05/18/19 WIN98: TIPTOEING INTO A STORE NEAR YOU

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WIN98: TIPTOEING INTO A STORE NEAR YOU
Microsoft's upgrade launch will be surprisingly low-key
Should the trustbusting dust settle and Microsoft's Windows 98 ship on its June 25 schedule, will it be a hit or a high-tech snore? Listening to Microsoft execs, one might peg it near the low end of the popularity meter. ''The beauty is it's not a radical change,'' requiring more powerful computer hardware, says Windows marketing director Yusuf Mehdi. ''It's a tune-up.''
Mehdi may be a bit too modest. While Windows 98 won't revolutionize software the way Windows 95 did, it's a substantial step up for consumers. For starters, it finally delivers features that make PCs much easier to set up and use--a feat of no small magnitude. It weaves in the simplicity of Internet browsing for viewing Web pages, as well as files on your hard drive. And it makes attaching devices such as printers as easy as plugging in a radio. Win98 PCs even fire up more like a TV--in just a couple of seconds. Such niceties could help Microsoft and the PC industry push PCs into the 55% of U.S. homes that have yet to purchase one.
Still, most analysts are decidedly cool on the product's sales prospects. Sure, it will ship on about 90% of the PCs sold in the second half of the year, but Microsoft Corp. isn't raising its price of about $40 to $45 per copy to PC makers, so those sales won't bring in a lot of extra revenues. Upgrades are where the company gets its incremental sales, but Dataquest Inc. analyst Chris Le Tocq expects only 4.8 million upgrades will be sold during the second half of the year, vs. 8.8 million copies of Windows 95 sold in its first four months.
This program could be a sleeper, though. There's an installed base of well over 200 million Windows-based PCs now, nearly three times the number that existed when Windows 95 was launched in August of that year. Analyst Michael K. Kwatinetz of Deutsche Morgan Grenfell Inc. conservatively figures that 2% of today's Windows users will upgrade over the next four to six quarters, accounting for $200 to $300 million in sales--a fraction of Microsoft's expected $16 billion to $17 billion in 1999 revenues. That's based partly on worries that government regulators will slow Win98's launch. ''We expect it to be much higher,'' Kwatinetz says--easily as many as 10% of all Windows users could snap up the new software, generating incremental revenues of $1.6 billion.
Retailers are praying he's right. With nearly one-third of new consumer PCs selling for $1,000 or less, retailers' margins are wafer-thin. Win98 offers the prospect of millions of customers buying new computers, extra software, or computer peripherals. ''The entire phenomenon will be as big as Windows 95, but it will be over a longer time,'' predicts Nathan P. Morton, CEO of the 96-store Computer City chain.
Most retailers launched their Windows 98 ad campaigns on May 3. Superstore chain CompUSA Inc. is offering $98 discounts on airline tickets, hotels, and car rentals to people who preorder Windows 98. The upgrade carries a suggested retail price of $109, but many stores are offering it for $90 to $95--the same as Windows 95. Retailers also are planning special discounted bundles of PCs and hardware add-ons, hoping Windows 98's easy plug-and-play will help them sell scanners, graphics accelerators, joysticks, and the like.
PC makers aren't expecting any such surge in demand from Windows 98, but they believe it will help them make sales--especially to first-time buyers who might be attracted to its ease of use and to PC enthusiasts who crave the latest bells and whistles. Sony Electronics is pegging its first PCs equipped with digital videodisks to the Win98 launch. Sony also hopes the new operating system will help drive demand for its new digital videocameras.
TV TURNOFF. Some Win98 features look likely to land with a thud, though--at least with PC makers. Don't expect many of them to ship TV tuners with their new models. Chris Pedersen, consumer PC brand manager for Hewlett-Packard Co., says focus groups have shown that ''watching TV on a PC screen doesn't have a lot of value.''
Criticism--and the threats of impending lawsuits--help explain why Microsoft's marketing of Win98 is so muted. Microsoft won't do any TV advertising this time around. And overall, it's not spending anywhere near the estimated $200 million it spent on rolling out Win95. Oddly, though, Microsoft execs say the legal controversy swirling around Windows 98 may provide its most powerful come-on. ''If people who hear about it take the opportunity to find out about the product, it's a great thing for us,'' says Mehdi. Now, that's more like the Microsoft marketing machine we've come to expect.
By Steve Hamm in San Mateo, Calif.

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