Our operations and financial results are subject to various risks and
uncertainties, including those described below, that could adversely
affect our business, financial condition, results of operations, cash
flows, and trading price of our common stock.
Challenges to our business model may reduce our revenues and operating
margins. Our business model has been based upon customers paying a fee
to license software that we developed and distributed. Under this
license-based software model, software developers bear the costs of
converting original ideas into software products through investments
in research and development, offsetting these costs with the revenue
received from the distribution of their products. In recent years,
certain "open source" software business models have evolved into a
growing challenge to our license-based software model. Open source
commonly refers to software whose source code is subject to a license
allowing it to be modified, combined with other software and
redistributed, subject to restrictions set forth in the license. A
number of commercial firms compete with us using an open source
business model by modifying and then distributing open source software
to end users at nominal cost and earning revenue on complementary
services and products. These firms do not have to bear the full costs
of research and development for the software. A prominent example of
open source software is the Linux operating system. Although we
believe our products provide customers with significant advantages in
security, productivity, and total cost of ownership, the
popularization of the open source software model continues to pose a
significant challenge to our business model, including continuing
efforts by proponents of open source software to convince governments
worldwide to mandate the use of open source software in their purchase
and deployment of software products. To the extent open source
software gains increasing market acceptance, sales of our products may
decline, we may have to reduce the prices we charge for our products,
and revenue and operating margins may consequently decline.
Clearly, Microsoft is watching these volumes, market penetration in
terms of units sold or units registered, or units identified.
Microsoft has tried to develop counter measures to prevent OSS and
Linux from cutting into their reported "Top Line" numbers, but often
they have had to tap into their huge cash hoard to do it.
The problem for Microsoft is that world-wide PC Unit volumes are going
down, and now Microsoft is trying to generate more revenue and license
units by double-dipping the OEMs and triple or quadruple dipping
corporate Volume Managed License customers and Platinum Support
customers. The problem is that Microsoft is claiming huge increases
in profit, while OEM and corporate customers are experiencing huge
losses due to pushback and rejection of Vista. Even worse,
competitors like Apple are reporting capacity volumes, they can't keep
up with demand, and their profit, revenue, and revenue rates now make
them the third largest PC maker behind HP and Dell who both lost total
market share to Apple.
> Georgia Tech - Software for Staff
> ,----[ Quote ]
> | OIT and the Georgia Tech IT Community do not recommend the Microsoft Vista
> | operating system for most users at this time. We advise that you work with
> | your departmental technical support resources when considering a move to the
> | Vista operating system.
Many companies, government and educational organizations, and even
NPOs and NGOs are now advising against upgrades to Vista. In many
cases, they have opted to stick with the basic Volume Managed License
inventory of XP, they have opted to NOT accept the Vista license, and
are limiting upgrades to "Must Replace" hardware which in configured
with Corporate Windows XP images.
> Users Demand Upgrade from Vista To XP
> ,----[ Quote ]
> | Admittedly, I find myself amused with the latest Vista sales numbers, as they
> | seem to forget how many of those same people are disgusted once they break
> | the seal and want to take Vista back.
Many don't even order the machines with Vista, they order them with
XP. Microsoft has permitted OEMS to sell machines with XP, but to do
so they must purchase Vista Business Edition licenses, and this is IN
ADDITION to Minimum Commitment numbers. Dell charges it's customers
an additional $20 for the license upgrade, which can then be
configured with Windows XP.
Keep in mind that the minimum commitments are just huge sums of money
to cover the basic licenses. According to one court exhibit, Dell
paid $35 million in license revenues for an unspecified number of
licenses sufficient to cover all of the machines they sold. It's
possible that Dell is paying the huge dollar amount for the core
system, then paying an additional blanket sum amount or "per machine"
price for the upgrades.
The point is that Microsoft can claim all of the machines sold with XP
preinstalled as "Vista" units instead of having to report them as XP
units. Microsoft claims they have 88 million units, yet browser
surveys indicate that actual Vista deployments may be less than 4
million units since last January, which would mean that over 1/2 of
the "Vista" units claimed by Microsoft are actually XP units. To be
fair, browser surveys are terribly unreliable, and most Vista users
are also likely to be DSL or Cable-Modem users so Vista could be
experiencing the same kinds of undercounts that Linux has experienced
> | I know a number of repair techs, most of them running smaller shops and all
> | of them are reporting people asking for "their XP back."
A popular PC magazine even included an "XP Recovery Disk" because so
many people either tried to install Vista themselves and found out
that it didn't perform well and most of the advertized features were
unavailable on their PCs. Unfortunately, the Vista installation wiped
out the XP preinstall "Recovery" partition, and with no installation
media, Vista users couldn't get back to XP.
Even when I have seen computers configured with Vista Ultimate, I
haven't seen the advertized fancy 3D features demonstrated or properly
configured. It's almost like the effects shown in the television
commercials for Vista were fraudulent. If they existed at all, they
don't seem to exist or be part of the "standard configuration" for
most PCs, because most PCs don't have the DirectX/10 video cards.
> Vista sales slow despite record MS profit
> ,----[ Quote ]
> | The sales rate of Microsoft's Windows Vista is gradually slowing down as the
> | operating system reaches the one-year anniversary of its release to
> | businesses, according to the company's latest financial results.
We have also seen indicators from HP, Dell, Lenovo, Acer, and Gateway
that PC sales in general have been faltering much faster than usual
for a year when a new version of Windows has been released. It seems
that Vista isn't as dispised as Windows NT 3.x, but the "fuzzy
numbers" may indicate that Vista is even more unpopular than Windows
ME. Remember, when Windows ME was released, retailers did a booming
business in Windows 98 "downgrades".
> Nine burning questions about how Vista is really doing
> ,----[ Quote ]
> | Instead, there's so much spin -- from Microsoft, from rivals such
> | as Apple Inc., from market analysts pushing research and more research
> | -- it would even leave Sasha Cohen dizzy. Here's our attempt to unravel
> | this puzzle-shrinkwrapped-in-a-mystery.