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9/29/2006
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Running The Numbers On Vista

With every month that ticks by before Windows Vista arrives, Microsoft needs to fill the white space with reassurances to companies that an upgrade will be worth their time and money. On Friday, Microsoft released new total-cost-of-ownership figures--the overall price tag of installing, running, and supporting its upcoming operating system--that show the best-managed IT shops could save as much as $340 per PC each year they run Vista, compared with today's Windows XP system. Any payback numbers

With every month that ticks by before Windows Vista arrives, Microsoft needs to fill the white space with reassurances to companies that an upgrade will be worth their time and money. On Friday, Microsoft released new total-cost-of-ownership figures--the overall price tag of installing, running, and supporting its upcoming operating system--that show the best-managed IT shops could save as much as $340 per PC each year they run Vista, compared with today's Windows XP system. Any payback numbers released by Microsoft should be taken with a grain of salt, of course, but it's worth taking a look behind the numbers.According to a study of 500 companies in its early-adopter beta-test program for Vista, Microsoft figures about 70% of IT departments are cost centers, relying on manual software upgrades and management of PCs--a.k.a. sneakernet. About 28% of IT shops use some automation; they still cost their companies money, but they're more efficient. Just 2% are what Microsoft calls "rationalized"--using lots of automated software rollout tools and helping build business rather than just sapping costs. So here's the math: Typical IT shops--the 28% that are neither great nor lousy--running Windows XP with Service Pack 2 incur IT labor costs of $542 per PC per year to manage Windows. That includes the cost of PC management, help desks, and installing Microsoft's monthly security patches. By moving to a "rationalized" IT environment--the 2% making widespread use of automation tools--and running Vista, companies can incur a cost of about $200 per PC each year for a net savings of $342 per machine. Brad Goldberg, a general manager in Microsoft's Windows group, points to Vista technologies including a new "application compatibility toolkit," more out-of-the-box device drivers, and Microsoft's Virtual PC software for running legacy apps as enablers of the shift from high cost to low touch. Sounds great, right?

Not everyone's so sure. By moving to a PC environment where end users can't install their own software and IT has strict policies for updating operating systems and applications, companies can extract maybe $200 per machine from the annual cost of running Windows, says Michael Silver, an analyst at market research firm Gartner. "But Vista alone doesn't get you there," he says.

Gartner groups IT shops into three buckets: "unmanaged," "typically managed," and "well managed." A well-managed shop might incur a cost of $50 per PC for a Windows upgrade vs. $200 to $400 for an unmanaged one. Tack on another $150 for the Vista license if you don't have Software Assurance. Microsoft's argument is that as companies move from XP to Vista, they'll also be able to change their IT practices by taking advantage of Vista's management features. But that's not a slam dunk, and it has a lot to do with company culture and management's point of view, says Silver. "I'm not going to say we agree with their numbers."

Others are even more skeptical. "Why even ship it?" says David Temkin, chief technology officer at Laszlo Systems, a maker of development tools for Web apps that admittedly competes with Microsoft. According to Temkin, Microsoft should forego a launch, swallow the cost of developing Vista, and reinvest the marketing and support money into future versions, much as Apple Computer did when it switched to developing Mac OS X in the '90s.

That kind of talk is the equivalent of heckling from the bleachers, of course, and an idea Microsoft dismisses out of hand. But it underscores the two big questions on everyone's mind: whether Microsoft will make its latest deadlines of releasing Vista for businesses customers in November and for consumers in January, and whether most people will care.

"We feel very good" about the deadlines, says Goldberg. In fact, he says Microsoft expects companies to adopt Vista twice as fast as the last two releases of desktop Windows. By January, Microsoft expects 60,000 business PCs running Vista by companies in its early-adopter program. A year after its release, the company expects twice the percentage of business customers running Vista as had moved to previous versions. A year after the respective launches of Windows 2000 six-and-a-half years ago and Windows XP in 2001, the percentage of the installed base that had upgraded could be measured in single digits, according to Goldberg. Working on an assumption of 325 million business PCs worldwide today, the Vista ramp looks sharp.

That's partly borne out by the results of an InformationWeek research survey this month of 672 business technology managers. Of the companies that answered our Web survey, 39% plan to upgrade to Vista within the first year of availability, as my colleague John Foley reports. The No. 1 reason to upgrade? Not surprisingly, security. We'll publish a full report on the survey findings Oct. 9.

The findings look good for Microsoft, barring any more delays in the Vista schedule. Two months ago, the top executive in Microsoft's Windows group allowed a little more wiggle room. "If it's not January, is that material?" Microsoft co-president Kevin Johnson said to financial analysts at a meeting in Redmond, Wash., July 27. "I don't think it's material." Microsoft's forecast is that desktop Windows will yield between $14.3 billion and $14.5 billion in revenue for the current fiscal year, which ends next June. That represents 8% to 10% growth compared with last year. Johnson noted that hitting the January date wasn't crucial to meeting those sales goals.

According to Silver, a possible request by the European Union for changes to Vista could lead to more delays, especially if Microsoft decides to deal with just one code base in the U.S. and Europe. In addition, PC makers have been pushing for a spring launch, he says. "January's a lousy date to sell PCs."

Microsoft has left the door open for skeptics through the continual delays in Vista's schedule. But whether the new Windows takes off or disappoints, it's clear the sales job to CIOs has changed substantially since the last time it went through this. Now costs are top-of-mind, and features come a distinct second. "It's a very different conversation we're having with customers," says Goldberg. "There's a real opportunity for us to help organizations drive cost out from an IT-labor perspective." It's not the most exciting message for PC users, but one that could warm the hearts of budget makers.

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