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Ballmer: don't get your Vista hopes up too much
Microsoft CEO Steve Ballmer sent his company stock price down on Friday after he cautioned that Windows Vista won't have much of an impact on overall PC sales for the coming years.
While it's easy to jump to conclusions that Ballmer dismissed the benefits of the new operating system on PC sales, anybody who reads the transcripts of Ballmer's remarks will soon notice that such a conclusion would be plain wrong.
The relevant section is pasted below for your enlightenment, but in summary, Ballmer is pointing out that growth markets are mainly in the consumer and emerging markets. Enterprises after all already have volume contracts that entitle them to any new software release.
Selling more consumer systems will cause a drop in the average revenue per system because those software packages are priced cheaper than enterprise ones. Ballmer also cautioned that there will be just a limited spike from "high piracy markets as a result of Vista's new piracy protection technologies. But many piracy users in emerging economies couldn't afford to pay for Vista anyway.
Ballmer didn't dim Vista's overall market expectations, but he issued analysts a dose of realism.
I've looked at some of the models and reports, et cetera, about our business and what people think it looks like, and I'm really excited on how enthusiastic everybody is about Vista. I, too, am very enthusiastic about Vista. But I think sometimes the enthusiasm about this great product and the excitement and the launch, people have to understand our revenue models because I think some of the revenue forecasts I've seen out there for Windows Vista in fiscal year '08 are overly aggressive, if I could say it that way, and let me kind of walk through what drives Windows revenue so people understand why I say what I'm saying.
PC growth is a driver of Windows revenue. You all have your own forecasts for PC growth. I will tell you that whatever you think it is, more growth comes from high piracy markets than from low piracy markets. That's an important thing to remember. And more of the growth tends to come from the consumer market these days than the business market, which means we also receive as a mix lower average price. We have a lower average price typically on Windows in the consumer world than we do for the business world.
Piracy reduction can be a source of Windows revenue growth, and I think we'll make some piracy improvements this year. We have new technologies built into Windows Vista, something we call Windows Genuine Advantage we've really dialed up in capabilities with the Vista release, and I do think that that will bring some revenue growth. I still don't count on it to be a huge thing on the scale of this business as we really ferret through how far we can dial it up, and what that means for customer experience and customer satisfaction.
We will have strong growth in the Windows business in emerging markets: China, India, Brazil, Russia, and many others. But that's strong growth on quite a low base of revenue. Those markets are very high piracy. In some cases we also have much lower pricing in some of those markets with our Starter Edition, et cetera.
Corporate upgrades, people say, ah, corporate upgrades, that's the place to go. We already sold a lot of Vista corporate upgrades. That's built into a lot of our Enterprise Agreements that have previously been signed. And I think some people may be a little bit more bullish. I think we can drive these harder. I think there is some upside. But I think people might underestimate the degree to which we already have a very strong base of Enterprise Agreement bookings for essentially -- that essentially include Windows Vista.
And last but not least is non-corporate upgrades where, if anything, I think you have to think FY '08 might be slightly down versus FY '07, because we have such a large surge that we're getting post the Vista launch in these non-corporate upgrades. This is people walking into retail stores typically buying a retail copy of Vista to upgrade to. We get huge spikes in the first month, two months, three months, which all occur in fiscal year '07, and will not recur in fiscal year '08.
So, I think as I've looked at what many of you have to say about it, I think this is an area where perhaps people are somewhat too bullish.
There are two other areas that I think are worth mentioning. Online customer acquisition: I said this last year at the meeting; I'll say it again this year. We continue to explore interesting ways to actually increase our operating expense against online customer acquisition. We've pursued a number of those. Some have been successful and are in the statement I'm making about 2.7 billion or less of operating expense growth, but we continue to look for effective, cost-effective ways to increase customer acquisition. And while there's a lot of this funded, we may come back to you some time in the year and tell you that we will increase it.
February 17, 2007 at 01:16 AM | Permalink
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Comments
I think that the significance of his comments regarding the just-released Vista is that Microsoft does not expect too many consumers to rush out and buy Vista upgrades, therefore the release of Vista has limited potential to generate revenue outside their main source of revenue, which is OEM licensing.
This is significant if you care to compare the sitation with Apple, whose OSX updates do generate additional revenue, because even though the latest OS version comes "free" with the purchase of every new CPU (just as with Visa), the ability to install the newest OSX version on older Apple hardware is much greater than with Vista. It could also be argued that a new Apple release generates relatively more enthusiasm among Apple owners, which translates into actual additional revenue due to consumer purchases to upgrade existing computers.
Therefore I view the comments as a real attempt to lower expectations by Ballmer, because their heralded new flagship product doesn't translate into as much new revenue as their marketing campaign ("Wow") might lead the public to expect.
Posted-by: Scott | 18 Feb 2007 22:22:57
i think vista is piracy its just a collection of junk put together i am very dissapointed
Posted-by: paul | 14 Mar 2007 23:07:47
Spanish
