Windows Vista is chugging along on strong PC sales and antipiracy efforts, but Microsoft still faces some grumbling and a long haul in corporate sales.
In last week's earnings announcement, Microsoft reported a 25 percent increase in revenue from the unit that sells Windows for notebook and desktop PCs. Granted, some of that bump came from a crackdown on piracy and because more people are opting for "premium" versions of Vista. Still, the company has now sold 88 million copies of the operating system, a significant tally.
"We have a lot of consumer interest and enthusiasm around it," chief executive Steve Ballmer said in an interview last week.
Vista has picked up momentum in recent months, said Samir Bhavnani, an analyst at Current Analysis West.
"It got off to kind of a rocky start," Bhavnani said. "There was a very vocal minority of people that were kind of ripping into Vista."
On the corporate side, momentum has been harder to come by. Microsoft has finally acknowledged that it won't hit its lofty target of having Vista in use on twice as many business PCs as were running XP in its first 12 months on the market.
"We think the adoption is pretty much at the rate commensurate with past releases," said Neil Charney, a general manager in Microsoft's Windows Client unit. Charney said that the original goal represented an "enthusiastic assessment" of where Microsoft might be able to get. Analysts at the time said Microsoft's prediction was overly ambitious.
The company said it is seeing some positive signs on the business front, notably a rise in the number of businesses signing long-term deals that cover Windows.
"They wouldn't be signing these agreements if they didn't have the intent to [deploy Vista]," said Mike Nash, vice president of Windows product management.
But, while corporations may be planning their Vista move, most large companies that are buying PCs are still immediately reinstalling Windows XP, said IDC analyst Al Gillen.
"That's completely normal behaviour," Gillen said, though it has quashed Microsoft's hopes of getting businesses to move more quickly to a new operating system by developing new tools for running compatibility checks and aiding deployment.
Businesses are "certainly not rushing into it more quickly than they have other Windows [releases]", Gillen said.
Historically, large companies tend to drag their feet on deploying new operating systems, Gillen said, as they don't want to be on the leading edge and prefer to wait as bugs and compatibility issues are ironed out. A catalyst for some businesses could be the first service pack update of Vista, which is due early next year.
Even some consumers and small businesses have been opting for the downgrade path. Dell and other PC makers brought back XP on consumer and small-business machines early in the year, while, more recently, some PC makers have made it easier for those buying Vista machines to return to XP.
Ballmer said that, while there may be a few PCs still on the market that have XP, it's Vista that consumers are buying.
"Yes, there's one or two models you can find someplace in the world of PCs that don't run Windows Vista," Ballmer said. "But the machines that sell all run Windows Vista."
Still, Microsoft recently bowed to concerns from large PC makers and said they wouldn't have to stop selling XP machines in January, giving them instead until the end of June to sell the operating system.
Clearly, though, those consumers opting to go to Windows XP are in the minority. Vista is now on 95 percent of the desktops on retail shelves and Vista-based laptops represent 91 percent of the models in retail aisles, Charney said, citing numbers from Current Analysis.
Strong Vista sales, whether due to Vista's popularity or just a strong PC market, are nonetheless important to the operating system's future. That's because, as Vista's installed base grows, application developers and hardware makers will be more likely to create products that specifically take advantage of the new operating system, which, in turn, becomes a further catalyst for sales.
Microsoft isn't mounting a massive advertising campaign for Vista this holiday season, but said to expect strong marketing from key partners like HP. The software maker has also kicked off an online marketing campaign touting the benefits of combining Windows Vista with Microsoft's Windows Live services, the most significant melding of the operating system and online businesses to date.
The software maker is counting on the upcoming holiday season -- the industry's biggest selling period -- to substantially boost the number of Vista machines out in the world.
Apple's Macintosh does, however, represent a formidable competitor for consumer sales, having gained significant market share at Windows' expense in the past year. And, while this is the first holiday season for Vista, it's been on shelves for nine months, as compared with Apple's Mac OS X Leopard, which made its debut on Friday.
Microsoft said it isn't deterred by Apple's gains, noting Microsoft's own growth and saying that the overall market is expanding as consumers understand all of the things PCs can do as part of the digital life.
"We're excited and our partners are excited about the opportunity for Windows Vista coming up this holiday," Charney said.
While Apple has gained on Windows over the past year, Bhavnani said the company may find further gains tougher to come by unless it offers a major redesign of its products or comes up with a lower-priced laptop.
But Microsoft may also run into challenges from growing US economic uncertainty. Earlier in the year, Bhavnani said he had a more bullish forecast for holiday PC sales.
"Concern about a recession probably weighs on the hearts and minds of some of the consumers," Bhavnani said. "It's going to be a very good holiday, for notebooks especially. But it's not going to be a great holiday season."
