September 13, 2007

Running the numbers on Vista

Published on ZDNet News: Sep 11, 2007 12:25:00 PM

Sales of boxed copies of Windows Vista continue to significantly trail those of Windows XP during its early days, according to a soon-to-be-released report.

Standalone unit sales of Vista at U.S. retail stores were down 59.7 percent compared with Windows XP, during each product's first six months on store shelves, according to NPD Group. In terms of revenue, sales are also down, but the drop has been less steep, at 41.5 percent. The findings largely mirror the sales pattern NPD saw for Vista during its first week on the market in January.

"It's just not doing well," NPD analyst Chris Swenson said of Vista's performance at retail stores, though he added that most people get their operating system on new PCs, with only a minority of customers purchasing boxed copies. The report, titled "Windows Vista Still Underperforming in U.S. Retail," will be sent to clients Friday.

Microsoft also agreed that an analysis of boxed copy sales is not representative of Vista's momentum, noting the trend of people getting a new operating system with a new PC has further accelerated with Vista.

"While we can't comment on the findings of a report we haven't seen, we continue to be on track in all segments we follow," the company said in a statement to CNET News.com. "As of this summer, more than 60 million licenses have been sold."

Microsoft noted in a regulatory filing that more than 80 percent of its Windows revenue comes from computer makers that install the operating system on new machines, with boxed copies accounting for only a fraction of total sales. And the PC market is far larger than it was five years ago. According to research firm Gartner, roughly 239 million PCs were sold worldwide last year, compared with 128 million in 2001.

In many ways, sales of Vista are tied closely to the rate of PC sales. One of the big variables is how quickly businesses move to adopt Vista. Most businesses are not moving to the operating system in significant numbers yet, though Microsoft has begun to tout a few large deployments from corporations including Infosys, Citigroup, Charter Communications and Continental Airlines.

Ahead of Vista's release, the software maker said that it expected businesses to adopt the new operating system at twice the rate of XP during its first year on the market.

However, many businesses have said they are waiting until Microsoft releases the first update to Vista before considering deployments of the operating system. Microsoft is starting beta testing of its first service pack for Windows Vista, though that update won't be released in final form until next year.

News on the retail front is brighter for Office, which was released to stores the same day as Vista.

Retail sales of Office products from January through June were roughly double those of Office 2003 during its first best cialis six months on the market and up 59.6 percent from Office sales for the first six months of last year. (Sales of Office 2003 at retail continued to grow over the life of the product.)

While much of the sales were for the new Office 2007, Swenson said just over 20 percent of all boxed copies of Office were Office for Mac. Swenson credited the large number of people switching to Macs as part of the reason for the spike in Mac Office sales.

"If I buy a new PC I can reuse old Windows software," Swenson said. But, if someone is switching from a PC to a Mac and wants Office, he said, "you have to buy new software."

NPD's data comes from its monthly sales reports of software sold at major retailers including Best Buy, CompUSA, Target and Apple's retail stores. It also includes e-commerce sites such as Amazon.com, Buy.com and BestBuy.com.

As for why Vista sales are down, Swenson said it is probably because of a number of factors. More stringent hardware requirements mean that more buyers who want Vista decide to get a new PC, particularly as computer prices have come down so steeply compared with XP's early days. Also, he said, Microsoft has done less advertising than it did with XP.

"The problem is that there are a lot of complex new features in Vista, and you need to educate consumers about them," Swenson said. "Much like Apple educating the masses about the possibilities of the iPhone, or focusing on a single feature or benefit of the Mac OS in the Mac vs. PC commercials, Microsoft should be educating the masses about the various new features in a heavy rotation of Vista in TV, radio and print ads. But the volume of ads has paled in comparison to the ads run for XP."

Just because boxed Vista sales are down doesn't mean they won't pick up, he added. He noted that XP sales peaked a few years after its 2001 launch.

"My hypothesis as to why is that there were a lot of people that bought PCs running 2000 or ME before the XP launch, and thus when they decided to upgrade they opted for the XP upgrade awhile after their initial purchase," Swenson said. "There is a possibility that we might see a similar trend with Vista."

But given the fact that only relatively new PCs can be upgraded to Vista, and with standalone sales not showing signs of improving, Swenson said, "it's looking less and less likely that this will happen."