Will update boost Windows 2000 sales?

Service Pack 1 release could cause corporate customers to upgrade
Written by Mary Jo Foley, Senior Contributing Editor

Microsoft reached Monday what many had considered the Windows 2000 Holy Grail: the release of Service Pack 1, the first full-fledged update to the operating system

But as the first customers began downloading the collection of fixes and patches to Windows 2000, some market watchers already were wondering if SP1 would provide corporate customers with an impetus to upgrade.

Here's the reasoning.

Before Microsoft launched Windows 2000 in February, several prominent market-research firms advised their clients to wait until Microsoft issued its first update before deploying the OS, especially on servers. GartnerGroup, for one, suggested that those in need of Windows 2000's capabilities wait at least until Microsoft issued SP1, and possibly, until SP2, before upgrading.

"We think people have been listening to us on this one," said Chris LeTocq, an analyst with GartnerGroup/Dataquest. "If anything, they [customers] have been even more conservative than we thought."

LeTocq says the slow but steady corporate adoption of Windows 2000 is not because of lack of reliability or features in the software. Rather, other factors, like a need for extensive applications testing and the reluctance of customers to move the operating system back onto older hardware, have slowed adoption.

But the result is the same, LeTocq said. "So far, we just haven't seen as much wholesale migration to Windows 2000" as some industry watchers originally had expected.

Summit Strategies analyst Dwight Davis made similar observations.

"SP1 might not be the thing that trips that corporate adoption," Davis said. "It was a cliche among the analyst community that users should wait for SP1. But in the end it was more about a lack of time, inclination and/or motivation to upgrade that held some users back."

Davis said he expects Microsoft's October release of Exchange Server 2000 to push more Windows 2000 sales than the release of SP1 will create. Exchange 2000 is the pending release of Microsoft's messaging server that will be the first to take advantage of Windows 2000 features, especially Active Directory.

MS: SP1 will accelerate adoption Microsoft, for its part, isn't conceding much on the Windows 2000 front.

"We believe adoption's already been pretty good," said Jim Ewel, vice president of Windows Server Marketing. "Gartner and Meta [Group] said it was OK for customers to deploy Windows 2000 on the client without waiting for SP1. For the server, they said wait until SP1. For larger customers, we think the release of SP1 will accelerate adoption."

During Microsoft's fourth-quarter analyst call, company officials did admit that cautious Windows 2000 deployments were the order of the day. By early June, Microsoft said it had sold three million copies of Windows 2000, with the vast majority of those being Windows 2000 Professional client versions, rather than Windows 2000 Server or Advanced Server releases.

On Monday -- two weeks later than it had told beta testers to expect to be able to download SP1 -- Microsoft posted the service pack to its Web site for public download. Over the past weekend, Microsoft made the service pack available on a more limited basis.

As of Monday, Ewel said, customers had downloaded 60,000 copies of the service pack. About 1,000 of Microsoft's 2,000 Premiere corporate customers had downloaded SP1, he added.

SP1, unlike many of Microsoft's previous OS service packs, includes no new features -- only fixes and patches. Microsoft has categorised SP1 as "recommended," not "required". It provides fixes in the areas of setup, hardware and software compatibility, reliability and security.

Microsoft hopes to release two to three Windows service packs per year, Ewel said. These will not be available at retail stores. Instead they will be available for ordering and downloading via the Web.

Nonetheless, some customers aren't thinking about SP1 or SP2. Instead, they are thinking about Whistler and Blackcomb, the .Net successors to Windows 2000, said Gartner's LeTocq.

"The next version of Windows and all this .Net talk of the future means, to some users, that technology change is in the wind," LeTocq said. "Some are wondering if they should wait for the next thing: Whistler." Whistler, due to go to beta this October, is slated to debut some time in the second half of 2001, according to Microsoft.

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