Microsoft’s Competition for Windows 7

Ignore his upfront needling against straw-man “Mac fanboys”, and Joe Wilcox makes a good point in this piece about what Microsoft’s competition is for Windows 7:

Windows 7’s biggest competitor will be Windows XP, which runs on about 80 percent of PCs, according to combined analyst reports. Microsoft’s first challenge will be getting XP users to move up to Windows 7. Mac market share was 7.6 percent in the United States in the second quarter, according to IDC. (Gartner and IDC should release Q3 preliminary numbers in the next couple of days.)

(Those numbers just came out, and the Mac numbers are up year-over-year.)

Mac share is inconsequential to Microsoft compared to Windows XP. My prediction: Windows 7 will slow Mac share gains, which already declined over the last three quarters, according to both Gartner and IDC.

We’ll see about that prediction, but I think Wilcox is spot-on that Windows 7’s primary competition is XP. Microsoft really does worry first about raw market share, and XP is the market leader by a long shot. Such comparisons against the Mac are apples-vs.-oranges, though, because Apple isn’t concerned about overall market share. They’re concerned about sales only in the middle-to-high end of the market, and hardware profit share. Apple sells computers, not OS licenses, and their share of the profits in the U.S. computer market is somewhere north of 25 percent. (Maybe way north.) But so even if it’s true that Microsoft isn’t concerned with Apple’s growing market share (which indeed is just a few single percentage points), is there any doubt that PC hardware makers are very much concerned about Apple’s growing profit share?

But so here’s a thought: What if the reason why most PCs are still running XP has nothing to do with whether Vista is “good” or “bad”, but rather is the result of indifference on the part of whoever owns these untold millions of XP machines, be they at home or in a corporate IT environment? I.e., that switching to Vista, regardless of Vista’s merits, seemed like too much work and too much new stuff to learn; that the nature of the PC as a universal commodity is such that most of them belong to people who value “old and familiar” more than “new and improved but therefore different”. If that’s the case, Windows 7 may not do any better than Vista. Perhaps Windows 7’s competition isn’t so much XP as it is apathy.

Put another way, the idea that Windows 7’s quality will spur upgrades from XP is predicated on the fact that the people holding out on XP make their computing choices based on quality. But if that’s the case, why exactly are they still running Windows XP? Why are they still using Internet Explorer? I think it’s hard to overstate the fact that, with the explosion of the Internet as a universal communication medium, hundreds of millions of PCs have been purchased around the world by people who don’t care about computers or software at all.

Maybe that’s way off. Maybe the problem with Vista is really just the general mainstream perception that it was a dud release, and if the idea spreads that Windows 7 is a good release it’ll trigger an avalanche of upgrades from XP. That’s really the best case situation for Microsoft, and I think it’s entirely plausible. The truth is that no one really knows why Vista fared so poorly in the market. It defies a simple explanation.

It’s worth noting that Apple isn’t dampening expectations regarding Mac sales in the run up to Windows 7’s debut next week. Quite the opposite: Peter Burrows at BusinessWeek yesterday published an interview with Phil Schiller wherein Schiller makes the case that Apple will benefit from Windows 7:

The Cupertino (Calif.) company sees Windows 7 as its best chance in years to win over longtime PC users. Millions of PC owners are expected to head to stores over the next year to replace their aging machines. The surge is expected to be unusually large because Microsoft’s last operating system, Vista, was so poorly reviewed that many people simply stuck with machines running the eight-year-old Windows XP system.

In the coming weeks, Apple is expected to hit those computer buyers with advertising aimed at luring them to its Macs. It will likely make the case that Macs are less susceptible to viruses and are best suited to its popular iPods and iPhones. And look for it to poke fun at Microsoft for making XP owners go through an arduous process to upgrade to Windows 7 — one that includes backing up all their files to an external drive, reformatting their PC, and then reinstalling all of their old programs, assuming they still have the CDs. “Any user that reads all those steps is probably going to freak out. If you have to go through all that, why not just buy a Mac?” says Schiller.

You might be tempted to argue, Well, of course Phil Schiller would say that, he’s Phil Schiller. That’s true, insofar as that even if Schiller believes that Windows 7 is going to adversely affect Mac sales, it’s not like he’d admit so in an interview. And clearly, in obvious ways, it would be better for Apple if Windows 7 were garnering bad reviews. But the gist of Schiller’s remarks isn’t that he expects the Mac to hold its own, but rather that he expects the Mac to continue to thrive. Why set such an expectation if he didn’t believe it?

This gets to the heart of the weird, orthogonal, indirect competition between Windows and Mac OS X. Yes, they compete. Yes, it is both fair and inevitable that Windows 7 will be compared against Snow Leopard in every review. But Microsoft is selling licenses to an OS, the majority of them for low-end PC hardware. Apple is selling computer hardware, none of which is in the low-end market.

So it’s entirely possible that Windows 7 will be good for both Microsoft and Apple. The Mac can continue to gain a few percentage points per year in the higher-profit premium range of the market, while at the same time Windows 7 could grab a majority share of the overall market, mainly at the low-cost high-unit-sale end of the market.

In fact, that’s pretty much exactly how I expect it to play out.

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