A "modest" price increase for Vista?

Microsoft's Vista boss tells a room full of financial analysts that the high-end version of Microsoft's new operating system will cost a little more, and he won't commit to a ship date. So why is this good news for Windows customers?

Joe Wilcox at Microsoft Monitor has two Vista-related tidbits from a presentation by Kevin Johnson, co-president of Microsoft’s Platforms & Services Division, at today's Microsoft financial analysts meeting. First up, the question everyone wants to know: When will Vista ship?

The big question is will Microsoft meet its January 2007 ship date. Kevin's response: "We will ship Windows Vista when it's ready." Kevin said there was nothing to indicate Microsoft wouldn't make its date, but that Microsoft would assess progress "milestone by milestone." The next milestone will be Release Candidate 1, which is expected this quarter. Bottom line: He didn't commit to the January 2007 date, which makes it absolutely uncertain. Microsoft may or may not make it. As I've said before, from a sales cycle perspective, January might as well be July.

When you couple thisThese are not the confident noises that a smoothly purring engine makes hesitancy with Bill Gates’ remarks in South Africa a few weeks ago ("I'd be glad to delay it"), I think it’s safe to say no one in Redmond really expects Vista to be ready to ship in volume in January. These are not the confident noises that a smoothly purring engine makes.

And how much will it cost? Microsoft isn't ready to publish its price list yet, but Johnston dropped at least one hint:

… Kevin confirmed that Microsoft would charge more for Windows Vista Ultimate, and presumably Windows Vista Enterprise, than current Windows XP pricing. He described the increase "modest." Maybe, but it's also the first Windows price increase in more than a decade. From one perspective, Microsoft should be able to charge for its products. From another perspective, Windows is a monopoly, which isn't necessarily subject to the pricing effects of competition, which is one reason consumers pay for Windows XP about what they did for Windows 95. During the same time span, the pricing of essentially all other PC components decreased as the result of competition and economies of scale related to volume.

I disagree with two conclusions in this part of Joe’s otherwise excellent analysis.

First, the presumption that Vista Enterprise will get a price increase equivalent to the one for Windows Vista Ultimate Edition  is questionable. Vista Enterprise will be available only to corporate customers who sign up for Microsoft’s Software Assurance (SA) program, and SA hasn’t exactly been a rousing success. One recent Gartner report estimates that “only half of Microsoft's customers with more than 1,000 desktops worldwide have purchased SA for Microsoft Office or the Windows platform, and only 65 percent of this clientele are renewing the maintenance program.”

Microsoft, of course, would like that number to be more like 90 percent. If the goal is to increase adoption, a price increase doesn’t seem like the smart way to do it, especially given the bad feelings that a lot of enterprise customers are going to feel having purchased three-year SA licenses for Windows and Office in September 2003 with the assumption that they were buying upgrade rights to Longhorn and Office 12. Oops.

I have yet to hear of a single corporate customer who is itching to deploy Windows Vista as soon as it comes out. Many are talking of waiting for at least a year before even thinking of deploying Vista. That gives those corporate customers a lot of pricing leverage with Microsoft.

As for the second point, I suppose it’s fair to compare the price for Vista Ultimate Edition with the highest price Microsoft charges retail customers for Windows XP today. If the price tag for Ultimate is higher, then yes, that’s a modest price increase. But it’s certainly not an apples-to-apples comparison. Today, if you want a high-end version of Windows, you can get XP Professional, with its corporate networking features, or Media Center Edition with home entertainment features. But you can’t get both. As I’ve pointed out before, Windows Vista Business Edition matches up neatly with XP Professional, and Vista Home Premium is the logical successor to XP Media Center Edition. If those two versions are priced the same as or even a little less than their predecessors and Ultimate Edition is only a small premium over either, then Windows users will actually be getting a better deal with Vista.