Mad Dog 21/21: Terms and Conditions
August 24, 2009 Hesh Wiener
The 22nd Amendment of the United States Constitution limits a President to two terms. It is a model for other laws favoring electoral change, if not progress. Corporate client computers used to have term limits, too; they were usually replaced after 24 to 36 months. No longer. Companies are now slower to oust incumbent hardware and software. Significantly, Windows XP, launched in 2001, will survive for years on its own and also as a guest of Windows 7. This persistence creates a daunting challenge to an industry that had always counted on lively, progressive customers.
The imposition of a limit on the tenure of a president was a reaction to the election of Franklin Delano Roosevelt to a fourth term in 1944. Until Roosevelt, no president had served more than two terms, even though it was not prohibited. The two-term limit was the consequence of a convention (set by George Washington himself) and politics, not law. In any event, Roosevelt never served out his fourth term; he died in 1945 and Harry Truman took over. Two years later, Congress passed the 22nd Amendment, which in 1951 was ratified by three-fourths of the states.
The term limit concept has been echoed at the state government level. Three dozen states have constitutional provisions or laws that cap their governors’ terms of service. A few cities have term limits for their mayors, too, as New York did until recently.
In 1993, New Yorkers approved term limits in a referendum. But mayor Mike Bloomberg, the richest person in the city, got the City Council to override the referendum so he could save the city from its economic crisis for at least four more years. Bloomberg will still have to get re-elected, but he is very popular, except maybe with groundhogs, so he might be able to say in office long enough to ponder a leap from City Hall to the White House.
Microsoft is as ambitious as Mike Bloomberg. It wants to keep its brand in place while moving users to new products. The same goes for the computer vendors and their key suppliers, the chipmakers. With the software and hardware giants moving ahead, enterprise buyers could be counted on to keep a fast pace. Microsoft might have done better with some operating systems than others, Dell and Hewlett-Packard may have had their ups and down, but corporate customers moved from Windows 95 to Windows 98 to Windows 2000 and to Windows XP, shifting to hardware with greater performance as they software grew richer. Then along came Vista.
The transition to Vista was a big leap, and in some ways a different kind of change than the last big transition, the migration of client systems from MS-DOS-based Windows 9X to NT-based Windows 2000 and XP. Vista’s innards are different from the guts of NT operating systems, but the software’s crucial break with the past comes from features that are not merely visible but prominent. Vista, when installed on suitable hardware, exploits the huge advances in video chips developed in recent years, makes use of large amounts of memory (particularly in its 64-bit versions), and places demands on other system components that far exceed the requirements of its immediate predecessor, Windows XP. Vista can be hobbled by a weak video subsystem, by a shortage of memory, or by a slow or small primary disk drive.
But as Vista was being developed, there was a change in circuit design that to some extent surprised even Microsoft. Intel had, during the XP generation, reluctantly concluded that it could not confine 64-bit technology to its Itanium family, since Advanced Micro Devices had let the X64 genie out of the bottle with its Opteron chips. The result, for Intel, began with the renovation of its Xeon server chip line but didn’t stop there. Every Intel processor was built with X64 in mind, even chips that would be confined to a 32-bit universe.
Another major change at Intel was a shift in architecture towards concepts that were initially developed for use in mobile processors, the chips that power laptops. Mobile chips were not as fast as contemporary desktop chips but they used much less power; they also had technology that reduced current leakage. If users wanted faster machines, Intel said, it would provide CPUs that included multiple cores, each slower and cooler than the fastest Pentium 4 engines, putting up to four engines in a package. AMD has taken a similar course. The two CPU makers also rolled out virtualization technologies inside their chips.
The catch, as Microsoft and other software makers who counted on Vista sweeping the user base found out, is that many corporate customers didn’t want Vista enough to make it ubiquitous. Features that made Vista a hit in the consumer market, such as the Aero graphical interface, were not compelling attractions to corporate computer buyers. Because Vista differed considerably from its NT predecessors while XP was in many ways more a Super Service Pack for Windows 2000 than a truly new product, migration to Vista promised to be costly compared to the move to XP. Moreover, Vista created a political problem in corporate environments. In offices that could not replace all their computers at once, Vista would have to be installed on a mix of new and old client machines.
The older client machines might have been able to run Vista, but with limitations. Even then, many corporate client machines would need increased memory and improved video cards to deliver an acceptable user experience. This was not at all like moving from Windows 2000 to XP; it was more like moving from Windows 98 to XP. One key difference is that the transition to XP took place during an economic boom, while the transition to Vista and now Windows 7 is coming during a bust.
While commentators say Vista has proved to be more secure and more reliable than XP, XP’s performance in the field is not something Microsoft or its customers have a lot to be ashamed about. It’s even conceivable that XP and Vista are as cheap to support as Mac OS X on a Mac, at least in enterprise settings. The evidence that this might be the case is that there is no offer from Apple or any independent company to provision and support Macs in corporate settings for less per seat per year than PCs running XP.
If there were an all-in-one Mac client provisioning opportunity, IBM (or maybe Lenovo), Dell, HP, Toshiba, Acer, Asus, Hitachi and Fujitsu, among others, would all think about chasing the business even if it meant finding a way to peddle Macs instead of PCs. Microsoft might have a huge vested interest in the PC, but everyone else in the game could switch if that’s what it took to produce better results. If the right opportunity was there, even Sun might be able to save itself by becoming the world’s top Apple reseller. Tata and Wipro would be in Apple’s offices asking to become its partners . . . or maybe trying to buy out Apple’s computer group to let Apple focus on the consumer products at which it is so brilliant.
Basically, the computer industry is going to seek the best deal it can get. That’s why Apple dumped the Power chips for Intel chips and why Mac OS and Vista might duke it out when it comes to selling home computers but in the market for enterprise clients XP still has the edge and Microsoft dreams that it will pass that torch to Windows 7. In the corporate world, Vista is history; its corporate career has long since been toast.
But that doesn’t mean Windows 7 is a guaranteed winner even if it will in fact run on a many older machines. XP clients are attached to corporate desktops like barnacles.
When Windows 7 emerges, presumably late this year, even if it seems to be a relatively safe and practical product for enterprise deployment, its takeoff might be slow. In part this is because the Professional version of this software, which will run on many computers that are old by corporate standards, comes in four flavors.
Two version of Windows 7 will run in 32-bit mode, two in 64-bit mode. One version in each of the two architectures will allow the installation of a virtualization system that will be released as an independent product even though it will only run as part of Windows 7. The virtualization system will allow Windows 7 to run XP as a guest. The purpose of support for the XP guest is not to allow corporate users better access to commercial applications. Popular commercial software will be supported directly in Windows 7 and, in fact, Microsoft expects its legacy support for such packages to be so good that it has no plans to support the virtualization package as part of the Home version of Windows 7. Support for XP as a guest is going to be made available so enterprises can keep using home-grown software that runs under XP but does not follow that published guidelines that tell software developers how to make sure their work runs not only on XP but on Vista and Windows 7, too.
If this seems confusing to you, you may be in the majority. Even enterprise client support experts have a hard time keeping track of the capabilities of machines they manage. Ask them if your computer is X64 capable or whether it has virtualization support baked in and you probably won’t get an answer unless the person you asks happens to have the right tools on hand. Even then, the short answer might not be adequate, and your technician might have to peer into your client machine’s heart and mind.
Quite a few enterprises are looking for ways to defer client system upgrades, in part because they think it will save them money, in part because they think it will save them unnecessary hassle. Windows 7 may be grabbing headlines in the trade press, but it is not turning heads in the office.
Anecdotal evidence I’ve run across puts some hard numbers on the soft market. Corporations that formerly leased desktop and laptop client machines for 24, 30, or 36 months are stretching their leases out to 42 or 48 months. These lessees are asking their lessors not merely to extend existing agreements, but to propose revised payment plans so that the monthly rent for the remainder of the revised, longer term is a lot lower than the rent paid for the ongoing shorter term.
This situation is putting financing companies in an awkward position. They surely don’t want to say no, but they are not sure they can afford to say yes, either.
The lessors had expected to churn their portfolios, pulling out two- or three-year-old machines and installing brand new ones at monthly rents similar to those they had received when their current deals were initiated. Basically, enterprise client budgets have not changed a lot during the past several years; users just got more advanced machines at their preferred price point. Where budgets have increased it is often the result of companies replacing desktop computers with laptops that cost somewhat more. Part of the increased cost is inherent in laptop pricing, but the price rise is exacerbated by the simple fact that replacing a laptop means replacing an entire machine, while replacing a desktop system might not mean replacing the display, too, and a display represents a substantial part of the cost of a client computer. So, until recently, lessors’ revenue per seat has held steady or increased and so too has the value of equipment that lessors have retrieved.
Desktop and laptop systems that come back from corporate leases go to refurbishers, companies that clean up cases and keyboards, paint over scratches, replace faulty components and sometimes reconfigure the systems to make them more attractive. Along the way hard drives are scrubbed of data and any security settings put in place by support technicians are expunged. Successfully refurbished machines are then sold off via liquidators, such as Overstock or PacificGeek or remarketed by the myriad entrepreneurs who peddle computers on eBay and its ilk.
The refurbished computers are sold to a wide variety or buyers. Rarely, large enterprises pick up refurbs to expand a department; adding equipment like the gear that is already installed enables companies to duck the issues that arise when new hires are given more modern computers than seasoned employees. More often, refurbished computers are bought by individual, small businesses and nonprofit groups that simply can’t afford to buy new gear or which do not believe the extra cost of new versus used equipment is matched by any benefits.
Currently, the flow of off-lease machines into the refurb market seems to be slowing. The large volumes of off-lease computers pumped through the refurb and reseller markets has slowed. On Dell’s Web site, laptop machines that are about three years old seem to be in short supply. HP’s Laptop Outlet is has empty virtual shelves. Even Lenovo, which used to have a pretty impressive collection of refurbs on offer, seems to be running light. Basically, in good times the used equipment market can get flooded, but right now there seems to be a drought.
The slowdown isn’t just tough on the hardware and software vendors, it’s putting a lot of stress on leasing companies, too. When the lessees rework their leases, stretching them to 42 or 48 months, the monthly rent per box comes down. The lessors fret that it may be difficult for them to get their customers to pump their budgets back up. In the past, when lessors got machines back in three years or less those used computers had significant residual value. But client systems lose a lot of value in the fourth and fifth years of their lives. That means lessors not only get less per month but also that the value of rentals they receive and residuals they pick up selling equipment off to refurb houses is falling.
If Windows 7 catches on, hardware technology moves ahead at a fast pace and applications software changes to take advantage of this progress–something that has not been the case during the past year–the enterprise client business could get whipsawed. Lessors, particularly pure financial companies that don’t have expertise in refurbishing and remarketing, will end up with a lot of computers that don’t have much appeal. There won’t be a major third world market to turn to, as there can be with used cars and other capital equipment; demand for old computers in emerging economies might be strong for computers sold at a pittance, but nobody is going to pay much for machines that won’t run modern software and include moving parts, such as disk drives, that have grown old and fragile.
Microsoft is trying to offset the harsh conditions by testing lower prices for Windows 7 upgrades compared to what it had asked for Vista and XP. In July, users could pre-order the Professional version for under $100 and the Home version for about half that much. The hardware vendors are attempting to bring out economy systems like netbooks and nettops and also to get the prices of full-size desktop and laptop machines down to levels that they feel might give them a merrier Christmas and a happier New Budget Year.
It’s not a pretty picture. There pressure on makers of hardware and software for client computers is not likely to ease in the near future. Enterprises are trying their best to keep their aging XP boxes in place as long as possible. And end users in enterprise settings, who undoubtedly would be pleased by the pretty face of Windows 7 might not get to experience it first hand right away. Industrial psychologists might argue that a more stimulating and upbeat workplace pays for itself in the form of greater productivity, but beancounters, whose word is law these gray days, have looked at the Aero face of Vista and peeked at the even snazzier beta version of Windows 7 without getting bowled over. It’s prettier, they say, but so what?