XP Promotions May Give Clues To Vista 'Make Goods'

If Microsoft and computer makers offer free or discounted versions of Windows Vista to PC buyers this fall and winter, the way promotions for XP were run in 2001 will offer some clues, said a research analyst.

Thursday, a Microsoft executive said that the Redmond, Wash. developer will take steps to prevent a market slow-down during the months leading up to the anticipated January 2007 release of Vista.

"Most likely, we will have some sort of promotion at the consumer level," Mike Sievert, Microsoft's corporate vice president of Windows client marketing, told CRN. "It's important that people see value right up until the launch of Vista."

"I'd look to what happened then [in 2001]," advised Paul DeGroot, analyst with Kirkland, Wash.-based Decisions on Microsoft. "That's the previous experience."

Five years ago, as Windows XP's fall debut neared, OEMs began offering either free upgrades to XP for new PC buyers, or charged for a coupon that entitled them to a Windows XP disc. Compaq -- prior to its acquisition by Hewlett-Packard -- gave away the upgrade to XP, while other OEMS, such as Gateway and Dell, charged handling fees ranging from $15 to $39.Then, the OEMs carried the cost. Although Microsoft typically subsidizes updates to newer versions of Office to prevent sales stalling, the company didn't support the OEMs in their XP upgrade campaigns.

If Microsoft changed its tune and provided OEMs with a free upgrade to selected buyers, the "make good" might be smart economics, said DeGroot. The free offer would give Microsoft an opportunity to upsell customers through the operating system's Windows Anytime Upgrade feature. (Using Windows Anytime Upgrade, users can move up the Vista food chain from, for instance, the entry-level Home Basic edition to the top-of-the-line Home Ultimate without having to go through retail or an e-tailer.)

"The OEM would get the benefit from selling a less expensive computer," said DeGroot, "and Microsoft gets an upsell opportunity. They can say 'here's what y0u get for free, but for $30 or $40 more you can go to a premium version.'

"And that money goes straight to Microsoft; it doesn't go through the OEM," he added.

However, DeGroot sees several barriers to an upgrade promotion, including cost, the complexity of upgrading to Vista from Windows XP (which would already be on the recently-purchased PC), and the still-in-doubt release date of the new OS. An upgrade program could founder on any of the three. "The longer the period between buying and the actual release of Vista, the longer the machine will lay around because the buyer won't want to do any heavy work on it or install applications, knowing that they may have to reinstall them later," said DeGroot.Fellow Directions analyst Michael Cherry had another wrench to throw into a potential promotion.

"I still don't think [OEMs} are comfortable with the hardware requirements of Vista," Cherry said. "Think how messy that would be, when if they offered a coupon, the user experience [in Vista] was only as good as what they were already running because the hardware couldn't handle the full offering of Vista."

Unlike earlier Microsoft operating systems, Vista will boast tiered system requirements, with less advanced hardware showing only an XP-like interface. To use the new "Aero" interface, users will need PCs with faster processors, more memory, and advanced graphics cards.

"What I call the 'disappointment factor' is the blocker, I think," said Cherry.