Windows Vista Effect

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Bulls Perspectives Feeling Bullish? Be the first to explain why this would make a good investment See all Bears Reasons Bears Perspectives Improved security against hacking 0% agree Improved security against hacking Difficult to hack implying a reduction of free advertisement by individuals to their parents, friends... = Individuals will have problems to hack the system and enter a pirated serial number. The vaporware generated by the previous OS will not be so big today. Microsoft... read more View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Ish S. Dugal Jane Jiang Related Articles Microsoft (MSFT) Novell (NOVL) Hewlett-Packard Company (HPQ) Red Hat (RHT) RealNetworks (RNWK)

This article describes a concept which could impact a variety of companies and industries. The article lists companies that could benefit or be harmed by the trend. To see what companies and articles reference this concept page, click here.

Operating systems (OS) have been an integral part of the personal computer industry since the early 1980s. Windows Vista is the newest computer OS from tech industry giant Microsoft (MSFT), and it could have a rippling effect on the future of the US $211 billion packaged software industry. Vista is expected to inherit a monopolistic position in the $13.3 billion dollar client OS market from its predecessors, which dominated in previous years with a 92% market share.

Windows Vista boasts a sleeker interface, but the crux of the matter lies is in the bundled features.

click to enlarge

Vista contains hundreds of upgrades, but a few deserve special attention--these have been aggressively positioned to eliminate the need for additional providers of computer services (including computer security, open source software services, and multimedia & entertainment software). Bundled Vista firewall and anti-spyware applications may take a big bite out of independent PC security vendors' market share. By providing Vista users with the convenience of having security features pre-installed with the OS, Microsoft is attempting to to cut away customer demand for independent PC security vendors--resulting in reduced revenues, gross margins, and profits for these PC security companies. The future profitability of these companies may depend in large part on the speed of Vista adoption.

For other companies, Vista popularity would be a boon. Providers of the PC hardware, microprocessors, and the memory chips required to operate Vista may see demand for their products surge and revenues accelerate with increased Vista adoption.

[edit] Factors influencing Vista adoption

[edit] OEM Pre-installation Monopoly

Vista’s core driver remains its pre-installation in new PCs, where it holds a monopoly. PC original equipment manufacturers (OEMs) are Microsoft's most important operating system distribution channel, representing approximately 80% of total OS sales. (The remaining percent comes from retail and licensing fees). Over time, Microsoft has largely been able to maintain its pricing structure. Microsoft’s share of each PC sale is now at a very meaningful percentage of approximately one-fourth (25%) or more of low-end PCs (compared with 7% in 1994). Therefore, Microsoft is able to exert a significant amount of influence on PC OEMs and distributors dependent on its proprietary operating systems. Only time will tell if such influence is sustainable for Microsoft.

[edit] Emerging Markets and Piracy

The slowing growth of PC sales in most developed countries could mean a slowdown in Vista adoption if Microsoft cannot make up the difference in its emerging markets. Emerging economies are expected to account for more and more of the growth in PC unit shipments. Based on unit shipment data provided by a leading research firm, emerging markets eclipsed developed regions and contributed 53% of worldwide PC unit shipment growth in 2005. Unfortunately for Microsoft, the company does not typically get paid on PC sales in emerging markets due to pervasive piracy . Although Microsoft has taken aggressive precautions against piracy with its Vista release, it is unlikely that the company will be able to stop piracy of its software altogether. In China, where 90% of software is pirated and a copy of Vista can be bought on the street for $1, a Windows Vista Chief Distributor disclosed to reporters that only 244 copies of the OS had been sold two weeks after its release on January 19th, 2007. A looming question remains for Microsoft: how can it stop piracy of an expensive operating system in a GDP per capita of less than US $5,000 (in many cases, even less than $1,000) when pirating is so easy and so phenomenally cheaper?

Vista Ultimate, one of the 6 "flavors" of Vista released.

(For more on Microsoft's efforts to stop piracy, please see the Microsoft article.)

[edit] Market Segmentation

In an attempt to increase Vista adoption, Microsoft is trying to segment the market for Vista by selling six different versions (SKUs) of its newest operating system. There are two flavors of Vista made for the consumer, “Home Basic” and “Home Premium.” The latter, priced new at around $239, is focused on the needs of the computer savvy user; “Home Basic” is cheaper at $199, and caters to the more casual user. In addition, Microsoft is releasing a Vista “Starter Edition” which delivers a localized, reduced-function version of the company’s core OS product line. Starter Edition's lower price points are made to appeal specifically to emerging economies and large enterprises.

[edit] Who Stands to Lose

Symantec (SYMC) and McAfee (MFE), two notable independent security software vendors, are the primary target of the Vista arsenal. Vista is providing users with free security features and functionality that has traditionally been purchased from independent companies. It is important to note that Microsoft has aggressively “bundled” several companies into bankruptcy, most notably former dotcom darling Netscape Communications. Although leading security vendors are in a stronger position than Netscape, they may have a long battle ahead of them.

RealNetworks (RNWK) with its RealPlayer product, and other independent media player software vendors, will need to counter the threat of a new and improved Windows Media Player 11 or be further sidelined.

Apple (AAPL), or other alternative OS developers may also feel the negative impact of a new OS from Microsoft. Apple (AAPL), which competes against Microsoft with its MAC OS, has been quietly stealing market share (currently around 4%) from the incumbent monopolizer over the last few years. The advent of Vista could thwart the new MAC OS X’s progress. However, Apple's aggressive marketing tactics, continued robust sales of iPod and iPhones, and its valued position as an undesirable target for computer viruses may obfuscate any threats it faces in the OS market.

Red Hat (RHT) and Novell (NOVL), two leading open source software and service vendors, may see revenue growth numbers shrink if fewer companies move to a Linux platform. Linux, an open-source OS that can be downloaded for free, requires significant implementation and support services to be deployed and maintained successfully. (However the suppliers of the 'Ubuntu' version of Linux are beginning to succeed in making Linux easy to use for the general user, and OEMs like Dell (DELL) are experimenting with offering Ubuntu Linux as an alternative to Vista with some systems.)

[edit] Who Stands to Gain

Microsoft (MSFT) itself will be the greatest beneficiary of Vista adoption. Vista, like its predecessors, will be shipped embedded in all new PCs. Although MSFT has a diversified revenue mix, nearly 50% of its profits are a result of its OS software. Additionally, with Vista the company will be implementing a Software as Service model, which may allow it to gain success in emerging economies , where its software had previously priced itself out of the market. All said, successful adoption of Vista can favorably drive the bottom line at Microsoft (MSFT).

Dell (DELL) and Hewlett-Packard (HPQ), two leading PC manufacturers, as well as Intel (INTC) and Advanced Micro Devices (AMD), the leading PC microprocessor companies, may also benefit from the success of Vista . PC manufacturers (and the makers of embedded microprocessors) should see an increase in demand for their products as some users choose to buy new machines because of Vista.

NVIDIA (NVDA) and ATI Technologies, two leading graphics chip makers, may benefit because Vista has emphasized its enhanced graphics capabilities. These graphic and memory card manufacturers could see aggressive customer demand for additional products. On the memory side, the most obvious beneficiary will be those providing the next-generation hard disk that is required to make Vista perform well. These drives, called hybrid hard disks, contain a few gigabytes of memory for instant-on and other operating system enhancements. Vista talks to these special disk drives directly. Leading manufacturers include Samsung Electronics and Seagate Technology Holdings (STX).

Activision (ATVI) and Electronic Arts (ERTS), two large computer gaming companies, may also see an upswing in sales due to more computers having enhanced graphics capabilities. Often linked solely to game consoles, many video game developers have robust PC-game sales. Vista-driven sales is one upcoming benefit that much of the market has not accounted for.