Saturday, August 1, 2009

Windows 7: So What?

Get ready for the endless hype. Windows 7 is being readied for release. No matter the release of the latest iteration of the Windows franchise presents Apple with an excellent Mac sales opportunity (the hype of Windows 7 won't match the reality), Windows 7 may represent the last major release of a failing product paradigm.

Many of us began our computing life with MS-DOS. The company first lost my interest with the release of Windows. It was no match for the Mac. Windows 95 was exploited by PC OEMS, peripheral makers and developers to drive sales of both hardware and software products. Its release coalesced an odd alliance throughout the industry to make Win 95 a success. The same conditions have not been seen since and may not be seen again.

Personally, I liked Windows NT. It was the most intuitive Windows product I had ever seen. Somehow its successors only succeeded in junking up the works. XP, for all of its issues, has remained in service for eight long years. Vista was a debacle and Windows 7 is being billed as Windows "done right." Even if it is, the PC market itself has passed the point of no return on Windows.

With handheld devices such as the iPhone and iPod touch taking Web share from PCs and netbooks as the only growing segment of the Windows PC industry at this time, there's little room for another version of the Windows OS that isn't developed with the small device market in mind. Google now sees an opportunity for a netbook OS in Windows 7's wake.

The overriding challenge faced by Microsoft with Windows 7 is a challenge of the company's own making. The Windows hardware market has been commoditized in favor of Microsoft and its rich margins on operating systems and the Office productivity suite. As hardware costs have been driven ever lower, the cost of a Windows 7 upgrade is a high percentage of the cost of a new cheap box or netbook. Upgrade sales will not power revenue. The hassles involved in upgrading a box or laptop from XP to Windows 7 also works against a robust OS upgrade market.

Hardware margins for OEMs are razor-thin. Without pricing control in the hardware market, it will be challenging at best for Microsoft to command rich margins for the more powerful versions of Windows 7 from OEMs. In short, unless hardware prices rise, there's little room for Microsoft to sell its higher-priced versions of the new OS.

Expect an effort to push PC prices higher with the release of Windows 7. OEMs will be hawking the virtues of new PCs equipped with Microsoft's latest Windows release and will be looking for ways to increase prices to raise margins. However, competition remains high and Windows PC makers are already challenged differentiating brands in a market that shares one operating system between the makers.

To make Windows 7 more than a modest success Microsoft has to carry the baggage of commodity-priced PCs on its shoulders. It may be the modern-day version of the mythical Sisyphus who was destined to push a rock up a hill only to have it roll down again as he neared the apex. Reworking the orientation of consumers in the Windows PC market from a focus on price to a focus on Windows 7 as a value proposition to justify higher PC prices won't come cheap and won't be easy.

Meanwhile consumers continue the migration from desktops and even laptops to handheld computing devices unabated. We'll see lots of hype. But Windows 7 looks more and more like the answer to yesterday's Windows problems, not the solution that will drive consumers into the personal computing world of tomorrow.

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