Vista still not hot in the enterprise, analysts say

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Despite Microsoft Corp.’s declaration that sales of its Windows Vista operating system (OS) have topped analysts’ forecasts, technology observers say the OS still hasn’t caught on with enterprise users.

Redmond, Wash-based Microsoft recently reported its third quarter (Q3) earnings had jumped to US$4.93 billion (CAN$5.9 billion) from US$2.98 billion (CAN$3.32 billion) in the same period in the previous year.

The “excellent quarter” was attributed to better-than-expected sales of Vista and Office 2007 products by Chris Liddell, chief financial officer, Microsoft.

Liddell’s statement appeared to point to a reality that contrasted sharply with earlier analyst forecasts, about Vista adoption by businesses.

Last year, technology analysts predicted a slow adoption rate for the new OS, largely because they thought it did not contain compelling features to justify a switch from the older Windows XP.

They said enterprises would adopt a “wait and see” approach.

Yet late last week, Lidden was quoted as saying the new OS beat internal sales forecasts by US$300 million (CAN$334 million) to US$400 million (CAN$446 million).

Some industry observers, however, have a less sanguine take on those sales stats.

The buoyant numbers, one Canadian analyst said, could be attributed to a successful channel strategy, rather than a growing demand for Vista in the enterprise.

“Most Vista sales come from new PC (personal computer) purchases in the consumer sector where the software is often pre-installed,” according to Neuman Haque, research analyst for Info-Tech Research Inc., in London, Ont.

He said Info-Tech does not see a similar rate of adoption in the business environment. “Corporate users have a choice, and a lot of enterprises are deciding to hold off on migration.”

Framingham, Mass-based consulting firm IDC, also stuck with its earlier forecast that enterprises would be much slower to embrace Vista.

“The adoption of Windows Vista will take place almost immediately among consumers, while business will follow a decidedly more conservative adoption curve,” said Al Gillen, research vice-president, system software, IDC.

Last November, IDC projected that Windows Vista Home products would account for 90 per cent of new operating systems purchased by consumers while Vista Business and Enterprise versions would account for just 35 per cent of systems bought by enterprises.

However, the spike in Microsoft’s Q3 earnings could have been caused by sales of other Microsoft products, and an estimated US$1 billion (CAN$1.11 billion) to US$1.5 billion (CAN$1.67 billion) in deferred Vista revenues, according to Haque.

He said Microsoft issued upgrade coupons to PC buyers during the holiday season when new OS was not yet available. Under the law, Haque said, revenues from those transactions could be attributed to the third quarter. While Microsoft’s channel strategy was largely successful, there was some evidence of “push back” from unhappy buyers, Haque said. “There were numerous reports of buyers who wanted to have Vista removed from their new machines and XP installed instead because the new OS did not work with their existing peripheral devices.”

He said the older OS is still considered “pretty stable and predictable”. There is also a lack of Vista-compatible applications in the market, according to the Info-Tech analyst. Independent software vendors are hesitant to develop such applications until they see a larger demand for Vista, he said.

Vista’s security features are powerful and the software is solid but it has a lot issues that need to be “worked out” to reduce user pain, according to Haque.

He recommends companies rigorously test the new OS for compatibility with their current applications and devices before committing to an all-out deployment.

Haque’s advise for organizations eyeing Vista: “Look [closely] before you leap.”

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