U.S. and the world.

According to IDC, by this time next year, Windows Vista will be installed on 90 million PCs worldwide, and on 35 million PCs in the U.S. All told, spending on Vista, Vista-enabled products, and Vista-related services will top $70 billion in 2007.

The magic multiplier IDC used to calculate this $70 billion figure is 18, as in, for every dollar in revenue that Microsoft pulls in through Vista, the wider Windows ecosystem at large will pull in $18 in related products and services. According to this calculation, Windows Vista will bring in $3.9 billion for Microsoft next year, which really isn't that much, considering Windows XP is currently bringing in a little less than that every three months. But obviously, this number will increase as other Windows variants are phased out, and Vista grows to account for the vast majority of the 200 million Windows licenses IDC forecasts being sold in the year 2010.

Although Windows Vista itself will account for just 1 percent of total IT spending in the U.S. next year--and just 4 percent of spending for software--Vista will impact the world in other ways, including through hiring people who have Vista and Office 2007 skills and who will use the software at work.

According to the IDC, Windows-related employment is expected to increase by 157,000 jobs next year, above and beyond a baseline figure that shows how Windows-related spending would have played out had Vista never been a glimmer in Jim Allchin's eye (perhaps in a parallel universe). IDC dubbed this little bump "the Vista effect."

John F. Gantz, chief research officer and senior vice president of IDC, and author of the study, summarized his group's findings as such: "Our research indicates that Windows Vista will infuse new energy into the market in its first 12 months of availability, driving important job and economic growth through new industry revenues. Relatively rapid and widespread adoption of Windows Vista means that its launch will not only affect Microsoft, but will also have a positive impact on local economies throughout the world."

While the IT ecosystem cheers Microsoft for (finally!) getting the Vista ship sailing and providing a much-needed growth spurt just as IT spending is slated to slow to 5 percent next year, one mustn't overlook the dark cloud forming over one critical aspect of the Windows ecosystem: the user.

According to iSuppli, a market research company, it will cost about 20 percent more to buy a Vista machine than a PC running XP. iSupply calculated that the average XP machine costs $500 to put together, however, it will cost OEMs about $600 to put together a Vista-compatible machine. The total increase could exceed 20 percent when you consider that OEMs still need to make a profit on the more expensive machine.

The cost increase in making a Vista-capable machine is mostly due to the additional memory required by the new operating system. While Microsoft says 512 MB of memory will be sufficient to run Vista, many observers expect Vista will need 1 GB of RAM, and some people are recommending 2 GB. A more powerful graphics card will also be needed to take advantage of the new "Aero" 3D interface, although Microsoft is giving users the option of turning off Aero.

While logic says one should expect to pay a premium for the latest-greatest, some observers are concerned that the hidden cost of Vista could hurt OEM sales next year. Businesses will need to justify the added expense of Vista against the new capabilities it brings, and many undoubtedly will try to stretch their current investments in PCs to stave off the upgrade as long as they can.

Memory has never been as cheap and plentiful as it is right now. But, already, some observers are warning about the possibility of a run-up in memory prices as Vista-related demand increases.

"There are some difficult choices to be made before migrating to Windows Vista," says Matthew Wilkins, principal analyst for compute platforms at iSuppli. "When configuring the memory, think today--and think tomorrow--because application and user demands on memory change over time."

Wilkins recommends users avoid the hassle of upgrading older machines with new components, and instead he suggests buying new PCs if you're biting the bullet and making the move to Vista. "Buying a new computer with the Vista operating system already installed may solve the headache of migration just enough to justify the cost of a new machine," he says.