News

Reller Assures Financial Crowd on Windows 7 Readiness

• By Kurt Mackie
• May 29, 2009

Microsoft executive Tami Reller fielded questions about the company's Windows business segment on Thursday at the Cowen and Co. Technology Media and Telecom Conference, held in New York City.

The Windows segment represents an important cash cow for Microsoft. The event's moderator, part of the Cowen and Co. investment banking concern, noted that Microsoft's Windows business accounts for 25 percent of the company's revenue, as well as about half of its profits.

Lately, Microsoft's financials have taken a beating, with the company recording a 32 percent decrease in net income in its fiscal-year third-quarter report. Microsoft has attributed the income decline principally to slow sales of new Windows-based PCs in a generally down economy.

Most of the questions at the Cowen and Co. event centered on Windows 7, Microsoft's newest operating system, which is currently available at the "release candidate" testing stage. Reller, who is Microsoft's corporate vice president and chief financial officer, confirmed that the Windows 7 product will be available for the holidays this year. However, she emphasized that Microsoft's final decision on when to release Windows 7 will be based on product's overall quality.

Microsoft officials have been indicating that the company wants to avoid past partner readiness problems, particularly with software drivers, that earlier tripped up the product launch of Windows Vista. Microsoft's chief software architect alluded to this issue at an earlier financial analyst event.

Reller suggested that Microsoft will be prepared, this time around when Windows 7 is released, and that Microsoft has had good communications with its partners. She described some indicators for success with Windows 7.

"If I look at some of the things we've really prioritized in planning for the release, how well we have planned for ecosystem readiness is then on the top of the list. And so I have to point that out, which is just how ready is Windows 7 across the ecosystem. Application compatibility, hardware compatibility -- these are things that our customers want Windows 7 to work with…because that's how customers will judge their ability to deploy and use and benefit from."

Reller claimed that Microsoft has made it simpler to understand which product applies to which market with Windows 7. Microsoft's stock keeping unit (SKU) strategy for Windows 7 was first described back in February, in which six editions were announced.

Reller didn't elaborate, but much of the earlier product confusion happened on the consumer side, particularly with the Vista Home Basic edition, which has resulted in lawsuits. While Windows 7 also will have a Home Basic edition, it's designed for use in so-called "emerging markets." Consumers will typically be expected to buy the more full-featured Windows 7 Home Premium edition.

Reller confirmed that the Windows 7 Starter edition will be designed for netbooks, although any Windows 7 SKU will be capable of running on a netbook, unlike Vista's SKUs. The Windows 7 Starter edition initially was described as being limited to running only three different applications at a time. However, on Friday, Microsoft announced that Windows 7 Starter will be capable of running multiple applications simultaneously. It will have some other limitations, such as the inability to play DVDs, stream music or video, or run the Aero graphics display.

Netbooks represent a stumbling block for Microsoft, which is still trying to figure out the pricing margins on these small, low-cost, laptop-like devices.

Reller explained that the netbooks phenomenon "has been a drag on our overall revenues per license…but clearly it's helped the market overall." She added that while Microsoft "feels very good about netbooks to date," the company is taking a cautious approach about future consumer spending trends on netbooks. Microsoft went from a zero percent attach rate on netbooks less than a year ago to "a 97 percent attach rate" today, Reller said.

With Windows 7 coming this year, many have speculated that Microsoft might provide a tech guarantee program to help boost the sales of new PCs, even though those machines may be loaded with Vista. Reller explained that Microsoft had previously offered such a program during the transition from Windows XP to Vista. The company deferred 50 percent of its revenues as an incentive with certain editions of Windows XP. However, Reller did not confirm similar plans for Windows 7.

"We have not announced the tech guarantee program…which is what we did with Vista," she said. "What I can say is that we were happy with that program with Vista. And with Vista it came before RTM [release to manufacturing]."

Perhaps the most interesting comment Reller made during the 40-minute Q&A was about Vista's adoption in the enterprise. Reller claimed that Microsoft has made "good progress with enterprise deployment of Vista." However, a Forrester Research study published this year suggested that Vista adoption in the enterprise hovers at about 10 percent, even after two years of product availability.