Microsoft, Marketing Insanity and Windows Piracy

Thursday marks Microsoft’s release of the Windows 7 operating system. This is an opportune moment to reflect on Microsoft’s marketing strategy because its like they want me to pirate Windows. And I feel the need to rant.

A Brief History of Windows

Windows 3.0 was released in 1990 in an attempt to stave off the successful (but expensive) Macintosh. And it certainly ticked off the boxes (from a marketing perspective at least).

Various incarnations of Windows 3.x followed over the next 2-3 years. Probably the most interesting thing is that Microsoft only stopped selling Windows 3.x licenses in November 2008.

Windows 95 (“Chicago”) in 1995. What some don’t realize is that Windows 95 was in many ways technically superior to MacOS, most notably:

  • Pre-emptive multitasking rather than cooperative multitasking. Rather than waiting for an application to yield, the operating system could interrupt. Nothing new to UNIX but certainly new to Windows and MacOS;
  • Virtual address spaces. Macs at the time had to allocate memory slices to programs. Win95 programs could simply ask for more memory. Depending on your hardware, this could be physical RAM or hard disk space. The OS could swap between them while the application was running too. Again, nothing new for UNIX.

The biggest impact of Windows 95 was that it killed off non-Microsoft DOS.

Another notable feature was DirectX, Microsoft’s gaming API. This wasn’t part of the original release. It quickly supplanted OpenGL as a gaming API in the burgeoning world of hardware acceleration to the point that even stalwart advocates like id software are abandoning it but DirectX was a commercial success and the majority player almost a decade earlier.

Separately Windows NT had sprung into existence to break the connection between Windows and the DOS shell. Windows NT 4.0 in 1996 was probably the first version with broad market success, targeted at businesses.

The next notable release was Windows 2000, the successor to the venerable Windows NT 4.0, as it began the convergence of the NT and 9X (including ME) families. This culminated in 2001 with the release of Windows XP.

The Wintel Alliance

The rise of Windows and decline of IBM’s leadership of the PC coincided with marriage of convenience between Microsoft (Windows) and Intel or “Wintel”. This has never been a comfortable arrangement but it is based on a fairly simple principle:

Most people only buy operating systems with new computers.

That conventional wisdom has since been disproven by Apple but more on that later.

The dark side of this marriage is planned obsolescence. Chipsets changing, RAM standards changing, CPU sockets changing and so on. Some of it’s necessary and understandable. Savvy consumers have long figured out that buying high quality (and high cost) components for their PCs for upgrades down the line is a waste of time and money.

The biggest threat to Intel came from the disaster that was (and is) Itanium, AMD cutting them off at the knees with the hugely successful Athlon line of processors, AMD’s x86-64 instruction set putting the final nail in Itanium’s coffin and the disaster that was the Pentium 4. I say “disaster” but it was mixed. The gigahertz marketing campaign against AMD was successful. As a technology it was a disaster.

Why do I say that? Because eventually it was abandoned as Intel returned to the Pentium 3 architecture with what became the hugely successful Pentium M, Core Solo, Core Duo and Core 2 Duo releases.

A New Millenium

For those of us who purchased (and typically built) PCs in the 1990s, it was worth upgrading your PC every year or two. The newer PCs were just that much better. The market while large was much smaller than it is today to the point where Microsoft could count on a rapid turnover in PCs and a low of purchases from first-time PC owners.

As Joel Spolsky noted in How Microsoft Lost the API War:

Microsoft just waited for the next big wave of hardware upgrades and sold Windows, Word and Excel to corporations buying their next round of desktop computers (in some cases their first round). So in many ways Microsoft never needed to learn how to get an installed base to switch from product N to product N+1.

In the last 8-10 years PCs have gotten better but for increasingly more people it’s enough. My father has an old PC cannibalized from parts I bought in 2002. It runs a (modern) browser, Word and Excel and that’s all he needs. There will be absolutely no need to upgrade that PC or purchase a new one until it dies. This is the case for most consumers and businesses.

So rather than buying a new operating system every 2-3 years, the music stopped playing when Windows XP was the OS du jour. Everyone sat down and they haven’t moved since.

Interestingly, Office suffered the same problem at roughly the same time. Office 97 was basically feature complete for 95%+ of all users. Every version since has been an attempt to get businesses to buy it for it’s enterprise tinselware. Sure there have been minor improvements but overall, Office 97 is it.

Fighting Fires

As the scope of Windows has grown over the years, Microsoft has been fighting fires to defend its franchise that include:

  • Java: “run anywhere” (well, write once, test everywhere) was a threat to the Windows lock-in;
  • Games: OpenGL also threatened the lock-in since DirectX is Windows-specific;
  • Developer Tools: once Borland was a major player. Now it’s all about Visual Studio;
  • The Web: the free Internet Explorer was a desperate attempt to fend off Netscape that was ultimately successful.

The last one is important because even though Microsoft won the battle they lost the war. Microsoft’s hubris, breaking of backwards compatibility, ever-changing platforms and standards and so on probably accelerated the adoption of the Web as a platform for application delivery.

Microsoft was once an innovator trying to get market share. It was then they were at their best. At some point companies become so large that they switch from being innovators to defenders. No longer are they concerned making the best product. They are primarily concerned with defending what they already have.

The Madness Begins

Even before it was released, Vista (or Longhorn as it was called then) had a lot of people concerned. Microsoft had seemingly decided that it was OK to start breaking backwards compatibility.

Faced with people only buying an operating system (meaning a PC) every 5-8 years, what did Microsoft do? They did what most marketing eggheads would do: they raised prices. Instead of getting $100 from a consumer every 2-3 years, let’s charge $250 every 5-8 years including revenue growth to please our shareholders.

Earth to Microsoft: if you charge people more they will buy less.

Segmentation Insanity

A bigger problem was where there were basically two versions of Windows XP (Home and Professional) ignoring the Server version. In classic “how much money do you have?” pricing, there were now four versions:

  • Home Basic
  • Home Premium
  • Business; and
  • Ultimate

But it gets worse…

Retail, Upgrade or OEM?

Say what now? Try and explain this one to a non-techie. For Windows 7 this is actually worse. For example, Windows 7 Professional Upgrade is more expensive than Windows 7 Professional Retail. What the…?

32 or 64 bits?

Seriously?

This is perhaps the most egregious transgression. Several months ago I had a conversation with a friend who has been using PCs for 15 years and was upgrading his computer about getting the right version of Vista (32 or 64) since he was thinking about getting 4GB or more of RAM. He’s reasonably proficient. Try explaining it to someone who isn’t.

It reminds me of this classic UI blunder:

Why are you asking consumers about questions they don’t understand and don’t care about when choosing which OS to buy? Just sell one version. If an advanced user wishes to install the 64 bit version, let them do so during installation.

Activations and DRM

One of the scourges of the last decade has been the rise of DRM (“digital rights management”). As I previously said, people have an innate sense of fairness. If you tell them they don’t own something like a program, video or song even though they paid for it, they aren’t going to like it.

Even Google got sucked into this sham (probably at the behest of Big Content) and discovered the downside (for them) when they had to refund users when they closed Google Video. Woops.

Vista came with draconian activation limits. Microsoft eventually relented somewhat, particularly with the (pricey) retail version.

Now compare that to a version I can find on The Pirate Bay that simply works and you begin to see that DRM creates pirates.

Windows 7? It Gets Worse

Don’t believe me? Consider this table:

 

And that’s the simple version of the charge that doesn’t include 32 and 64 bit combinations. The upgrade costs have also changed as you can, say, upgrade from Windows Vista Home Premium to Windows 7 Professional.

But there’s no other choice, right? Wrong.

Timing is Everything

From the mid to late 90s Apple was in the wilderness. Windows had eroded Mac market share to the small single digits. Several attempts were made to turn this around such as Apple’s purchase of Steve Jobs’ NeXT and the Rhapsody OS.

With the return of the king, there were (eventually) two great successes. Firstly, the iPod (and more importantly) iTunes. Secondly, Jobs put the nail in the coffin for PowerPC by switching Apple hardware to Intel’s x86 architecture. Jobs stated that “power efficiency”, which many found laughable given the Pentium 4’s power and heat issues.

Jobs’ timing however was superb (and undoubtedly not luck). Intel’s Centrino platform  became all-conquering.

Some Things Are Greater Than Their Sum of Parts

This was a risky move. Differentiation is a key component of Apple’s strategy. If Macs use the same hardware as PCs, why pay extra? Macbook and iMac market share has recovered from around 2% to be almost 10% of US shipments.

Part of Apple’s appeal has always been what I term “countercultural knockback”, meaning there are a certain group of people who will attach themselves to something—sometimes fanatically—in part because it isn't popular. Another part of it is that Apple aims itself at the top end of the market quite deliberately. But a huge part that’s often overlooked by detractors is that the whole package is attractive.

Apple didn’t invent the concept of a sleek laptop, or a digital music player or a phone with Internet capability. They just did it better than anyone else.

One Size Fits All

Consumers don’t like being forced to make choices they don’t care about or don’t understand. Two years ago, Steve Jobs famously fun of Vista segmentation during his WWDC keynote.

Don’t Make Me Think

So I’m looking to buy a copy of Windows 7. I initially started on the Home Premium version. A friend pointed out to me that the XP Compatibility Mode—something I'm not certain I won't need—is only in the Professional and Ultimate versions.

Microsoft’s policy on OEM versions takes some figuring out. As it turns out it all comes down to the motherboard. Change your motherboard and you need a new OEM version. This may or may not be enforced. I’ve been using Windows XP for over 7 years. I’ve had 3 motherboards in the last 2 years so I want the retail version instead.

Well that’s going to cost $449 for the Professional version. Oddly, the Ultimate version is only $20 more. Was there really need to differentiate between these two versions for $20? Why not just have one version that covers both?

That’s a lot of money to pay for an operating system. Times have changed. No longer does a PC cost $3,000. You can buy a quad core box with 4GB of RAM for as little as $500. And I need to pay almost 100% of the hardware costs for Windows? Seriously? What does it do that XP doesn’t? Not a lot (that I care about anyway).

Are you kidding me?

Fear, Uncertainty, Doubt

FUD has been a hallmark of tech marketing. Microsoft is no exception. Just last month, Microsoft announced no TCP/IP patch for Windows XP, claiming the code was too old. Bullshit. It’s marketing strategy to convince us we need to upgrade.

They tried it with Vista too. The long-awaited DirectX 10 update was Vista only. Microsoft marketing was to suggest you might not be able to run the latest games if you have Vista instead of XP (when most hardcore gamers were sticking with XP for performance reasons).

Microsoft has been using FUD against Linux for years. There’s something amusing (even ironic) about them using FUD on one of their own products.

Lipstick on a Pig

What is Windows 7, really? I’ll give Microsoft props for one thing: the Windows 7 marketing is a success. A lot of people are excited about it. I used the RC version for a few months and it’s not bad. The NTFS support is noticeably faster and I didn’t get those stupid “Preparing to delete” boxes when I deleted a directory tree. I must admit I also like to find programs by the Start Menu speed search.

Could these features have been added on an XP base? Absolutely.

Vista has a service pack already. As far as I’m concerned Windows 7 is just Vista Service Pack 2. How really is it different to Vista? The UAC security is slightly less annoying but it’s basically the same. Maybe wireless is a bit better but these are all incremental changes.

The 90s were a pioneering period for personal computing where they went from niche to mainstream. Operating systems and applications are both mature now. Even Linus Torvalds has recognized this:

APC: When do you expect to see a kernel version 3.0? What will be the major changes or differences from the 2.6 series?

 

LT: We really don't expect to need to go to a 3.0.x version at all: we've been very good at introducing even pretty big new features without impacting the code-base in a disruptive manner, and without breaking any old functionality.

 

That, together with the aforementioned lack of a marketing department that says "You have to increase the version number to show how good you are!" just means that we tend to just improve everything we can, but you're not likely to see a big "Get the new-and-improved version 3!" campaign.

Basically there (probably) won’t be a Linux 3.0. There’s no need. Microsoft needs to recognize that need isn’t a factor for consumers. Whatever they have, it’s enough.

Old Versions Cost You Money

Anyone who has written software for a living knows this to be true: supporting old versions of your software costs you money. You want your customers to be on the latest version.

Here Apple is clearly more successful at getting their users to upgrade, in part helped by the low (US$29) cost. You can even buy 5 licenses for home for US$49. Each release seems to get bigger.

Cost is clearly a factor here. Detractors would argue Apple is charging for service packs. Maybe so. But it’s clear consumers prefer to pay less money more often.

Ship Early, Ship Often

The other way you cost yourself money is increasing the time between releases. Costs scale exponentially rather than linearly. If takes you four years to ship a product it will probably cost you twice what it does to ship two products at two year intervals.

Long releases tend to be over-ambitious releases. What’s more, there is a huge likelihood that market conditions have changed by the time you release that you’re spending a lot of effort changing an unshipped product before it even gets out the door. There is no better example than the Duke Nukem Forever debacle.

And of course complexity is the enemy. The growth in Windows lines of code shows no signs of abating.

The Business Market

This is both Microsoft’s biggest source of revenue (for both Windows and Office licenses) and its biggest thorn in the side. It’s also a problem Apple does not have.

Most companies buy PCs for their employees. To help with support costs they come up with a standard installation, called an SOE (“standard operating environment”). This version will then come on a CD that’ll install everything. It’s expensive to change and roll out. Most companies will have a Windows 2000 or XP based SOE.

A ten year old PC running Win2K and Office 97 still does its required job. This isn’t just being cheap. Why would you roll out new hardware that from a functionality perspective does the same thing? There’s no business case for it. What do you think a hospital will choose between new PCs of dubious utility and a $3 million MRI that’ll save some lives?

So it’s understandable but these people are the bane for Web developers as they’re responsible for the dogged ~10% market share for Internet Explorer 6 too.

So How Does Microsoft Sell Operating Systems?

Good question, one for which Microsoft has no answer. It probably doesn’t help that the man at the helm (Steve Ballmer) isn’t a programmer. He’s not even a techie. He’s a business guy who thinks in terms of marketing, business strategy and gap analysis. At least Bill Gates was a programmer. Bill Gates’ Microsoft was an innovator no matter what else you could say about it or him.

I have to agree with Jeff Atwood on this one. Microsoft is getting pricing wrong. Prices need to be low enough that it ceases to be a major purchase.

Microsoft Just Doesn’t “Get” Marketing

What can I say? Windows 7 Launch Parties? Microsoft retail stores (hint: Apple had compelling consumer products rather than “me too!” wannabe products before they opened stores)? Vista ads with Jerry Senfeld? I’m shaking my head.

So Which Windows 7 to Buy?

Non-coincidentally, Apple just cut the prices of Macbook Pros and released a new “low” cost white Macbook. In Australia this was at least in part due to the appreciation of the Australian dollar in recent months. A Macbook Pro 13 is now only a few hundred dollars more expensive thn a (plastic) Dell Studio XPS 13.

I’m not a .Net developer so I’m not tied to Windows. My favourite IDEs come from Jetbrains (Intellij IDEA and increasingly Web IDE) and they run on Windows, Macs and Linux.

Windows virtualization and emulation (eg WINE) are getting sufficiently good that you can run Office 2007 under Ubuntu.

I need to install Cygwin to get a workable command line on Windows anyway. It also makes Git work easier.

As a developer I’m finding the Macbook an increasingly attractive option. I only have three criticisms and concerns:

  • Apple reversed themselves on adopting ZFS as a replacement to (what Linus Torvalds described as "scary") HFS+ filesystem;
  • Apple’s bizarre stance on delaying Java releases to integrate their look and feel. Java 6 for the Mac was almost a year late; and
  • I’ll have to buy another copy of Civilization 4.

Linux is of course an option but I’ve been there and done that. Fact is, both Windows and MacOS are slicker than Gnome or KDE.

Conclusion

Microsoft reminds me of an ageing housewife revelling in her high school glory days whose greatest achievement is that she still fits into her cheerleader outfit. Sure you were the popular girl once but that was 20 years ago. Times have changed.

It isn’t 1995 anymore. Next Christmas most people will be fine with a $200-300 netbook. Why would such people buy that price again for an operating system (ever)? Getting existing users to upgrade is (or should be) a key strategy for Microsoft but like any incumbent, business weenies are now running the asylum and they’re more concerned about having room for revenue growth than in actually selling products people want to buy.

Bring it on Apple!

9 comments:

Jass said...

I agree with you that ms has got their pricing and packaging wrong. Windows 7 is definitely a better upgrade from XP or Vista but I doubt it justifies the price. I doubt if enterprise IT will wake up to adopt windows 7 over XP.

Restricting number of simultaneous processes you can run for the starter pack was too far-fetched! Glad they have removed it...

p.s: pretty long post that!

Aaron Savage said...

All that and Google are about to put their steel toe capped boots on as well. I may be ill but I am starting to feel quite sorry for Microsoft, but only in so much as I would if I saw the former school bully get the shit kicked out of him at University

aquilax said...

Very nice reading. Congratulations! I share your view.

Rick said...

Aaron, so I guess Google is the current "Linux is almost ready for the desktop". Hilarious.

Anonymous said...

tl;dnr

Mike Cunneen said...

Well said Billy.

Your assertion that most people get their operating system with a new computer is spot-on. However, I don't think your dad (or either of my parents) are in the typical target market. Any OS will do for them - they'll be equally happy in linux, OSX or windows (any version). In the case of my parents, they weren't yet using home computers in 2001, so they are part of a new and small (but growing) market.

PCs are still being sold by the gazillion. Sure, sales in the last 12 months are down, but far more are still being sold than back in 2001 when XP was released. My (XP-based) high school just bought a few hundred new laptops, thanks to the 2007 election pork-barrelling. The case for a windows 7 upgrade for these is compelling.

Then there is the netbook market, and the gamers market...

I don't think Microsoft's boxed-retail prices are paricularly relevant. As you've suggested, the case for home users is not that compelling (I am an exception). As you've also said, the business market is MS's biggest revenue source. Enterprise licenses are where it's at. Home users will get their windows 7 new with their next PC, or even their last pc if they have bought it since June. Students get super-cheap licenses.

You also haven't addressed the Windows 7 features that businesses are keen on. Centrelink isn't upgrading 27000 desktops on a whim. The better-balanced security policies in windows 7 will save them thousands compared to vista (with its UAC problems) and XP (with its all-or-nothing user account options). The image management and updating tools are a selling point, as is the improved speed and full 64-bit support. Win7 is not vista SP2 (which actually exists btw - you're obviously not a vista user). I'm running a dual-boot with vista SP2 and Win7 RC, and Win7 is a clear winner for performance.

I agree with you that Windows 7 is not revolutionary in any sense. It has some nifty features and is much snappier, but you're right that it does not warrant the hype around it.

Your comparison to the linux kernel is a straw man argument. An operating system, in its modern-day form, is far more than just the kernel. I'm not aware of any huge kernel changes from vista to Windows 7, just minor ones. I'd say MS and Linus agree on this one. See here:
http://news.cnet.com/8301-13860_3-9951638-56.html

As for price, if you already own an XP license then just get the upgrade version. Also note that it's cheaper in the states, particularly with the aussie dollar so strong at the moment. PriceUSA will arrange to ship it from the states for you. It's even cheaper if you're a university student: itsnotcheating.com.au .

I totally agree on both the dodgy MS marketing and on the "edition fragmentation".

Good entry Billy. Plenty of food for thought (and debate).

Anonymous said...

Alot of jobs fanboy-isms here, but crapple propaganda aside, it is a shame how Balmer is running MS into the ground.

Sean said...

The OS wars are over. teh internet won.

S.P. Sobania said...

I was really surprised about your conclusion at the end. I bought a Macbook and scrapped my vista desktop few months ago. When I figured out there is no vista no more, but something they call now windows 7, the choice was straightforward.

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