Big Business Starts to Sour on Vista

Corporate users may bypass Microsoft's troubled new operating system and hold out for Windows 7

by Aaron Ricadela

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Ballmer vows to speed up development of the next version of Windows Christian Charisius/Reuters

Microsoft introduced Vista, the latest version of its Windows operating system, in New York City in January, 2007, with dramatic fanfare. Performers hung from a seven-story building to unfurl a Microsoft banner. A rock band blared in the rented-out Times Square theater. The CEOs of Dell (DELL), Toshiba, and Advanced Micro Devices (AMD) joined Microsoft CEO Steve Ballmer on stage to celebrate what he called "the biggest launch in software history."

But now some high-profile corporate customers are taking a pass on Vista. In the most recent move, General Motors (GM) says it may take a detour around Vista because preliminary tests have turned up so many problems and complications. The automaker may wait for the next version of Windows, due in 2010 or 2011. "We're considering bypassing Vista and going straight to Windows 7," says Fred Killeen, chief systems and technology officer for GM.

Many of Killeen's corporate counterparts are similarly vexed by Vista. The operating system taxes all but the most modern PCs with its requirements for powerful microprocessors and muscular memory. It has compatibility issues, so certain kinds of software won't run smoothly with the operating system. And corporate tech buyers say Vista has few valuable new features for their employees. "There's no business value in us continuing to chase that upgrade cycle," says Robert Reeder, senior vice-president and chief information officer at Alaska Airlines (ALK), which plans to pass on Vista.

TIGHTER SECURITY

The troubles with Vista come as Microsoft is struggling to expand beyond its core software products. The behemoth made its $47 billion offer for Yahoo! (YHOO) as a way to boost its scale on the Net and improve its prospects in online advertising. But the deal fell apart after the two sides couldn't agree on price. Wall Street analysts still keep closest watch on the company's traditional products, and customers aren't buying Vista at the rate expected. "It's just not taking off," says Brent Thill, software research director at Citigroup (C).

Microsoft denies Vista is a disappointment. The company says it has sold 140 million copies as of Mar. 31, putting Vista on about the same percentage of desktops as the previous operating system, XP. Mike Nash, corporate vice-president, says it's common for some corporate users such as GM to skip releases of Windows. There are plenty of satisfied buyers, he says, including Bank of America (BAC), Cerner (CERN), and Royal Dutch Shell (RDS). Continental Airlines (CAL) has 4,000 PCs running Vista and has been particularly happy with power-saving features like the ability to put unused machines to sleep and start them up quickly when needed. "We're pretty sure we're going to save a decent chunk of money," says Eric Craig, managing director of technology.

As for consumers, they're warming to Vista for its tighter security and smoother operation of hot software such as Apple's (APPL) iTunes and Intuit's (INTU) QuickBooks. "We're seeing tremendous transition to Vista, particularly in the consumer space," Nash says.

Even as Vista catches on with some users, Microsoft acknowledges a key shift in the software business. More people are getting software for tasks like e-mail and word processing over the Net instead of loading it onto their PCs. As a result, users often don't need PCs loaded with the latest programs.