Daniel Eran Dilger in San Francisco
Random header image... Refresh for more!

The Vista Myth: Why Windows 7 Won’t Turn Microsoft Around

Msft

Daniel Eran Dilger
After posting a spectacular 17% revenue drop, the company’s first ever year over year decline, Microsoft and its satellite pundits have assembled a seemingly plausible distraction/solution going forward: Windows 7 will boost sales of generic PCs back into orbit and erase the crater caused by Vista and the recession. They’re wrong, here’s why.
.
In order for a solution to actually fix a problem, it has to address the cause of the problem. Microsoft’s executives and the pundits who repeat their talking points have decided that the reason why the company’s sales are down is in part because of the global recession and in part because Windows Vista simply hasn’t encouraged buyers to run out and get new PCs. Windows 7, being (as they say) so much more improved over the now two year old Vista, will dutifully cause buyers to return to buying PCs at “normal” pre-2007 levels. This is a grave mistake.

This line of reasoning, as is the case with most talking points, only makes sense if you don’t stop to think about why it makes no sense at all. Certainly, there are some elements of truth; the world is in the throes of a major economic downturn, and Microsoft is particularly vulnerable because it sells software that its best customers have viewed as non-essential.

After all, everyone from PC gamers to corporate IT staff have rejected Vista by a wide margin with adoption rates that are still around 20% two and a half years after it went on sale, despite their being the greatest beneficiaries of Vista’s new features, from the latest Direct X gloss to tightened security; those people have historically also been Microsoft’s biggest boosters. Vista clearly did not have the PC-sales boosting effect that pundits insisted it would have back towards the end of 2006.

Microsoft allows HP to wipe Windows 7 with XP through 2010

Cracks in Microsoft’s Windows monopoly
However, anyone who thinks that global growth in PC sales has plateaued and even begun to shrunk because of Vista is simply delusional. When I first predicted that Windows Vista wouldn’t engender the excitement of Windows 95, pundits laughed and said that it didn’t matter if Vista was any good or not, because Windows PC buyers would have to buy new PCs, and Microsoft would therefore simply roll it out whether or not the market wanted it.

In part, that was true. There is no functional, competitive market in the PC operation system space; it is a monopoly. Microsoft simply decrees what people will use, acting like a world government with the authority to tax every PC hardware sale with a Windows tariff. That has been the wide open secret of the company’s past success.

Real governments, particularly the US, have not enforced the rule of law and have even refused to force Microsoft to obey its consent decrees (legally binding agreements the company made with the courts in order to stop its most egregious contempt for real and competitive markets). However, real governments have also historically discovered that their power is never as great as they hope, which is something Microsoft itself has discovered as well in its position as a quasi-government authority with global PC taxing powers.

One of Microsoft’s greatest problems with Vista was that the company attempted to leverage its monopoly position to jack up the price of Vista, making PCs cost slightly more while making upgrades significantly more expensive. The company hoped to leverage its monopoly OEM business into a “first one is free” cartel where users would be forced to immediately upgrade their basic version of Vista to a more premium edition just to do basic tasks. This backfired dramatically, but was not the reason why the PC industry began to first level off and then actually shrink.

 Rd Rdm.Tech.Q1.07 Efdf04D6-8Fe9-49E2-878C-B15Fa27F1Cca Files Vista2007-10

Windows 95 and Vista: Why 2007 Won’t Be Like 1995
Windows Vista, 7, and Singularity: The New Copland, Gershwin, Taligent

The Vista Myth
All of this becomes apparent when you compare what pundits were saying in late 2006 with what they are saying now. The world seems to have forgotten that back in 2005 and 2006, as Apple released Mac OS X Tiger and then performed its rapid migration to Intel-based Macs, Microsoft’s satellite pundits were unanimously predicting that the appearance of Vista would simply steamroll Apple out of existence.

This prediction was based on faith, not science. Using scientific data, it was clear that generic PC sales were already facing troubles: the average selling price of PCs was dropping like a rock, and competition solely for PC market share between HP and Dell was accelerating that descent into profitless, commodity PCs. That in turn was creating a huge quality gap between the mainstream offerings of generic PC makers and what Apple was selling.

Apple’s more expensive models were actually becoming more popular, not because the market had abandoned the basic principles of supply and demand, but because Apple was creating demand for a premium Mac market while PC makers were all chasing rock bottom pricing in a fool’s rush toward oblivion. PC buyers were subsequently discovering that $400 computers that lasted for less than a frustrating year or two were simply not a good buy. It didn’t really matter if they shipped with Windows XP or Vista.

It also didn’t help if they shipped with a distribution of Linux, because the problem wasn’t the operating system, but rather the shoddy hardware. Of course, the security problems of Windows XP, the demanding overhead of Vista, and the complexity and limitations of Linux all did nothing to help turn these $400 PCs into something that could look competitive with a $1000-$1500 Mac. What PC pundits failed to grasp is that price isn’t the sole determiner of what people will buy. It’s only the sole determiner of what cheapskates will buy, and if you look at other industries, cheapskates are not customers that most profitable companies seek to court.

Netbooks killing off sickly Windows PC sales

Faith-based analysis
Ignoring all the scientific facts, PC pundits decided instead to take a faith-based approach to predicting the future. This only requires finding a few data points that can be assembled into a story which can be made plausible-sounding by ignoring all the discrepancies, contradictions and flat out silliness. Tell the same stories over and over, and you can eventually create a following of mindless worshipers who will eventually eat up everything you say, even if everything you say is demonstrably false, hypocritical, and ludicrous.

Having created a unquestioning following of faithful believers, PC pundits assured everyone that Vista would boost PC sales, despite offering no scientific evidence for this claim. Microsoft helped bolster this dogma by releasing false statistics that indicated that millions of buyers were pre-ordering Vista, based entirely upon Microsoft’s bundling of free upgrade coupons with sales of PCs that occurred prior to Vista’s launch. Many of those machines were simply not capable of running Vista however.

When Vista went on sale it did nothing to excite buyers. More importantly, however, buyers were not looking for big conventional PCs to buy. It’s not as if customers flocked to CompUSA or to Dell’s web site, looked through the generic PC offerings, and then decided not to buy anything because of Vista! There was simply no real demand for conventional PCs to start with, just as there is similarly no “pent up demand” for conventional PCs today as all of Microsoft’s pundits like to imagine.

Why Windows 7 is Microsoft’s next Zune

Failure to launch blamed on the liberal media
When Vista failed in its role as the second coming of Windows, Microsoft and its clergy of pundits first assailed Vista’s reviewers as unfair, then attacked Apple’s ads that called attention to the very problems PC users identified with: compatibility problems with their existing hardware and software, performance issues, security and malware problems, and all of the poor reviews reflecting those issues. Microsoft then embarked on an ad campaign that blamed users themselves with being ignorant of Vista’s greatness in the Mojave Experiment.

What Microsoft failed to grasp all along was that Vista wasn’t causing a major upturn in PC buyers, not due to the ignorance or malice of users, reviewers, and competitors, but because Vista was not the product users wanted. Throughout 2007 and 2008, it became clear that PC buyers were demanding cheaper and cheaper devices, including netbooks and smartphones and extremely low priced PC systems. They were not in general clamoring for big, conventional desktop PCs that had formed the bedrock for Microsoft’s monopoly back in the 90s, when affordable mobile devices and $400 PCs simply did not exist as alternatives to the big dumb Windows PC.

The problem for Microsoft was that it had already invested a reported $8 billion and 8 years into Vista. There was no turning back; Vista had to be recycled until people could be convinced to buy it. The reason Microsoft has dumped so much money into making Windows more like Mac OS X was of course Apple’s success with Mac OS X. The problem was that Apple wasn’t selling Mac OS X to run on $400 PCs made by a variety of manufacturers. Apple’s circumstances were completely different.

Microsoft’s Mojave Attempts to Wet Vista’s Desert
Microsoft’s Mojave Experiment Exposes Serious Vista Problems

Paying attention to climate change
Apple, unlike Microsoft, has spent the last 8 years building up a mobile device business with the iPod which, by the launch of Vista, had blossomed into the iPhone. That had fueled Apple’s profits and enabled the company to market its computers as high end, elegant offerings in the range of $1000 or more. Even so, Apple was also suffering from the shift away from big conventional computers; sales of its once flagship Power Mac desktops had been in relative decline for years. Back in 2001, Apple’s attempt to sell the PowerMac G4 Cube had failed due to both an economic collapse and a shift in interest toward more mobile systems.

The difference was that Apple took note of the changing climate and launched a major strategy shift toward selling laptops, pushing everyone from its education base to its high end power users to its lowest end consumers toward notebook offerings built specifically for them. Apple’s investment in mobile systems has paid off dramatically, with the bulk of its business now centered around notebooks, and now smartphones. That diversification ultimately also helped Apple’s remaining PC business to survive and even prosper.

Apple still owns most of the relatively premium all-in-one market surrounding the iMac, and it continues to sell high end Mac Pro systems, primarily to run the company’s Pro Apps: Logic Studio, Final Cut Studio, and Aperture. Rather than being a good versus evil showdown complicated by demon imps dealing out tragically unfair fate cards, the success of Apple and the failure of Microsoft has everything to do with Apple responding correctly to scientific data and Microsoft failing to pay heed to the very same data, choosing instead to be entertained with its own superstitious stories about how Windows is infallible and can flout the scientific laws that underly the market.

From Vista to Zune: Why Microsoft Can’t Sell to Consumers

Second version, same as the first one
Now that there is no denying that Vista was rejected in the market, not due to Apple’s advertising witchcraft or evil spells cast by reviewers, but simply because it did not address the demands of the market, Microsoft and its clergy of pundits have covered up all of the historically relevant data and have invented a new explanation of why Windows 7 will steamroll Apple: as you might have guessed, it sounds suspiciously a lot like what they were saying in late 2006, involving the notion of “pent up demand” for machines that have been in decline for years now, along with other “facts” invented to fit their required beliefs rather than discovered though unbiased observation in order to explain what was actually happening.

The only difference this time around, they claim, is that Windows 7 will not suffer the same fate as Vista because it isn’t plagued with problems. Unfortunately for them, Vista didn’t ultimately fail because of bugs and incompatibilities. Neither did Windows 98 SE and Windows ME, which were relatively successful in the market despite being terrible software. What Vista lacked and SE/ME didn’t was a captive audience with no alternatives. Vista was competing primarily against Windows XP, which was faster and more familiar to users. What Vista offered over XP was security, Mac OS X-like graphics compositing features, and some flashy new features, none of which were relevant to an audience increasingly interested in abandoning the conventional PC for more mobile devices.

The rush to netbooks, while largely an overblown buzzword more than a massive shift in actual PC volumes, distracted momentum away from the boorishly bigger and faster PC boxes. The declining economy also fixed buyer’s attention on cheaper systems that were the least capable of deriving any benefit from Vista. Microsoft’s Vista was the Ford Edsel: exactly what corporate executives thought everyone wanted, but disastrously far away from what buyers really wanted.

How does Windows 7 address this problem? It does not. Microsoft makes great efforts to claim that Windows 7 will work on netbooks, but does not explain why that matters to users. The features of Windows 7 do nothing to improve users’ experience on netbooks, apart from making them slower than identical hardware running yesterdays’ Windows XP.

Windows 7 doesn’t do anything to make $400 PCs more attractive. All it can possibly do is contradict Microsoft’s “PCs are cheaper” ads by attempting to push buyers upscale to the point where Windows 7 starts to deliver some extra fancy polish and, in Microsoft’s words, “Wow.” That price point is suspiciously close to where Apple sells its machines, making the best hardware for running Windows 7… a Mac.

I’m a PC too… touché
Why Windows 7 on Netbooks Won’t Save Microsoft

The war on two fronts
This pushes Microsoft into the unhappy position of having to either drag PC OEMs back up into the range of Apple’s hardware, a seemingly impossible task on the level of establishing GM as a luxury brand to compete against Mercedes and Maserati, or having to rethink its entire operating system strategy to fit the facts of the cheapskate plebe market rather than the fantasy world of Microsoft’s executives where Windows is both ubiquitously everywhere and premium priced.

Microsoft is facing multiple competitors in the low end arena as well. One is the threat posed by free distributions of Linux and Android, which can potentially stand in place of Windows on low end hardware, resulting in major savings to manufacturers. So far, Microsoft has been able to scuttle adoption of Linux on netbooks by dumping Windows XP licenses on manufacturers for free. That’s obviously not a long term strategy, as Microsoft simply can’t run the Linux community out of business, nor can it keep giving away software for a growing segment of the PC business.

Microsoft also faces growing defection from the PC pool by users adopting alternative devices like smartphones. If you think there’s no way smartphones can replace desktop computers, take a look at Japan, where it already has. Young people in Japan don’t have much concept of installing a big PC box on their desk at home, just as kids in the 90s had no concept of using punchcards or time sharing on mainframes.

Japanese “hate” for iPhone all a big mistake
Young Japanese women rank iPod, iPhone, Macs top in design

The web’s war on Windows
And now, Microsoft is facing another threat that initially appeared just over a decade ago: the web. Netscape and Sun trotted out the web as a rich platform that would take on the relevance of Windows as an application development platform. Microsoft’s monopoly power enabled the company to squelch open web development and tie it to Windows dependance with Internet Explorer nearly 15 years ago. Since then, however, Apple, Google and the remains of Netscape have banded together to form a powerful federation behind HTML 5, which already serves as a very strong alternative to Windows-centric development.

Apple’s strength in pushing HTML 5 comes from the iPhone, which has already assumed over half of all mobile traffic. Other serious mobile contenders are all based on WebKit, ensuring that HTML 5 will be the lingua franca of software across mobile devices. Firefox’s strength is in desktop browsers, where it has managed to bite off nearly a quarter of all desktop PC web users. It is funded by Google, which has an 80% and growing dominance over web search and advertising.

Google itself is moving into the desktop market with its WebKit-based Chrome browser, and plans to offer a free operating system for low end devices that provides an HTML 5 platform for netbooks and low end computers, enabling them to run web software rather than Windows software, exactly what Netscape promised but did not have the business model to push in competition with the much stronger Microsoft in the mid 90s. Microsoft was lauded as a god for heroically snuffing out the fledgling Netscape, but it has been completely impotent in trying to muscle its way into Google’s turf, only slipping further and further into irrelevance in the major market of web search and advertising.

Ogg Theora, H.264 and the HTML 5 Browser Squabble

Faith in Microsoft misplaced
Microsoft’s apologists have attempted to invent facts to demonstrate that the company can compete, but these are really just poorly contrived articles of faith. They claim Microsoft’s search is on the rebound now that it has been renamed Bing. That is simply a lie. Google’s position has never been stronger, and Microsoft has actually lost 60% of its former position in the web search business. Even Yahoo is fading away, giving Microsoft no ability to assault Google directly in a Netscape-style assassination to thwart competition.

They also like to claim Internet Explorer is simply too deeply engrained to face any competition, but it has dropped from claiming a 98% share of the market to todays’ figures closer to 60% over just the last half decade. That’s still a plurality, but is not enough to stop the trend toward HTML 5 applications that are not tied to Windows. IE will face even greater losses in market relevance if Microsoft continues to refuse to support HTML 5, once new interactive web apps begin to gain traction.

There’s simply no arguing that Microsoft’s desktop monopoly is at risk, not because Vista failed to impart excitement, but because Microsoft’s operating system strategy was firmly rooted in the 90s and assumed that the PC market would never shift away from big immobile boxes connected to a CRT. Microsoft is certainly aware that PCs are shifting to notebooks and mobile devices, but its response has been largely confined to tacking on stupid ideas like SideShow, which were largely conceived to distract users away from the slow boot and wake times of Vista rather than making laptops more usable and desirable.

 Wp-Content Uploads 2009 07 Browsers-Vs-Search

Microsoft Bing share vs Google smaller than Safari vs IE
Apple in the Web Browser Wars: Netscape vs Internet Explorer

The ties that bind
What else does Microsoft have? A closed server software business in an industry rapidly shifting toward open software. A home entertainment business that has rarely made any money despite billions in investment. Its brightest star is an imitative effort to copy the interactive controller that Nintendo debuted for the Wii back in 2006. When you hear vaporware incantations of “Project Natal,” it means you’ve stumbled into a seance of the faithful trying to reanimate Microsoft’s relevance as the god of imitations.

The biggest problem for Microsoft is that the company and its strategies all assume the continuation of its monopoly control over the PC, server, and Office markets. These three legs of the table are all tied together, which has been good for the company but is now bad. Microsoft has shown no ability to shift its Office expertise to mobile devices, ignoring the world leading iPhone App Store entirely. As Windows PC users shift toward mobile devices like smartphones and netbooks, there will be increasingly less demand for Microsoft’s desktop software monopoly and a similar implosion of the company’s server business. Microsoft’s own decade-old efforts to build a mobile platform in Windows Mobile are in free fall and don’t even garner any support from the most devoted of its followers.

There isn’t any silver lining to any of these dark clouds for Microsoft, and the one the company has fancifully invented, that Windows 7 will magically rebound sales and convince everyone to run to the store and buy a big clunky PC to run another new $500 Office suite is simply non-sensical. It’s as if Microsoft’s solution to the development of the cannon is to patch up the holes of its castle and build even higher walls.

Mr. Ballmer, welcome to 2009. It’s not developers, developers, developers that you need, it’s customers, customers, customers.

1990-1995: Microsoft’s Yellow Road to Cairo

41 comments

1 worker201 { 07.25.09 at 1:16 am }

“Netscape-style assassination” – wasn’t that in a Tom Clancy novel?

Nice article, as usual.

2 The Vista Myth: Why Windows 7 Won’t Turn Microsoft Around « Day and Age { 07.25.09 at 1:55 am }

[...] Daniel Eran Dilger: What PC pundits failed to grasp is that price isn’t the sole determiner of what people will buy. It’s only the sole determiner of what cheapskates will buy, and if you look at other industries, cheapskates are not customers that most profitable companies seek to court. People are starting to see the value in the Mac, not as expensive hardware, but as a premium user experience. [...]

3 carlo.98 { 07.25.09 at 2:15 am }

This is why I follow RDM. Never thought of putting the blame of MS failure on the trend of computers becoming more and more mobile. It makes sense. MS mobile computing efforts, like CE & Zune, are failures. They thought of TouchUI as a great gimmick and made a big-ass table even though the effect should have been the opposite. The TouchUI increased the trend for smaller computers because it made small devices user-friendly.

Keep this up!

4 Orenge { 07.25.09 at 2:25 am }

Nice article. About 80% good reasoning, 20% shameless exaggeration, and 100% fun. And about 5% thinly veiled jabs at organized religion (one of the two kinds of religion I have zero time for).

That’s… 205%? Cool!

5 macmo { 07.25.09 at 4:20 am }

Absolutely right Dan, as always. However I do think there is a wildcard: China.

Bill Gates is still a rock star there, and MS very much still represents where many Chinese want to be.

I think there’s a good chance of a big multi-year, multi-billion dollar deal being done as part of their stimulus package to put Chinese-made Windows PCs in many Chinese homes.

It would be a perfect way to diversify a fraction of their 2 trillion dollar reserves: Stimulate local production, jumpstart a consumer society, and get international cred as an upholder of intellectual property laws.

6 Berend Schotanus { 07.25.09 at 6:40 am }

“acting like a world government with the authority to tax every PC hardware sale”

The law enables people or companies to raise licence fees for intellectual property protected by copyright or patents. As a generic principle this is probably good because it rewards people who generate valuable content or innovative ideas. For instance: until recently Philips and Sony raised a few cents licence fee on every CD sold because they developed it back in the 1970′s.
Protection of intellectual property is always limited in time, both by regulation and by public acceptance. Over time inventions tend to evolve into public knowledge and open standards. Nobody thinks that building combustion engines should be the exclusive domain of Mercedes-Benz. There is a set of basic technology that every car in the world is based upon.

Legally spoken Microsoft is licensing intellectual property. Morally spoken they are taxing knowledge that is not really theirs. They robbed it away from Apple, IBM and other partners in the 1980′s. They were able to do that, and to do it legally, because the industry at that time wasn’t aware of the power and importance of software.
Since the rise of Microsoft nobody will underestimate software anymore, nobody will give Microsoft a second chance to rob away such important inventions. Because Microsoft never really had the power to generate its own inventions they were cut off the stream of new IP to licence and left behind with only those old 1980′s technology to generate income. (Despite Billion$ of R&D investments !!!!!)

What we see now is the very natural proces of technology evolving from proprietary to general open knowledge. Just like the technology behind the 1980′s CD is now available for free, the technology behind the 1980′s PC is free as well. It is not so much a Windows versus Linux or Proprietary versus Open Source quest. It is more that any aging technology should and will become free at some point in time.

It took considerable effort to take Microsoft away from its powerful position. The main reason it finally happened – I think – is because the inventions of the 1990′s and 2000′s have been much better protected against Microsoft type of robbery.

7 Tardis { 07.25.09 at 10:19 am }

Daniel,

enjoyed the article very much, thanks, and I’m sure everything you say about Microsoft is true, AS FAR AS IT RELATES TO CONSUMER SALES.

I do not know, and I don’t think Microsoft is about to tell me, how much of its business is corporate versus consumer. But I do believe that the corporate business is the major part of Microsoft’s survival. The only reason that Microsoft really cares about whether home users have Windows Laptops, Netbooks or Macs is the credibility it means in the IT department.

A 17% reduction in sales would be entirely consistent with the fact that Lehman Brothers and a few other bankrupt corporations have disappeared from their customer list. Persuading their remaining corporate clients to switch from XP to W7 (no global corporation I know of has switched to Vista) is not so much about the cost of the OS, it is about keeping those corporations tied to the per-client costs of Windows Server and Microsoft Exchange.

Those corporations, and their IT departments, do not give a toss about the usability of Windows Vista/7, they only care about whether their specialised and custom apps that worked with XP also work with Vista/7.

Over time, most of those corporations will wean themselves off specialised and custom apps, network configurations and other legacy connections with Microsoft Windows.

After that, most of the value that global corporations currently rely on Microsoft to provide can be supplied by a number of sources, including Linux, Microsoft, Apple, IBM, Google, Oracle and possibly even Yahoo!

Which will you be using?

8 Not Quite a Day of Rest; Out of My Mind for 25 July 2009 « Out Of My Mind { 07.25.09 at 10:28 am }

[...] Pussies and assholes: Micro$oft: Last week, its COO boasts (with no support) that Apple legal tried to shut down its ads showing how much cheaper PC crap is than Apple’s laptops. Yesterday, the ads get changed. Typical. And why Windows 7 should be called Vista 2: ‘Cause it’s gonna bomb too. [...]

9 Netudo { 07.25.09 at 10:37 am }

I have a bet with a friend. If Microsoft fails we’ll go to a fancy restaurant and he’ll pay, if it doesn’t fail, I’ll pay.

How long do you think I have to wait to collect my price?

He forgot to set a time limit for not failing condition, so I know I’ll win this bet sooner or later. And I know he doesn’t read RDM, so I’m safe asking this here publicly.

10 Why Windows 7 Won’t Turn Microsoft Around | firsttube.com { 07.25.09 at 10:48 am }

[...] Drafted has an incredible article about why Windows 7 won’t turn Microsoft around. It’s totally accurate: Microsoft is missing the boat over and over and over again.  If I [...]

11 Netudo { 07.25.09 at 11:02 am }

I think Windows 7 main weakness is the Vista looks. It may be faster than Vista, with better driver support (closer to XP driver model) and It may nag less than Vista, but to the regular user it’s still Vista.

12 patriot { 07.25.09 at 11:52 am }

You pretty much summed it all up again Daniel. The latest financial results make Microsoft’s precipitous fall more obviously imminent. If Google Chrome OS delivers an instant booting netbook experience as expected in 2010, Apple and Google will effectively chop-block Microsoft. Your analysis of Microsoft’s monopoly offerings once being their strength but now being their achilles heal is spot on. Office is failing as Windows fails. Server is failing as open source thrives. IE is failing as open standards soars. Microsoft has obviously decided that they cannot compete based on quality. They are too late to the game. They’re desperately clutching on to their failing empire and every move they make hastens the inevitable.

13 GwMac { 07.25.09 at 12:01 pm }

The biggest problem I see with Microsoft is that they are trying to do too much and have lost focus. They used to be an OS and apps company, then they decided to take on Sony with the Xbox, Apple with the Zune, Google with Bing…and the list goes on an on. Even as big as Microsoft is there is a limited amount of resources to throw at projects. They are simply spreading themselves too thin. They are a jack of all trades but an expert at none.

What they needed to have done as soon as Apple announced the iPhone was to get serious about Windows Mobile. Even now, the best that they could come up with is WinMo 6.5 which is pathetic and WinMo 7 is drawing as much excitement as a rock watching cotest. It is too little too late and they are now irrelevant in smart phones. Apple, RIM, Android, and Possibly Palm Pre look to dominate this very important segment for years to come.

The one thing in Microsoft’s favor is the reluctance or inability of Apple or the Linux community to capitalize. Vista was a fiasco, but their marketshare has changed very little. The problem with Linux is there are just too many distros and confusion. If they can some how figure out a way to harmonize, for lack of a better word, their umpteen flavors and make it possible to download any linux application and have it run on any distro then they might gain a little more traction. I am not hopeful since these complaints have been going on for many years with no improvements. Google and the Chrome OS might offer some hope for improvements, but I remain skeptical of any big increase.

Apple also seem very happy to stay at around 2% globally and 9% in the U.S. After all they are first and foremost a corporation trying to make profits and they are doing a good job at this. I am not even sure how much more they want to grow. The cachet of being a premium underdog is after all part of the attraction. Apple are a lot of things but stupid they are not. If they were really serious about growing there are a lot of pretty simple things they could do. 1) They could ensure that in all the cities that still do not have an Apple store they at least have some form of retail presence. Perhaps the expansion of their Best Buy partnership to more of their stores will solve this. 2) they could lower the prices on their desktops. The cuts on the laptops proved that pricing is important for increased sales. 3) Make it possible to run OS X is a virtual environment within Windows. Unlike Vista and Aero that will not work in a Virtual PC like Fusion, it would probably be possible to use the full GUI of OS X. Even as a Mac user I would love to be able to run OS X within a virtual PC for a whole multitude of uses. People stick with Windows because it is all they know. If they could have a taste, they might be more inclined to switch when they need a new computer. 4) Address the Netbook market. I do not mean to introduce a cheap piece of crap, but at least offer some form of alternative. If the rumored iTab turns out to be true it looks like that will be accomplished very soon.

14 westech { 07.25.09 at 12:03 pm }

Windows OS is a mature product, a cash cow. You cannot expect significant growth from this type of product. Spending 8 billion dollars on a cash cow is stupid. To grow in any meaningful way you must reinvest the cash generated in new markets with new products. OS 7 cannot do more than reverse some of the damage that Vista has done. Unfortunately for Microsoft they have been abysmal at developing new products. Jonathan Ive said that Apple’s success was that it was not driven by money but by a complete focus on delivering just a few desirable and useful products. I guess the money follows!

15 Marelven { 07.25.09 at 12:42 pm }

I’ve seen an interesting news about potential Windows 7 adoption in the corporate world : a survey to which more than 1000 companies responded shows that 60% of them will skip Windows 7, mainly because they need to cut back on software purchase. And 39% of them are concerned about software incompatibilities with Windows 7 (source : http://www.reuters.com/article/technologyNews/idUSTRE56C0NC20090713?feedType=RSS&feedName=technologyNews).

It looks like that the biggest competitor of Microsoft in the corporate world is Microsoft itself.

I think the next 12 months will be quite… interesting times for this company.

16 westech { 07.25.09 at 12:45 pm }

More on Windows
XP was a good product. It did need improvements in security and reliability, inproved speed and maybe a face lift. Instead of tweaking it, Microsoft delivered a bloated product which they viewed to be totally new which was not usable by half their ultimate customers, somewhat improved security and reliability, and slower speed. This they tried to cram down the throats of their customers (the computer manufacturers) at high prices, who in turn had to try to convince their customers, the end users, that they wanted something they did not need. OS 7 at best can only undo some of the damage. Their is no real growth for it in the segment of the computer industry they serve.

BTW, the iPod is also a mature cash cow. Apple has used the cash it has generated to develop the iPhone, which embodies it, and the iPod Touch, which is basically a hand held computer platform, and apparently plans to expand this into a new and desirable tablet, a product whic they will not market on price.

17 MikieV { 07.25.09 at 12:54 pm }

At GwMac:

“Apple also seem very happy to stay at around 2% globally and 9% in the U.S. After all they are first and foremost a corporation trying to make profits and they are doing a good job at this. I am not even sure how much more they want to grow. The cachet of being a premium underdog is after all part of the attraction.”

Agreed. They are making tons of money without over-reaching for market-share. Why risk killing the goose to get more golden eggs??

” Apple are a lot of things but stupid they are not. If they were really serious about growing there are a lot of pretty simple things they could do. 1) … 2) … 3) Make it possible to run OS X is a virtual environment within Windows. …”

I just don’t see that happening. It might help win some converts, but Apple sells music and video – and hosts free podcasts – to support/drive sales of iPods, iPhones, and AppleTV. The same way they improve OSX to support/drive sales of Macs.

Allowing OSX to run on a “generic” PC would eliminate/reduce the need to buy a Mac… so I don’t think Apple will go that route.

18 GwMac { 07.25.09 at 1:30 pm }

“Allowing OSX to run on a “generic” PC would eliminate/reduce the need to buy a Mac… so I don’t think Apple will go that route.”

No one would use a virtual PC environment as any replacement. As much as they have improved, they are still too slow for full time use. I just thought it would be a really cool marketing tool. It would be like selling crack, give them a sample and they would be hooked. Since OS X comes free on real Macs, they would not really be out of pocket when they decide to buy a real Mac.

All the interest in the Hackintosh community especially on netbooks, suggest there is a market. Apple will never sell OS X for actual PC’s, but a virtual PC seems like a good compromise because you wouldn’t have to worry about the thousands of configurations and drivers. The Virtual PC would provide a standard set of drivers that could work well with OS X like Fusion and Parallels do when running Windows on a Mac.

I still don’t understand why Apple doesn’t at least allow Mac users to run OS X as a virtual Mac. Sure wold be nice for testing, security, running older versions of the OS and apps, etc..

19 Dmitri { 07.25.09 at 1:35 pm }

Daniel: Amazing article, great to see you back.

Thought-provoking line: “What Vista lacked and SE/ME didn’t was a captive audience with no alternatives.”

Microsoft never realized that, up until XP, each release of Windows was so horrible and painful to use that people couldn’t wait to upgrade to the next version in the hopes of getting some relief.

In an environment with no competition, that worked great.

Now, three things have happened…

First, as many have noted, XP is “good enough.” Making XP good enough was a big mistake on Microsoft’s part. They made that mistake because they apparently thought that people upgraded to new OS’s because they couldn’t wait for new features. NOT TRUE — Most PC users upgraded again and again to try to end the pain they were in from previous versions of Windows.

Second, Microsoft went out of their way to scare people (though not on purpose) with Vista. The fact that so few applications and peripherals worked with it right away has INCREASED people’s fear about moving away from XP, which they finally have working. Microsoft’s shills’ answer, “It’s vendors’ fault for not shipping drivers, case closed,” is NOT satisfying for people who spent a week trying to get their printer to work. It doesn’t matter WHY Vista broke your system, only that it DID.

Third, there is competition, on the high end, where it matters, and on the low end. If upgrading from XP to Seven is as difficult as Walt Mossberg claims it will be, people will NOT upgrade until they eventually get a new computer… And at that point, many people will be willing to spend a few more dollars and will upgrade to the Mac. And at that point, perhaps Chrome OS will be ready to go…

And meanwhile, over in Enterprise, unless Microsoft can come up with a COMPELLING reason for upgrading to Seven — something on the order of “Microsoft Office is going to stop working on any XP computer,” — then many will “stay the course” with XP there, too.

Watching Microsoft self-destruct sure in fascinating.

20 Harvey Lubin { 07.25.09 at 2:06 pm }

The difference between Mac users and Windows users is that Mac users stick with Apple because of that company’s consistent product history, but Windows users stick with Microsoft despite that company’s consistent product history.

21 TheMacAdvocate { 07.25.09 at 4:12 pm }

Daniel:
Great read. Missed the luxury of having these thoughtful pieces this summer.

If Redmond continues to throw off cash poorly imitating the consumer electronics (and now retail presence) successes of others while ignoring the need to align their monopoly BUs with what its customers’ want, this most recent quarter’s earnings will be a highlight compared to the future for which M$ seems destined.

22 davesmall { 07.25.09 at 5:42 pm }

Great article Daniel. You hit the nail on the head (with a sledge hammer).

I’d like to add a couple points. Steve Ballmer became CEO of Microsoft in January of the year 2000. Here is a chart showing Microsoft’s stock price from the beginning of time. Note the sharp change in the long term trend in 2000 when Ballmer took over? Coincidence? Or does Steve deserve more personal credit than you’ve given him for Microsoft’s decline?

http://finance.yahoo.com/q/bc?s=MSFT&t=my&l=on&z=m&q=l&c=

I’d also say that the cheapskate customer stereotype gains traction in the big company corporate market. So many big companies want only the basics for their typical employee. They’re more than satisfied if the employee has a five or six year old “big box” computer running XP. So long as they have email, Word, Excel, a browser, and can access corporate databases they’re satisfied. A big box on a desk is perfect for them and they really don’t want mobility for their employees. This type of employer has to be loving those plastic $400 Dell’s.

Though Apple does want to increase their corporate business, they don’t want that ‘bottom feeder’ corporate business with cheapskate companies.

A third point is that Microsoft has always made their way by copying products created by other companies and folding those capabilities into Windows. They still try to copy just about every success in the industry. I read that they’re even going to copy Apple’s Genius Bsr in the retail stores they’re planning to open adjacent to Apple’s stores. Everyone should watch Larry Ellison’s YouTube Video on this subject http://www.youtube.com/watch?v=ssX4RL24HT4

23 John E { 07.25.09 at 6:38 pm }

i don’t get this articles point. MS doesn’t need a “turnaround” – at least not yet. even though total MS sales declined a few percent over the last during this global recession, it still made an absolute ton of money. with a higher profit margin than Apple on of course much large total sales. so its “bottom line” is great. no quite as good as oil companies, but tops in its industry.

yes, Vista was a flop compared to expectations. MS hoped XP users would all upgrade at its ridiculously high prices. but most did not. and Vista got a bad public image quickly because the launch was badly botched. as the article essential says, no one really “needed” Vista. nonetheless, MS still sold a lot of Vista on new PC’s – 100 million? (i can’t find the stat).

Vista 2, aka Windows 7, will sell at least as well in the normal process of new PC sales. i don’t know if there is really pent up demand, but all the older PC’s running XP will get routinely replaced in the next few years. the launch won’t be botched this time, and the UI is more user friendly. so Win 7 will be declared a “success” and MS will continue to make billions in profits.

is the overall computer market evolving in different directions away from the dominance of the classic desktop model? sure. is MS poised to adapt to them and prosper from them over the next decade? not yet. maybe never. so will its one-time dominance erode? of course. the digital world is – what? – 10 times bigger than it was in 1995? and it will be 10 times bigger again by 2025. there will be so many versions of what we call a “computer” used in so many incredibly different ways that no one company could dominate. but MS will still have its niche, and it will still make tons of profit. so will Apple.

it’s great fun to poke at the many failings of MS. they deserve it. but they ain’t doomed, and they ain’t dying. if the idea is to proclaim their one-time “Windows Everywhere” fantasy dead, then by all means let’s do that, because it is. but don’t get carried away.

24 CraigJ { 07.26.09 at 1:02 am }

I agree with pretty much everything you wrote. I think that Microsoft missed a great opportunity with Vista. What they should have done, in my opinion, is completely abandoned the NT kernel altogether and created a new OS, sans the MFC, with a new journaled file system. As part of this system they should have included virtual win32 and win64 environments for legacy software. By hauling around all that legacy backwards compatible code in their main kernel they just make the thing incredible bloated and slow. There are a lot of very smart people at Microsoft, but it is clear to me that they just can’t execute. Having been in Product management for a large software company I can almost see the meetings at Microsoft between PM and dev about features. Vista is clearly a product developed by committee and focus group – a focus group that was asked specific, narrowly focused questions. On of the most important things I learned in product management is, that you can put together a focus group to support any outcome you want. The Mojave experiment was simply showing us how Microsoft gets input for it’s products.

All of their recent products, save the xbox (not without it’s problems), are just mediocre. I liked windows XP, I liked Office 2003, I liked SQL Server 2005, I even like .Net to a certain extent, but the reality is that Office 2007 is bloated and bad, SQL 2008 is difficult at best to configure and seems to offer little in the way of benefits over 2005, and I need not mention Vista or Windows 2008 server. This is just the stuff I am familiar with. I used Vista 64 and Office 2007 for 16 months before reverting to XP 64 and Office 2003, which instantly made my system 25% faster.

Microsoft is surviving on pure inertia, and they need to seriously reevaluate what they are all about, and I don’t think Ballmer or the current board really sees the big picture, or they do but they believe they are too big to fail.

In a way I need to thank Microsoft, because I needed to get a new laptop, and I could not buy one with XP without paying a stupid premium, and then my choices were limited. So I bought my first Mac, and I couldn’t be happier. Well, Leopard isn’t perfect, and I do have some complaints, but compared to Vista it is Utopian.

As they guy above me said, MS isn’t going away anytime soon, but if they continue on this path their market share will continue to deteriorate over time, and they will eventually fall below 50%. I mean, if you were starting a company, would you buy servers with Windows 2008 server? or would you load Ubuntu server and configure Samba, MySQL and Apache? To me the choice is clear. Why spend money I don’t need to when I can get what I need for much lower cost, when I can deploy Open Office, and use web apps for accounting and CRM, with the same or better reliability and performance? Microsoft can compete with that for a while by maintaining how difficult it all is to maintain, but the reality is, that it is not, and people will catch on sooner or later.

25 westech { 07.26.09 at 2:49 pm }

John E:
Microsoft basically has two product families: OS and Office. Both markets are mature cash cows. Characteristics of mature cash cows is that competition increases, profits margins decreases and market share erodes. This can take a long time (GM?). Wise companies reinvest their cash in new, growing businesses and limit their investment in cash cows to market maintenance. Microsoft has proven to be surprisingly inept at doing this. Vista cost 8 BILLION dollars. Complete success with Vista would not have gained them one point in market share.

There is not one single new product launching that has been successful outide of these mature businesses. Not ant MP3, Zune, publishing, Encarta, XBox 360, mobile OS, The Table, nada.

Unless they change their approach they will dwindle, slowly, sometimes imperceptively, sometimes in sharp drops just like GM.

They clearly have the resources to do better but they don’t perceive the need to respond to change, let alone be a catalyst for change.

I suspect that they listen too hard to focus groups.

26 bartfat { 07.26.09 at 3:54 pm }

@patriot

i think they’re trying to delay the inevitable actually… but ironically hastening their demise ;)

Funny how all the people who say Windows 7 is fast are using a Mac… and yes, they can’t deny that XP is faster than 7, great job on pointing that out, as they keep forgetting that the netbook market matters to Microsoft (and probably Apple as well, if they can make a product specifically aimed at it). But I fail to see how Microsoft will dig itself out of the free license to Windows for netbooks, so it seems it’ll just be squeezed from the low and high end (Linux, probably Ubuntu, on the bottom and Apple on the top). If and when Apple releases a $700 netbook or something of that nature, it’ll probably be all over.

27 gus2000 { 07.26.09 at 7:47 pm }

“For the past two days I had an opportunity to work for a couple of hours with Windows Vista. It makes Mac OS X look tired, old, and sad.”
http://mac360.com/index.php/mac360/comments/windows_vista_makes_mac_os_x_tiger_look_old/

“Vista is a superior operating system, here are five reasons why: Vista runs more software…is safer…is far less expensive… Mac is closed, Vista is open… Don’t reward Steve Jobs.”
http://blogs.computerworld.com/five_reasons_why_vista_beats_mac_os_x

“For Windows enthusiasts, Windows Vista Beta 1 is a much-needed demonstration that Microsoft can still churn out valuable Windows releases, after years of doubt.”
– Paul Thurrot, 2005

The above wasn’t even hard to find. It shows how attitudes were different “back then” but now moot for the reasons Daniel described above: the market is changing and Microsoft is not (or can not). They are like the Titanic, a lumbering behemoth going full steam ahead into the dark and still waters with too small a rudder to change course once the disaster is spotted.

28 John E { 07.27.09 at 12:18 am }

@ westech – totally agree with you (except i would generalize “office” as “enterprise” – it is the huge server/exchange business that is a gold mine, then everyone buys the office frontend of it for compatibility). and an entrenched cash cow can last a long time, like GM did, decades. so i think MS will make tons of money for decades too.

i think we all recall how in the 90′s MS really did have a dream, and intent, even a plan, for global digital dominance, intending to crush all competition or make it irrelevant. but that was a fantasy. even if they had executed well – which they definitely did not – it was just too grandiose, impossible. that is why so many despise them (certainly including DED).

but that war is over. Apple and Google get specific credit for blocking it by offering superior products at the right time. but many others were involved too.

but rather than face that reality MS still keeps trying to expand into other product lines beyond its cash cows. except for the XBox they have all been flops or also-rans. (the Xbox won the teenage boy market, congrats.) even Dvorak has noticed, if you saw his piece today.

but NT 6.1 – Vista 2 or Windows 7 or whatever the MS bs marketing machine calls it – will be a “success” of some kind. which really tells us MS just needs to consolidate and focus on its core products, keep that cash cow going. i wouldn’t call that a turnaround. maybe just a course correction.

of course, that would require firing the fool Ballmer.

29 christiannews { 07.27.09 at 3:13 am }

Excellent article. Microsoft now seem to have everything to lose and the vandals are moving South to take their portion.

I wrote up a list documenting a number of things that MS have lost to Apple and Google, and now it is going from bad to worse for them. Here it is if you are interested:

http://christiannews.co.nz/2009/google-unveils-a-pc-operating-system/

I just wish that Apple would bring the Mac Mini price down by 30% and really go after market share. This will force Microsoft to act quickly and decisively (if they are capable of that) and start competing on quality rather than their traditional bully-boy tactics.

I agree with an earlier commenter — MS need to fire Balmer. They need a leader like Jobs with the brains of Google.

30 Why Windows 7 Won { 07.27.09 at 3:48 am }

[...] [...]

31 leicaman { 07.27.09 at 10:45 am }

I know one guy who loves Vista, and says there’s no problem with it.

Out of hundreds of Windows users I know.

32 stefn { 07.27.09 at 10:47 am }

MS is not doomed. But it will become irrelevant. In a good way. Like the gas company and other utilities. Maybe transparent is the better term. It just needs to get over itself and settle back to a long slow profitable arc. It ain’t sexy but it is a good business.

33 westech { 07.27.09 at 1:35 pm }

John E:
I don’t count Xbox as a success. I don’t believe Microsoft has recouped its total investment, and it has lost the battle to Wii.

When I talk about new products I mean those that truly open up new market opportunities. I do not regard Vista as a new product, just an improved XP. Mac OSX was a new product. OSX-2, 3, 4, and 5 are improvements on it. OS7 likewise is not a new product. It is an an improved product aimed at minimizing market share loss by Microsoft.

If Microsoft would develop an OS for netbooks which would have good responsiveness, security, and a reasonable price, and which would deliver new functionality, that would be a new product. I doubt that they will because they would be afraid it would cannibalize their more profitable OS’s. Somebody else will.

The PC OS market is mature. Profits come from replacements of a good OS with a better one, and from PC market growth. Conventional PC’s are being replaced by netbooks, smart phones, tablets like the iPod Touch.

The automobile industry went for decades with new models every year. Changes in chrome, color and tail-fins do not a new product make, but they are important to maintain their market. Unfortunately the American automobile industry did not recognize that their quality problems were important to consumers, opening the doors to foreign manufacturers. The last new product in this industry was the hybrid vehicle, not the Hummer.

34 tundraboy { 07.27.09 at 6:24 pm }

My homespun philosophy for continued success in high technology:

As the leading edge advances, you must be prepared to win your customers over and over again. Be ready to jettison them as you abandon obsolete technology and win them back with the new.

That is the only way. If you get wedded to a particular generation of technology you become like GM. Apple apparently knows this and has incorporated it in their DNA. Intel knows a thing or to about it as well. IBM had to learn the hard way. Microsoft obviously doesn’t and the result is the bloated, multi-patched, resource-hogging monstrosity called Windows. A product that tries to accommodate 2, possibly 3 generations of OS technologies.

Well, there is a reason MS is scared of letting go of their customers and trying to win them over again. –They really don’t know how to win customers without relying on a monopoly crutch. Hell, they don’t even know how to build a monopoly from nothing –their original monopoly (DOS) was handed to them by IBM.

35 westech { 07.27.09 at 10:51 pm }

Tundraboy:

You are right on.

36 Don’t ask me about RAM or processors, I’m just a girl! « Ellie Freeman { 07.28.09 at 5:21 am }

[...] perhaps me being female had nothing to do with it whatsoever. Twitter-er @Scotthomas showed me this article on the failings of Windows Vista, including that of its marketing campaign: “Microsoft then [...]

37 tekro { 07.29.09 at 2:58 am }

Good article, Daniel. BTW, I notice you reference a couple of articles about the iPhone’s fortunes in Japan. Did you also know that the iPhone – despite pundits’ made-up claims about “the Japanese hate the iPhone – was #1 in consumer satisfaction in the country? Check this item: http://tinyurl.com/kwq9hd (Fodder for a new RD article?)

38 Microsoft’s last roll of the dice? | kludge-o-matic { 07.29.09 at 6:12 am }

[...] very interesting article caught my eye today.  Titled The Vista Myth: Why Windows 7 Won’t Turn Microsoft Around, it details the reasons why Microsoft’s peak may have passed during the XP [...]

39 Neil Burlock { 07.29.09 at 6:44 am }

I can’t agree with you more, Daniel. Microsoft has a history of nearly every product failing besides their cash cows, Windows and Office. If Windows income is in decline, and it certainly appears so, then they are going to be in for a severe adjustment in the future.

Excellent article.

40 Microsoft plans to use Windows 7 to raise netbook prices — RoughlyDrafted Magazine { 07.31.09 at 2:46 pm }

[...] the company being able to advertise that the new netbook category was still dominated by Windows. Moving forward, the capacity of netbooks to run Windows 7, which will not be offered for free, has been a major [...]

41 The Mad Hatter { 08.02.09 at 7:30 pm }

FYI – Windows Vista 7 isn’t even out yet, and it’s already been cracked. This might cut into Microsoft’s plan to force upgrades, as those pushed to upgrade might just decide that copyright infringement isn’t so bad after all…

Me, I’ll avoid Windows Vista 7 like the plague it is, OSX and Linux do fine for me.

You must log in to post a comment.