Microsoft Windows 7: Getting More Bullish

On the day Microsoft (MSFT) unveiled the next version of its Office suite of productivity programs, company executives were hoping they could also generate buzz for the next version of the Windows operating system.

During a July 13 keynote, Windows marketing chief Bill Veghte noted that companies running Windows 7 include BMW (BMWG.DE), T-Mobile (DT), and Del Monte Foods (DLM) and that Microsoft has had to turn away others that wanted to become early testers. He also outlined discounts for corporate customers and marketing programs for the thousands of IT companies that resell and install Windows on its behalf.

Yet the news that diverted some of the attention that might otherwise have been focused on Microsoft came from a company called ScriptLogic. The small software vendor released results of a June survey that showed that 59.3% of companies have "no current plans" to use Windows 7 in their computers. At first glance, the findings might appear to undermine a widespread assumption among investors that Windows 7 would spark a much needed round of corporate buying.

But the results may be less indicative of companies' eventual buying plans than the headline numbers show. The Web-based survey was carried out four months before the planned release date of Oct. 22. So companies haven't yet heard the marketing pitches Microsoft has planned for the launch. Chief among these are big price promotions. During the first six months after launch, for example, the professional version of Windows 7 will sell at a discount of at least 15%, compared with the current business-class version of Vista, the most recent version of Windows.

All Versions Will Come Installed

Maybe because the company botched Vista's launch so badly, Microsoft seems to have done far better advance work for the unveiling of Windows 7. Veghte says more than 10,000 software developers are already creating products for Windows 7, versus less than 4,000 for Vista at a comparable stage of its development. That includes many drivers, the bits of code that enable particular devices, such as printers and digital cameras, to work with Windows 7.

And the company has a more understandable pricing strategy. Rather than various versions with various features, there will be a clear "good, better, best" approach. People who want the basics can buy Windows Starter, while companies can buy a version with many networking and security features. Rather than choose a flavor and stick with it, all Windows 7 PCs will ship with multiple versions of the OS preloaded. Any could be turned on in minutes with a credit card, saving the customer a trip to a retail store or a lengthy download.

Indeed, what may be most surprising about ScriptLogic's figures is that the number of companies with plans to upgrade to Windows 7 is so high. Unlike consumers, who will automatically find the system on new PCs bought after Oct. 22, the vast majority of companies don't adopt new operating systems for years. Indeed, one Microsoft insider notes that with 2009 corporate budgets already stuck in cement, "We won't see a lot of corporate upgrades this year." This person expects the heaviest sales in 2011, with many waiting until 2012 or later.

PC Purchases Are Easily Deferred

Still, nearly 41% of respondents plan to install Windows 7 by the end of 2010, according to ScriptLogic, which makes software that helps companies migrate to new operating systems. That would constitute a big jump from Vista, which was installed by only about 8% of companies after a year on the market, according to Roger Kay, principal at market research firm Endpoint Technologies Associates. "The surprising result is the 41% that are going there," says Nick Cavalancia, vice-president of Windows management at ScriptLogic.

To be sure, continued economic pain could squelch companies' PC buying plans, dampening Windows 7 sales. PC buying "is the easiest deferral decision to make in the short term," said Steve Schuckenbrock, Dell's large enterprise president, in an interview last month.

But executives at Dell (DELL) and Hewlett-Packard (HPQ) have pointed to demand for Windows 7's performance advantages at companies that are still running eight-year-old Windows XP. "People are getting pretty excited," says Schuckenbrock. "Windows 7 looks to be a pretty good option."

Microsoft shares rose 84¢, or 3.75%, to 23.23 on July 13.

Yun Kim at Broadpoint Securities thinks that 20% of all new PCs sold to companies will have the new software, simply due to the terms of multiyear license agreements that entitle companies to new versions as soon as they're ready to install them. Sure, many cash-strapped companies will postpone buying new PCs for as long as possible. But given good reviews of the product—and Microsoft's efforts to avoid another Vista debacle—the 60% milestone shouldn't be hard to surpass.

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