Windows 7 Faces Gun Barrel Of Tough Economy

Microsoft on Thursday finally revealed what it will charge for Windows 7 upgrades and retail versions. Partners say the pricing is a bit higher than they expected but shouldn't be a problem as long as Windows 7 doesn't create the types of headaches for users that Windows Vista did.

The bigger issue in partners' minds, however, is how the frosty economy will affect Windows 7 adoption.

In Windows 7, Microsoft has worked out the kinks that doomed Vista, but the software giant must now deal with the fact that companies are avoiding capital expenditures like the plague. Many consumers and businesses will upgrade to Windows 7 through new PC purchases, but they're not likely to make any major spending decisions until the storm clouds lift. All of this suggests that Windows 7 may be a tough sell, at least for the foreseeable future.

"The trend has been that most people wait to upgrade with the purchase of a new PC, but many businesses are hesitant to buy new PCs right now," said Neil Pearlstein, president of PC Professional, an Oakland, Calif.-based Microsoft Gold Partner. "At some point in time there will be a spike, but I don't see that happening in the next six months."

To entice consumers to spend, Microsoft on Friday will launch its Windows 7 Upgrade Option Program, which lets customers that buy Vista PCs upgrade to Windows 7 free of charge. Microsoft is also offering a stand-alone Windows 7 Home Premium Upgrade for $49.99 and a Windows 7 Professional Upgrade for $99.99 until July 11.

"There's no better time to buy a PC than right now," said Brad Brooks, corporate vice president for Windows Consumer Marketing, in a video posted Thursday to Microsoft's PressPass Web site.

The spending slowdown has put Microsoft in a defensive posture, and the company has been trying to chip away at this by warning companies of the consequences of pulling back too much on IT. Microsoft recently commissioned a Harris Interactive study that suggests companies that don't maintain a sufficient level of IT spending risk falling behind competitors once the economy does recover.

Windows 7 pricing won't be a major issue in the channel since many businesses will get it through volume licensing. Still, there's a fundamental disconnect between Microsoft's message and the one that solution providers are sending to their customers.

Next: Microsoft's Accelerated Sales Cycle

Travis Fisher, executive vice president at Inacom Information Systems, a Salisbury, Md.-based solution provider, advises clients to adhere to a five-year life cycle when it comes to buying new PCs, while Microsoft constantly pushes customers into a three-year software refresh cycle.

Fisher sees this as evidence of an identity crisis within Microsoft as it tries to maintain its status as a growth business as opposed to a large, established industry leader. By attempting to speed up the natural process of upgrades, Microsoft is putting its solution providers in difficult positions, he added.

"Unless there's a killer feature that companies must have, what's the point?" Fisher said.

Given the frustrations many partners and customers encountered with Vista, some feel Microsoft should have come in with lower Windows 7 price points. "The pricing looks a bit high, considering the current economy and public consensus about Vista," said Daniel Duffy, CEO of Valley Network Solutions, a Microsoft Gold partner in Fresno, Calif.

Of course, the channel would always love to see Microsoft offer price cuts, but realistically, that's never going to happen for Windows, said Todd Swank, vice president of marketing at Nor-Tech, a Burnsville, Minn.-based system builder. "We'd love to see more price parity between large OEMs and what we pay, but the fact is that if you want to sell Microsoft you're going to have to accept their terms," Swank said.

There are Microsoft partners who believe XP Mode in Windows 7 is exactly the type of feature that will convince companies to upgrade. XP Mode, a virtual Windows XP SP3 environment running under Windows Virtual PC, ensures compatibility with XP applications and addresses the No. 1 migration barrier for firms that heard the Vista compatibility horror stories and chose to stay with XP.

XP Mode does come with some strings: It's only available with the premium Windows 7 Professional and Ultimate SKUs and it only runs on PCs with at least 2 GB of RAM and 15 GB of free hard-drive space. XP Mode also won't run on anything other than virtualization-enabled processors from Intel and AMD.

But despite the added costs, XP Mode looks poised to give many companies justification for spending on new PCs despite the ongoing economic downturn, Swank said.

"They're a little more expensive, but with Windows 7 Professional and Ultimate, you're getting XP Mode, and that's a great benefit to customers that justifies the added cost," he said.