Vista Shakes Up the Ecosystem

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In addition to new software for generating graphics, routing documents, and handling Web services, Vista also introduces big changes in the way programs install files on a PC's hard drive, log users in, and handle security functions. That could cost software companies lots of engineering time and support calls—and sap profits, says Simon Heap, a partner at consultancy Bain & Co., which advises makers of business software. "If that's the case, it's not clear there will be any revenue upside for the new version," he says.

Microsoft acknowledges that independent software vendors face a higher, more costly certification bar on Vista. In part, it's to discourage what the company sees as sloppy programming practices that were making the previous version, Windows XP, less secure, says Dave Wascha, a director in Microsoft's Windows client platform group. "The ecosystem for Windows is vast, and there are some great applications out there, but there are also things that run poorly, give me a poor experience, or are malware," he says.

Indeed some software vendors are unclear whether or how soon they'll see a sales boost. "I'm not sure for our customers whether Vista will be a positive or negative net," says Intuit Chief Executive Steve Bennett. Intuit's QuickBooks 2007 line of accounting software, released in September, is specially designed to run on Vista, and the company worked with Microsoft to create a miniprogram that can sit on Vista's "Sidebar," a collection of handy desktop apps, to help users track time spent on projects they manage with QuickBooks. But many of Intuit's small-business customers have older PCs and are probably not "dying to run out and buy" Vista, Bennett says. The Society for Information Management, a trade group of business tech buyers, polled its members in October and found that 58% hadn't decided when they'll roll out Vista. Another 27% plan to do so in 2008 and beyond (see BusinessWeek.com, 11/30/06, "Microsoft Vista: Companies Can Wait").

Two-Fold Challenge

Michael Cherry, an analyst at market researcher Directions on Microsoft, even advises vendors not to create new software that's too dependent on Vista, so as to broaden their market while the transition's underway. His prime example: Microsoft's own Office 2007 suite, most of whose features don't need Vista. "My advice to the ISV (independent software vendor) would be to take your cue from Office," he says.

For others, dodging bullets from features Microsoft has packaged in Vista is top of mind. Symantec has made acquisitions outside its core area of antivirus software in an effort to stay ahead of Microsoft's entry into the security market; Vista includes antispyware and firewall software, and Microsoft has been promoting a package of antivirus and other security software called Windows Live OneCare (see BusinessWeek.com, 1/31/07, "Getting the Skinny on Vista Security"). "We know the history of Microsoft," says Symantec CEO John Thompson. "They are relentless." Also in harm's way could be Adobe, maker of Acrobat and Flash software, which competes with technologies included in Vista. The companies face a two-fold challenge: ensuring their products work with Vista while continuing to compete with Microsoft.

No Pain, No Gain?

How much benefit—or detriment—Vista poses for other software makers is of course contingent on its own sales. The system hasn't exactly shot out of the gate: During its first week on the market in late January and early February, U.S. retailers sold 59% fewer copies of Windows Vista than they did of Windows XP during its first week of sales in 2001, according to market researcher NPD Group. Dollar sales were down 32% compared with XP. In New York on Feb. 15, Microsoft CEO Steve Ballmer told financial analysts to temper their revenue forecasts from Vista during the company's 2008 fiscal year, which begins July 1, calling them "over-optimistic" (see BusinessWeek.com, 2/16/07, "Microsoft Slips After CEO Talks Down Some Vista Estimates").

Credit Suisse analyst Jason Maynard said in a Feb. 15 research note that Ballmer came off too bearish. "Ballmer did a poor job of communicating realistic expectations about Vista growth," he said. Maynard expects revenue from desktop Windows to grow 8.5%, to $16 billion, during Microsoft's next fiscal year, and hasn't modified his forecast. At a Feb. 20 press conference in Ottawa, Canada, Microsoft Chairman Bill Gates also dismissed suggestions that the company is cautious about Vista sales. "Vista's had an incredible reception," he said, according to Reuters. "People who sell PCs have seen a very nice lift in their sales."

Makers of compatible software are hoping that before long, the same may be said of them—that is, once they've tuned their products for Vista. Corel (CREL) has been working for nearly a year on getting products, including its WordPerfect and CorelDraw graphics suite, certified for Vista, says Richard Carriere, general manager for office productivity. But the company's engineers have been bogged down by technical problems and slow answers from Microsoft. "It's not painless, dealing with Microsoft on this issue," says Carriere. "Thank God they don't change their operating system too often nowadays."

Ricadela is a writer for BusinessWeek in Silicon Valley.