Windows 7: Looking Back On A Pivotal Year For Microsoft

Turner and other Microsoft executives at the conference suggested that Microsoft’s renewed push into the consumer space will be boosted by a series of Microsoft retail stores set to open in the fall. Despite Apple’s relatively small portion of the overall PC market – analysts have pegged it in the realm of 7 percent – Microsoft’s executives often act as if Apple were a more directly threatening competitor.

“Apple’s share, globally, cost us nothing,” Ballmer insisted to the room at Microsoft’s Financial Analyst Meeting on July 30. “You can’t be high priced. That doesn’t get us to the high volume that we aspire to.” That meeting also featured a chart by Microsoft claiming that 18-to-24-year-olds perceived Microsoft products as having a better value than those produced by Apple.

As the launch date for Windows 7 approached, though, Ballmer seemed to couch his earlier bravado with more nuanced statements about the operating system’s probable affect on the industry.

“There will be a surge of PCs, but it will probably not be huge,” Ballmer told a news conference in Munich, Germany, in early October. In a 29 September speech during a company event in San Francisco, the executive also said that some business customers would likely deploy Windows 7 in a more piecemeal basis.

On 22 October, Microsoft launched Windows 7 at a high-profile event in New York City headlined by Ballmer. During the launch, Ballmer discussed Microsoft’s “three screens and a cloud” strategy, which would see Windows services ported through the cloud onto multiple devices ranging from PCs and smartphones to televisions.

In the weeks following the release, early indications suggested that Microsoft managed to avoid a Vista-calibre failure: A report by NPD Group said sales of the operating system had exceeded those of Vista by 234 percent, thanks at least in part to a combination of widespread discounts and a fairly large marketing push. Those discounts, though, weighed down on Windows 7’s gross revenue, which was 82 percent higher than for Vista.

In a 5 November statement, NPD Group analyst Stephen Banker said that “in a slow environment for packaged software, Windows 7 brought a large number of customers into the software aisles.” Meanwhile, PC sales spiked 95 percent over the week previous to the operating system’s rollout. By comparison, Vista’s release caused a 170 percent bump in PC sales.

At the same time, daily tracking by Net Applications showed Windows 7 gaining market share, starting at 1.99 percent on 22 October and reaching 3.67 percent by 1 November. At that point, according to the statistics firm, which collects data from around 160 million visitors per month to its clients’ websites, Microsoft’s various operating systems held 92.52 percent of the overall market.

But the cutting of an additional 800 employees from Microsoft’s payroll, completing a 5,000-layoff cycle announced earlier in 2009, indicated in stark terms the economic doldrums still affecting the tech industry. In a statement to eWEEK at the time, a Microsoft spokesperson said those “additional headcount adjustments” were a consequence of “continuing to manage our business closely.”

Adding to that stark picture, Microsoft reported on 23 October that its revenues for the first quarter of fiscal 2010 had declined 14 percent year over year from 2008, to $12.82 billion (£7.98bn). At the same time, operating income, net income and diluted earnings fell 25 percent, 18 percent and 17 percent, respectively, year over year. That decline was exacerbated by Microsoft not including revenue deferred due to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before 22 October, in which case the revenues rose to $14.39 billion (£8.95bn), representing a much shallower 4 percent decline.

Analysts also suggested that a Windows 7-pushed tech refresh would kick to life sometime in 2010.

“It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through early 2013,” Katherine Egbert, an analyst with Jefferies & Co., wrote in a 12 October report. “We expect new hardware purchases to precede the software upgrades by about 6 months.”

In a 23 October earnings call, Microsoft Chief Financial Officer Chris Liddell said the company was still “reasonably cautious” about the prospect of a tech refresh. Other Microsoft executives have suggested to eWEEK that sales of Windows 7 will ultimately be in line with a rise in PC purchases through 2010 and beyond – tying in Microsoft’s fortunes tightly with those of the larger economy.

In other words, how Windows 7 will ultimately fare – not to mention face off against any upcoming operating systems such as Google’s Chrome OS – is something that will be decided in 2010 and beyond.