Yesterday Microsoft delivered revenues for its fiscal fourth quarter that were around $1 billion short of what analysts had expected. The $13.1bn in revenue was 17% down of the year-ago quarter.
Hardest hit of Microsoft's business units was the core Windows client business, where revenues fell by 28%. But what's dragging down revenues? "Windows" or "Vista"?
If it's Windows, Microsoft is in trouble. There's no doubt that Windows as a platform is less relevant that it was a year ago, but it's a long way off being irrelevant. But the problem for Microsoft is that as hardware prices have fallen dramatically over the past decade, it's left the cost of Windows as an increasing portion of the price of a PC. The retail price of a full version of Windows Vista Ultimate is well over $300 (unless you shop around), which is just crazy. Sure, as several readers pointed out to me the last time I bought up price, it's not as expensive as an application like Photoshop CS4, but anyone who buys an app like Photoshop is looking to make money from the app.
Add to that the fact that Microsoft is under pressure from Apple and the Mac OS. It used to be that people needed Windows, but now it's more a case that Microsoft needs people to think that they need Windows. I'm not predicting the end of Windows, just the fact that it's less relevant today than it used to be. $100 is a lot of money to spend on a platform to run a web browser, which is what most people need.
But the drag could be just Vista. After all, people loved XP, and people seem to love Windows 7. Maybe it was just the Vista name that was toxic. Even Microsoft tried to distance itself from the name, dropping the "V" word from its advertising a long time ago. Maybe the solution is just to replace Vista and Microsoft's cash cow goes back to doing what it did best.
Putting the economy on one side for a moment, I think that Vista is dragging Microsoft's revenues down. After all, a lot of people felt burned by the OS. Also, we've been talking about Windows 7 got a few fiscal quarters now, and it's likely that a high proportion of people out there who buy PCs now that a new OS is in the pipeline. That kind of thing can and does put a dampener on sales.
It's not all bad news for Microsoft. Despite the huge shortfall in revenue, earnings were up a bit, which is a sign that Microsoft is actually rapidly adjusting to life with lower revenues.