1.26.2007

Ka-Ching! Windows Vista's real cost

For the past week or so, Microsoft has been dribbling out press releases touting a benefit of Windows Vista: The upgrade will drive IT jobs and spending.

Today's release brags that Windows Vista will generate US$10 billion in new revenue for the California IT industry in 2007, and will drive 16,000 new jobs in the state. This is based on research from IDC, which was sponsored (read: paid for) by Microsoft. I wrote about one part of that research on Dec. 12.

For someone's revenue to increase, of course, someone else's costs have to go up.

Microsoft and IDC have previously released proportionally similar figures for Massachusetts, New York, New Jersey and Florida. It's fair to expect more states to be "researched," and their increased IT costs touted as a Windows Vista benefit.

Now, is this increased IT cost a good thing? I would argue that while it's a huge plus for California's IT industry, it's a huge minus for the people of California, who are expected to fork out $10 billion and hire 16,000 people to handle the migration from one version of an operating system to another. (I'm focusing on California here, but my comments apply elsewhere.)

IDC's figures include the cost not only of migrating the operating system itself, but also of developing and deploying software updates required for Windows Vista, upgrading or replacing hardware, and so-on. Firms providing those services include (to quote from the IDC report):

Microsoft partners and OEMs sell PCs and servers running Windows; software vendors write applications that run on Windows using Microsoft application development tools; retail outlets and resellers employ people to sell and distribute these products; and service firms install and manage Microsoft-based solutions, train consumers and businesses on Microsoft products, and service customers for their own applications.

According to IDC, this is terrific! To quote again,

This is good news for California. Over the next four years, software-related IT employment should grow by almost 150,000 jobs and be the sole reason IT-related jobs increase at all.

IDC says that in California alone, Microsoft will ship nearly 5 million copies of Windows Vista in 2007, and the company will make $500 million in this one state alone. Quoting IDC:

For every dollar of Microsoft revenue from Windows Vista in 2007 in California, the ecosystem beyond Microsoft will reap more than $19 in revenues. In 2007 this ecosystem should sell more than $10 billion in products and services revolving around Windows Vista.

To put it another way, it's going to cost California's businesses and consumers $500 million in Microsoft license fees to adopt Windows Vista. And it's going to cost the state's consumers $10 billion overall. And that's good news?

This is good news for the IT industry, of course, and for IT professionals seeking employment. But it's bad news for the people of California who aren't in the IT industry, say, a dentist's office, or a clothing manufacturer, or a school, or a restaurant chain, who will be footing the bill.

It's hard to celebrate a software update when its creator boasts that it will increase the cost of IT. Isn't newer technology supposed to save us money?

22 comments:

Nick said...

Alan --

With all due respect, you really missed the boat on this one.

People will purchase Vista because they believe it will be an advantage to them. They believe that they will receive a return in value greater than the money they spend for it. The same goes for purchases made that are peripheral to Vista. All of those willing transactions create wealth.

You appear to be arguing that all IT spending costs people money with no benefit. I think that's obviously not true -- otherwise, no one would spend any money on IT.

And I'm not sure how dentists and schools will be "footing the bill" for Vista purchases made by others.

wayne n said...

Alan,

With all due respect, I have to say I'm thankful you are not employed as an economist. If you were in control apparently we'd still be running on XTs and DOS (if that) since upgrading all that hardware and moving to Windows 3.0 must have been a horrendous cost.

Yes, upgrading certainly does cost money, but the number one reason to upgrade a computer or its software - or any other tool in any other industry - is to increase productivity. That increase in productivity not only covers the cost of any such upgrades but produces more net wealth over time. Why is the IT industry still growing? With or without Vista, more and more people continue finding *value* in using computers to make their work (and leisure too) more productive, and that in turn makes them demand even more, which we in this industry are eager to supply. Vista is simply a part of this.

Of course if you really don't see any value in upgrading to Vista or a computer that can run it, nobody is forcing you to do so. Stick to that old XT and DOS 5.0 as long as you want!

Alan Zeichick said...

No, I'm not a Luddite. However, Microsoft's message isn't about how much Windows Vista will increase business productivity and IT efficiency. It's exactly the opposite.

Saying "Windows Vista increases spending and creates jobs" is a positive spin on the real message, "Windows Vista increases IT costs."

I find that a peculiar message, on the eve of the release of this much-awaited product.

Cotillion said...

nick and wayne,

Your assumption is that Windows Vista provides some benefit and that the benefit is worth the cost.

Windows Vista is an Operating System. Operating Systems enable other programs to do work, they do no work on their own (at least no work that I'm interested in). If I change my Operating System and not any of the programs that run on it, then it still takes me just as long as before to do my work (it might be a few milliseconds faster because of better I/O). I only get value out of upgrading when it enables me to do something new or better than before. So Vista may have value in the future. Right now, I'm interesting in doing work and Aero Glass does not help me do that work.

Windows 3.0 enabled better programs than DOS did. But still, a GUI is not reason, in and of itself, to upgrade because a GUI does no work.

Dentists and Schools will foot the bill for their own Vista purchases and support, which will not provide value to them. Part of the IT budget is for mitigating security risks. If what Microsoft says is true, Vista will decrease the amount of money that must be spent on mitigating security risks and force that money, and more, to be spent on other areas of support. That sounds like one step forward and two steps back.

Windows Vista provides no benefit to work by itself. It only enables benefits that can be provided by others; and those extra benefits are debatable.

Anonymous said...

How does Windows Vista increase IT costs? Yes, in the short term, as companies incur the cost of upgrading, quite possibly. However, in the longer term, its enhancements lower the total cost of ownership. Given that hardware is depreciated (and most organizations factor on upgrading machines every two to four years) that cost is taken care of. IT organizations, at least competent ones, tend to use automated roll out techniques, all the easier since Windows XP came to the forefront more than four years ago. Poorly performing companies or those with incompetent IT departments who do not manage to keep current with the pace of the market and as research shows, not surprisingly, their competitors, yes, they will suffer, and odds are, their organizations are probably suffering enough already.

Anonymous said...

I think the hidden formula (in the report, though I didn't read the report) is: Vista can boost productivity by X amount of money, because of that people will pay Y amount of money for it, and Z amount of jobs will be created with spending the Y to get X.

The only question is: is X a real number or just a marketed lie.

Steve said...

Why do people assume that new a new OS = more productivity for "the masses"? Are office workers really more productive with Vista than they were with W2K?

I'm not talking about developer types who are having fun fiddling with new toys, I am talking about real time and effort savings. It just is not happening in leaps and bounds when a new OS comes out.

XP didn't do much except break the Search feature and open up the PC for exploitation. Vista will be a huge drain, and, admittedly will line the pockets of many "integrators".

Elliott Bignell said...

People will purchase Vista because in a very short time they will not easily be able to buy a machine without it and because Microsoft will start to pull support for their existing systems. Whether it actually provides them with any benefit is questionable and probably not even relevant in the absence of real choice. In the days of DOS, as Raskin's "The Humane Interface" describes, one could go from switching on the machine to receiving the result of a short piece of work in seven seconds; in his example and on my work machine running XP it takes 7 minutes.

The home user is not in a position to make critical choices about operating systems and businesses seem unwilling to do so, basing their purchasing on marketing hype or the complete packages fed them by the industry with upgrades like-it-or-not. As a computer-illiterate home user you go to the store and meet another computer illiterate salesman trained and dedicated to convincing you that what you are looking for is that which they have in the shop - which will, ipso facto, be a Windows box running the latest version. You will be told, as users were told with every previous version, that it is stable and secure. If you look at a Mac you will hear the same thing and, while it is actually true this time, will see a 15% higher price tag. You will deal with the crashes later, when Microsoft have your money and the support conditions relieve them of the responsibility to make their software work or give you your money back.

That's why people upgrade, not because the operating systems are improving.

Elliott Bignell said...

People will purchase Vista because in a very short time they will not easily be able to buy a machine without it and because Microsoft will start to pull support for their existing systems. Whether it actually provides them with any benefit is questionable and probably not even relevant in the absence of real choice. In the days of DOS, as Raskin's "The Humane Interface" describes, one could go from switching on the machine to receiving the result of a short piece of work in seven seconds; in his example and on my work machine running XP it takes 7 minutes.

The home user is not in a position to make critical choices about operating systems and businesses seem unwilling to do so, basing their purchasing on marketing hype or the complete packages fed them by the industry with upgrades like-it-or-not. As a computer-illiterate home user you go to the store and meet another computer illiterate salesman trained and dedicated to convincing you that what you are looking for is that which they have in the shop - which will, ipso facto, be a Windows box running the latest version. You will be told, as users were told with every previous version, that it is stable and secure. If you look at a Mac you will hear the same thing and, while it is actually true this time, will see a 15% higher price tag. You will deal with the crashes later, when Microsoft have your money and the support conditions relieve them of the responsibility to make their software work or give you your money back.

That's why people upgrade, not because the operating systems are improving.

Rolf Ackermann said...

Wayne

(sorry for my bad english)
With all due respect. I agree with Alan completley. Most of the user don't need to update! Why? Simply because Vista doesn't bring more functionality which can be used be most (business) users.

It's clear that the whole IT industry profits from VISTA (if you want to have vista over 80% of the computer needs to be replaced). But think again: Who have to pay for the new computer and VISTA? Exactly: The users and the companies.

But will VISTA be the end of innovation? No, M$ is already thinking about new software. I'll be sure that innovation is needed. But not for the price of ONE MONOPOLIST!

BL said...

The definition of an OS as proposed by Cotillion is a personal vision. You could as well want to turn back to a 'Disk' OS. OSes are enablers for applications and a modern OS can reduce software development costs, for one thing. (I don't say it always does - but it certainly does already in several domains, depending an the kind of app).

Microsoft knows how to do business. They gain a profit from that of course. Even Steve Jobs admitted long ago that although MS sometimes lacks 'imagination' (as he put it), they deserved the success they reached. You can have problems with how business and a free market works, or you can oppose the vision of others on how a 'free marked' should be interpreted - you can have all sorts of discussions at this point. But in actual practice, what I see is that I myself usually take the step to a new OS after about 1,5 years and that works fine for me. I see others step over a lot earlier (and they're happy too - and find some relief in being angry about early bugs and so). Others take that step after 3 or 4 years or so - they're often happy too. Developers of popular software usually take the step early on and find out the advantages of OS + runtimes of sorts.

This is how life goes. It works much this way for 'free' operating systems as well. (And the opponents of all business, as you hear them sometimes - not that I've heard them here - rather on http://badvista.fsf.org/ and the likes - should put a badge on their pages saying 'this is a left wing political site' in stead of pretending to talk about software.

Adam said...

I agree with what others have said, that progress does need to be made and things moved forward. Vista is great in this sense, and will no doubt increase productivity.

However, I think there's a little confusion and a few crossed wires. All Alan is saying is that Microsoft have ignored the "progress" speech and decided to opt for a "cash cash cash" speech instead - and this is a bit strange. They've taken a negative aspect and spun it into a positive one, rather than simply using a positive one to start with. Why? Maybe it sounds better or will sell more, or maybe because there actually isn't that much to celebrate. Who knows.

Personally, I'm going to stick with XP and 2003 Server for a while yet and see where it goes....

Anonymous said...

I'll quote an anecdote:
"A young man on the bus throws a dirty handkerchief on the floor. An old lady shouts at him:
-What are you thinking you are doing?! Youngster responds:
-I'm creating new jobs, madam!"

That's what M$ took as a strategy, I think. And just like total revolution within M$ Office brings those logically thinking to OpenOffice.org, this revolution is an encouragement to migrate to Linux, where efficiency increase is not bound with inherent incompatibility. Mozilla is one of great examples here. So before you will have to ask your computer, what youwant to do today, take a while and think about being openminded and sticking to open standards.

wnuku said...

After a exposion in chernobyl about 500'000 people found a new job...

Someone calculates that every 1$ spended on new windows reqies 4$ to spend on hardware. And there are no any profits in migrating.
And the biggest problem is "content protection" : http://www.cs.auckland.ac.nz/~pgut001/pubs/vista_cost.html

But the new windows will be success anyway. Even today it is hard to buy a new PC with previous version of windows (tried on HP and DELL webpage). MS have just too much money, and "corrupting" a computer manufacturers is not a problem.

Anonymous said...

Hello.
I quite see your apprehension, no question. My answer to "is the benefit worth upgrading" is a clear "it depends". BUT: Former OS' showed us how this doubts can be handled. First, driver problems etc. will certainly avoid a lot of updates. then, people who are techology-affine enough to take advantage of new OS' working concepts (YES there are enhancements!) will update and the last ones will be people that care about compatibility in some years will update having even more an advantage of lowered costs until then.
My university is btw. in an MSDN program, so we can use VISTA for free.
I reckon, the people suffering will be people with bad IT-consulting. (and those just aiming for a cooler Look, they'd better go with mandriva or something equivalent =))

Anonymous said...

Who cares? I'm not upgrading and maybe a lot of other people will make up their minds to see other alternatives.

Blind me, Microsoft.

Anonymous said...
This comment has been removed by a blog administrator.
KarmasAgent said...

Good debate. Its going to cost, people will fork over the money, and when they realize the bang wasn't worth the buck (if indeed it isn't a great technological leap forward - I make no claims one way or another) Microsoft will have a hard time selling the need of another OS next time. Unless they wait another 7 years to release their next desktop OS.

That being said, TCO is still lower for Windows than most alternatives for user-centric organizations. If MS can guarantee a drop in TCO over the lifetime of the product they may have a legitimate selling point.

My two cents. Again, good debate.

Anonymous said...

I'm professional developer and this side of me like these pieces of improvements in Windows (despite the fact that Microsoft programmers become less professional over years).

But, customer side of me see no reason for Vista for next 1-3 years. I already play with their RC version - driver problems, stability index falling from 10 to 2 in one week, compatibility problems, bad UI design (don't be fooled by these glass effect - UI not good).

Anonymous said...

Waahaahaa! I love all the Microsoft toadies talking about how Vista will eventually reduce costs and increase efficiency. Dream on, techo-noobs. I'm running it on my spare machine, and it's just more Windows glop. Nothing is improved, except that now you get a bunch of irritating UAC popups. To Microsoft, this is "improved security". I have to write code on this mess to make a living, but I console myself with the knowledge that, with every coat of Krylon they spray paint on this overpriced pig, they push more and more people to find alternatives that really do reduce costs.

Excellent article. People who don't get it are the same ones that get excited about government "enhancing revenue", without realizing it means their taxes are going up. Learn to count, guys. If someone's getting money, someone else is giving it.

Anonymous said...

^ Said:
"Learn to count, guys. If someone's getting money, someone else is giving it."

That's called zero sum economics.

From Wikipedia; "Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counterparties are acting rationally, any commercial exchange is a non-zero-sum activity, because each party must consider the good s/he is receiving as being at least fractionally more valuable to him/her than the good s/he is delivering (see also the law of comparative advantage)—to exchange in any other circumstances would not be rational."

I think they should note that the part on acting rationally excludes IT purchases :)

Jim

Tim said...

Good analysis. People rarely look at the whole economic picture when evaluating these upbeat statements like the ones issued by Microsoft via their hired "researchers".

I was in the public library today, and noticed that all the computers were running Windows. All they are used for is web browsing. Even the library catalogue is accessed via a web browser. What a waste of library funds to pay for Windows licences when Linux could have been used and might even have saved more money in reduced hardware requirements.

Government should take the lead in implementing open source computing. They have the most to gain. I mean, we do.

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