The Price Microsoft Pays By Ignoring Vista Customers

We read a lot about the value of listening to your customers and understanding your markets. We don’t hear as much about what happens when you ignore your customers. Thanks to documents exposed as part of a class action lawsuit, we get to see just how bad it can be. Maybe even billions of dollars.

Microsoft Pays Immense Price

Microsoft’s Windows Vista operating system release just over a year ago has been a smashing non-success. You would be impressed to know that they sold 100 million copies of Vista in the first 14 months. Until you realized that 250 million personal computers were sold last year – and most of them still came with Windows XP. Then you would be much less impressed. Microsoft intended to end-of-life (stop selling) Windows XP shortly after the Vista launch. But there was too little user adoption, too many bad reviews in the press, and too much push-back from their biggest customers – OEMs.

This week, Microsoft announced that they were lowering the retail price for Windows Vista. Not that that really means anything – the vast majority of copies are sold to OEMs. But it does put them back in the spotlight, as they try and do some sort of damage control for their poorly managed product / product release.

Note – it is important to point out that this is not a criticism of the Vista operating system. The quality of the OS, good or bad, is unrelated to what we focus on in this article. Simply put, Microsoft ignored the feedback from their customers prior to launch, and immediately after launch. And they are paying for it.
A judge ruled that consumers can file a class-action lawsuit for how Microsoft marketed Windows Vista. The suit may cost Microsoft a lot of money in settlement fees. It certainly costs a lot in bad publicity, which translates to revenues, and therefore market capitalization. And all because they ignored their customers and caved to the pressure of another heavyweight – Intel.

Intel Outside and Inside

We regularly hear the horror stories about people feeling like they got a “bait and switch” when it comes to buying new computers equipped with Windows Vista. Most computers (70-80% of all produced models at the time of launch) sold by OEMs (Microsoft’s customers) were labeled “Vista Capable” but could not run most of the features of Vista – including the new user interface that was the most visible change (to novice and competent users). It turns out that only between 20 and 30% of the desktops and laptops could run the Aero glass features (the cool new UI) at all, and then only poorly. Most computers had an older, cheaper Intel 915 chipset, with the 945 chipset available in a minority of computers.

In February 2007, just after Vista launched, Microsoft’s Steve Sinofsky told CEO Steve Ballmer that the 945 chipset, required for the “Vista Premium Ready” logo, could barely run Vista. And everyone (inside the PC industry, at least) knew the widely used 915 chipset that was awarded the “Vista Capable” logo couldn’t even think about running the advanced display driver model used to deliver the fancy Aero interface, considered one of the major selling points of Vista.

High time for Intel to get serious about graphics, Tom Krazit

Thanks to the class-action lawsuit against Microsoft, the court has released 158 pages of emails (pdf) specifically about the “Vista Capable” logo and Intel.

Tricia Liebert summarizes the situation today for Tech Republic:

It begins with the Intel chipset. In Feb 2006, the chipset in bargain notebooks was the 915. Unfortunately, the 915 chipset cannot provide the graphics power necessary to power Aero Glass. Intel voiced concern to Microsoft that it would not be able to supply the certified 945 chipset in sufficient numbers to qualify enough PCs for the Vista Ready logo. Microsoft’s response was to certify the 915 chipset, knowing that it would not be able to deliver the entire Vista experience.

What Microsoft was willing to do for “Wintel”, Tricia Liebert

Todd Bishop also writes a good detailed review of the documents. In another article, Tom Krazit highlights just how important this would be to Intel:

Intel apparently felt that if only 945 chipsets were deemed Vista Ready, that demand for systems with 915 chipsets–still a significant mix of its products–would fall off the face of the earth. And also, that it would be unable to produce enough 945 chipsets to meet its committments to PC makers–orders that might otherwise go to Advanced Micro Devices.

Microsoft emails reveal Intel pressure over Vista, Tom Krazit

So Intel shoved, and Microsoft toppled. But Microsoft’s customers were screaming “NO” at the time. And Microsoft ignored them.

As Bishop points out for us, John Kalkman, a Microsoft exect said in an email in Feb 2007:

In the end, we lowered the requirement to help Intel make their quarterly earnings so they could continue to sell motherboards with the 915 graphics embedded.

Customer Says…

The New York Times summarizes Dell’s opinions on several fronts, as expressed in the released documents. Slide 5 of a presentation from Dell to Microsoft (p14 of the court documents) explicitly asked Microsoft to not lower the bar for hardware to allow the entry-level machines to get tagged with “Vista Capable.” Dell cited concerns with education of their customers, setting of expectations, and communication. Dell also complained about the complex product (sku) structure that Microsoft was using.

Walmart also complained, as did HP. Some folks within Microsoft were listening, but unable to prevent the mistakes. Mike Ybarra said on Feb 01, 2006 (a full year before the launch) “I am passionate about this and believe the decision is a mistake.” One other Microsoft exec commented that this feedback was consistently heard from “all retail customers.”

It would be bad if Microsoft’s customers didn’t express their desires and concerns. It is horrible that they did, and Microsoft chose to ignore them.

Best Buy did provide an interesting perspective – they felt that if Microsoft kept their original approach of only labeling those machines that could run the full Vista capabilities, then Best Buy would prefer to delay until late summer of 06 to announce (instead of CES at the start of 2006).

One voice of futility from the trenches (p 137 of the court documents) that made me feel some compassion:

Based on the objective criteria that exist today for capable even a piece of junk will qualify :)

So based on that yes 865 will qualify.

For the sake of Vista customers, it will be a complete tragedy if we allowed it. I don’t know how to help you prevent it.

Anantha Kancherla, Mar 01, 2006

The Lesson

Listen to your customers, and stand up for them!