Microsoft's Six Year Wagon Rut

The fact that Microsoft (MSFT) stock has been a bollinger band traders dream for the last six years is no fluke. People have been waiting for the XP Killer Windows Vista to come out for some time. Now it is out and Microsoft is still trading in the same channel.

Oh, wait, it did poke it's head above 30 for a time when there was talk of a Yahoo (YHOO) buyout. From a sales standpoint Vista has been a flop. From a personal perspective I can see why. It's terribly slow, the security settings are so restrictive to non- administrator accounts that the average user has a lot of difficulty using them. People are purchasing Vista machines and putting XP on them, myself included. Sure, the GUI is nice and pretty and it seems to allow basic users without networking experience to map a drive with relative ease but does that make it worth the five plus year wait?

Sales of the XP software has been booming since Vista hit the shelves. In July of 2007 Microsoft said that it expected Windows XP to "make up a significantly larger part of sales in the coming year." Well here we are folks. Now Microsoft is already talking about the Vista replacement which is predicted to be about three years away. Since Microsoft is forcing Vista to replace XP permanently, people are having a harder time reformatting a Vista machine to run XP because there are no hardware drivers written for it. Yes this is how much that operating system is disliked. Even auto manufacturers are not supporting Vistafor pass-through communication to technician scan tools because of compatibility issues.

In fairness, we can't really blame Microsoft for getting rid of XP. If they didn't, it would mean virtual ruin for an almost ten billion dollar investment. Anyone would do the same thing in their shoes.

Really though, I think the core reason for the struggling sales comes from the the costs involved with upgrading a PC. The hardware requirements are almost 400% higher compared to previous versions; commanding at least 15 Gigs of hard drive space and at least 512MB RAM. Upgrading from Windows 2000 to XP required very little hardware changes and even though there is little difference between Windows 2000 and XP (sound familiar?), the consumer didn't have to break the bank to get the latest and greatest so they bought it. But people who can't pay their bills because of the absurd cost of food and fuel are not thrilled about the idea of spending an extra $100.00 on hardware on top of the $150.00 for the Windows Vista basic operating system. All this is doing is upsetting the consumer and driving them to the likes of Apple (AAPL) just out of spite. The problem is exacerbated for corporations who are struggling with a lack of consumer spending because now you are talking about $100,000 for hardware upgrades alone plus the cost of a new operating system.

Don't think so folks. Not gonna happen. Wouldn't be prudent at this juncture.

Have the people spoken yet? Well, let's see. Dell by itself sold about 300% more XP computers than normal on the last day of availability and even offered; get this; downgrade rights to XP from Vista. You are kidding me right?

The bottom line: Home users and businesses have fully functional XP and 2000 machines with few issues. Vista just isn't exciting enough to warrant the change so a large population of consumers are going to sit this round out. Unless Microsoft pulls a major rabbit out of it's hat during the creation of the next operating system, I just don't see the stock coming out of this six year wagon track. Let Bollinger trading continue.

Disclosure: None

Comments

[Tom B:]

In the future, more people will figure out that even XP is a huge pain in the tush compared to Apple's OSX.

2008 Jul 01 01:16 PM

[OfNoConsequ...:]

Gino it's people like you that perpetuate a bad story. Here's an example: UAC, that much maligned feature of Windows that Apple took great pleasure in saying prevents you from doing anything.

The truth is that if an application is correctly created, the user will see this prompt when they install the application. Once. When the user runs the application, they won't see these "elevation" prompts. Again, this is for applications that are correctly created.
Same holds true for installation of these programs. The user should only see one elevation prompt at setup time. The user approves, and setup gets a free pass to do what it needs to do.

The exception? Oh, that would be iTunes. When I installed iTunes on Vista using Apple's installer I got THREE separate elevation requests. Seems to me that Apple didn't do the right thing for the customer with regard to iTunes on Vista. Yet even Apple wants to blame Microsoft for this. And a thought occurs to me, perhaps Apple WANTED this kind of bad experience, knowing full well that it would be distasteful.

Another example of perpetuating bad information: Vista should operate exactly like Windows XP on older hardware. Vista is a more robust operating system and has more profound requirements, so older hardware from six or seven years ago just won't be up to up to spec for Vista, and the hardware manufacturers were more interested in selling NEW hardware so chose not to create Vista compatible drivers for that old hardware. Yet again, this is Microsoft's fault, right?

Wake up and smell the coffee people, hardware manufacturers create new capabilities into hardware and want to sell it, so they make older hardware obsolete by no longer supporting it.

And it's not an obligation of Microsoft or within Microsoft's power to dictate to these hardware manufacturers what they must support in the form of current drivers for latest operating systems. That kind of dictatorship would be a violation of those very same anti-trust regulations that stopped Microsoft from some other unfair business practices. You can't have it both ways.

Vista is Vista and XP is XP. They are both Windows Versions, one is older and established and the other is newer and suspect *JUST LIKE* Windows XP was when it first came out. Now the originally hated and incompatible XP is the much loved and stable XP and Vista is the new hated and incompatible intruder. Change is the only constant in the software world. You want to live in the past then you can. Nobody said you HAVE to upgrade your eight year old computer to Vista. You just don't want to have to get new hardware. Even I'm not that stupid.

2008 Jul 01 03:08 PM

[OfNoConsequ...:]

Oh, and one more thing. This is in regard to saying consumers having to spend $100 on newer hardware just so they can get Windows Vista on their older box are being driven to Apple.

In this day and age of disposable income no longer being as available as it once was, what makes you think that those same penny pinching consumers who balk at spending $300 for hardware and a a newer OS are joyfully going to spend $1200 for the least expensive iMac?

2008 Jul 01 03:16 PM

[Redsurfer:]

Seems like people were saying the same of XP, until SP2 arrived. I have Vista installed and have been amazed by it's stability, it has never suffered a blue screen . As long as one has the horsepower to run it, and vitually any new machine does, it runs like a dream. As for older machines, do you really think the hardware industry cares if your 5 year old machine is out of date? The auto industry doesn't. As for Apple, I've crashed OS X enough times on my laptop to know that Apple users are brand fanatical, and overstating their satisfaction.

2008 Jul 01 03:36 PM

[Rokjok777:]

Folks, the operating system business is a very tough one with huge barriers to entry. That's why MSFT still has 90+% share. Vista was tested against 22,000 device drivers so it would operate with things like Olivetti printers from 1980....but of course they can't test it against everything in the world so some people find compatability issues. And when you use Vista on a machine with enough memory it's awesome. My machine has 4 gigs....So should MSFT have created an OS to run on old machines or should they have looked ahead with memory rising exponentially and costs always falling? I would have optimised for the machines that will be in people's hands over the next five years....which means lots of memory.
No, their issues right now are using their assets from their traditional software franchise to benefit their emerging online businesses. Right now the company is like two companies working often at cross-purposes. They also have a very hard time innovating because they are so locked down organizationally. Investors reward the operational and financial efficiency and stability, but they could really benefit from GOOG's 20% innovation time for employees.

2008 Jul 01 05:45 PM

[jzjstocks:]

I think its simple, a lot of people are trying to put a high performance engine into a Dodge Neon. I think people have old computers and I was one of them. I LOVE my new Dell XPS with Vista Premium Home Addtion included. I know not eveyone can afford it, but a 5-6 year old computer is probably close to needing a replacement. Sad but true. Vista made networking easy, transfer from the old system to the new one easy....Its simple, my wife and kids could do it. Americans keep their cars longer than any major economy....they should expect issues with those just like their computers. Cellphones Video Game players are the only tech we replace often enough. Get with 2008!

2008 Jul 01 10:01 PM

[fauxscot:]

My only experience with Vista was installing software on a new Dell laptop for someone. I found it sluggish, but pretty. I would not have been pleased with it if I had to use it because of the slow responses.

However, I'm not a luddite, and can certainly afford any hardware I want. That said, why in the world would I change to Vista? I am simply not compelled to do so. I don't NEED any more features at this point, and prudent caretaking of my XP SP2 machine gives me a perfectly suitable computing experience without security issues, preserves my investment in existing software, requires no learning curve, requires NO hardware upgrades, and I am hard pressed to explain why I would want to move to Vista?

Marketing is about motivation. Microsoft can force-feed Vista via new hardware sales, but for the hundreds of millions of people out there like me, they have to provide a reason to change. What is that reason? Eye candy?

I don't hate Microsoft. I personally feel that Gates deserves to be a billionaire. (I was there before the PC and DOS, in the era of CP/M and a zillion, highly technical, obtuse, and unreliable OS's, and with all its problems, Windows has revolutionized computing for the common man.) I also like Apple, and ran the equivalent of Windows 98 on a Lisa in 1986. Microsoft's "innovations" have their origins elsewhere!

Apple's story with OSX is so much more compelling than Microsoft's with Vista. There IS a reason to change. There IS a compelling value added. There IS the ability to try something new and at the same time, preserve XP/PC software on a new, elegant, fast machine.

Vista might not be a "mistake", but it certainly seems to be the victim of a confluence of negative factors in the market, the economy, and the competition. Microsoft has a lot of bright people, and they'll adjust. THey have money and inertia, as well as market share. Something good will eventually come out of Redmond, but the current spectrum of Vista products isn't compelling enough to push me to place an order.

2008 Jul 02 08:54 AM

[Josh Thompson:]

Vista is what an Accountant would could a "big bath writeoff" This means put all the bad news [losses] out at once and then we'll be able to move on. The next version will not have the issues that were all worked out in Vista. That is, in the "big bath writeoff"

2008 Jul 03 12:35 AM

[IT@SmallBiz:]

I have to laugh at all the people saying that you should expect to have to get new hardware to enable Vista to perform so well and be so stable. I find that funny since I can run a fully functional Linux desktop on a computer almost 10 years old and you know what....it's never crashed on me! Imagine that. I also take offense to the author's statement...

"In fairness, we can't really blame Microsoft for getting rid of XP. If they didn't, it would mean virtual ruin for an almost ten billion dollar investment. Anyone would do the same thing in their shoes."

Ah, the old "lets throw good money after bad" attitude. Let's see, Microsoft can stop shipping XP and force people to Vista driving more customers to Apple and Linux. Or, we could say, you know what, our customers say they don't like Vista and want to stay with XP...how about we listen to them and either scrap Vista or fix it. Microsoft has forgotten the top rule of any business...the customer comes first.

itatsmallbiz.wordpress.../

2008 Jul 03 08:02 AM

[steveballmer:]

Now that we have killed the impediment to Vista (XP), sales will skyrocket!

strong buy!

2008 Jul 13 12:35 PM