Thanks to everyone who responded to the independent, joint ITIC/Sunbelt Software survey on Windows 7, Desktop Infrastructure and Cloud Services deployment trends and issues. Please NOTE: no vendors sponsored this survey or in any way influenced the results.
Over 400 of you from 22 countries took time out of your busy schedules to respond to our poll.

Windows 7 is a winner!

As we noted in our previous blog, Windows 7 officially celebrates its 1st birthday, today — October 22nd. And there are plenty of reasons to celebrate. Yes, Windows 7 has sold over 240 million copies, to date making it the fastest selling OS in Microsoft’s (or any vendor’s) history. And yes, many of those sales can be attributed to pent-up demand because the overwhelming majority of the Windows installed base elected to remain on Windows XP and skip Vista. Admittedly, many organizations would opt to remain on Windows XP indefinitely if Microsoft was not ending support for the nearly 10 year old desktop OS. Those disclaimers aside, Windows 7′s success is no fluke.

A three-quarters majority – 73 percent of the 400+ respondents to the latest joint Sunbelt Software/ITIC poll, gave Windows 7 an “excellent,” “very good” or “good” rating.
That’s very close to the 80 percent majority of beta and early adopters who gave the Windows 7 the same high marks in the 2009 survey. The latest responses, coming after corporations have used Windows 7 in production for a full year, provides the best evidence that the Microsoft operating system is living up to the hype and fulfilling business’ needs. Only a small three percent minority of survey respondents gave Windows 7 a “Poor” and/or “Unsatisfactory” rating.
And a 72 percent majority of survey participants say they have already deployed, are in the process of deploying or will shortly deploy Windows 7. Only 7 percent of those polled indicated that they are “unlikely” to deploy Windows 7 at all and none of the respondents said they plan on switching to a rival operation system.
Lack of funds was the chief reason cited by the remaining 21 percent of respondents who said they have no definitive plans to upgrade to Windows 7 over the next 12 months. Anecdotal user comments confirmed that many companies are still in the grip of a recession and will wait until they upgrade their desktop hardware to migrate to Windows 7.
Windows XP is still the most widely deployed desktop OS – with 90 percent of the respondents indicating it was present in their shops. But Windows 7 is catching up quickly: 83 percent of those polled say they’ve deployed Windows 7 compared to only 37 percent who have Windows Vista.
Interestingly, the Apple Mac is the most popular non-Windows operating system as mainstream enterprises continue to adopt it. According to our poll, Apple Macs are present in 28 percent of your networks – which is three times more than the two most popular Linux and open source operating system distributions. Nine percent of survey respondents indicated they use Red Hat Linux and Ubuntu – the latter of which has made steady gains in the last two years.
Among large enterprises, IBM’s AIX was clearly the most popular UNIX distribution, besting both HP UX and Sun Solaris (now owned by Oracle) by a 2 to 1 margin.
Nearly two-thirds or 60% of you indicated you will deploy Windows 7; 30% of you say you’ll migrate to the new Microsoft desktop operating system within the first six months while another 30% say intend to make the transition sometime within the year. Four out of 10 businesses – 40% — have no definitive migration timetable.

Windows 7 is now officially a year old. Since it was released October 22, 2009, Microsoft has sold over 240 million copies of the operating system — approximately seven copies per second. That makes it the fastest selling operating system in Microsoft’s history or any vendor’s history. Some industry pundits estimate that Windows 7 sales will top 300 million within the next six-to-eight months.
Microsoft has plenty of other reasons to celebrate Windows 7’s first birthday. Windows 7 has also been one of the most stable, reliable and secure releases in Microsoft’s history.
A three-quarters majority – 73 percent of the 400+ respondents to the latest joint ITIC/Sunbelt Software poll, gave Windows 7 an “excellent,” “very good” or “good” rating.
That’s very close to the 80 percent majority of beta and early adopters who gave the Windows 7 the same high marks in the 2009 ITIC/Sunbelt Software survey. The latest responses, coming after corporations have used Windows 7 in production for a full year, provides the best evidence that the Microsoft operating system is living up to the hype and fulfilling business’ needs. Only a small three percent minority of survey respondents gave Windows 7 a “Poor” and/or “Unsatisfactory” rating.
Windows 7’s immediate and intermediate future appears similarly rosy: a 72 percent majority of survey participants say they have already deployed, are in the process of deploying or will shortly deploy Windows 7. Only seven percent of those polled indicated that they are “unlikely” to deploy Windows 7 at all and none of the respondents said they plan on switching to a rival operation system.
Lack of funds was the chief reason cited by the remaining 21 percent of respondents who said they have no definitive plans to upgrade to Windows 7 over the next 12 months. Anecdotal user comments confirmed that many companies are still in the grip of a recession and will wait until they upgrade their desktop hardware to migrate to Windows 7.
So great has been the demand for Windows 7, that it has fueled record revenue and earnings for Microsoft over the last three fiscal quarters. Microsoft recorded record revenue of $16.04 billion for the 2010 fourth fiscal quarter ended June 30.
In fact, Microsoft’s financials and balance sheet over the last several quarters is pure gold (see below) and is or should be the envy of just about any business.

Microsoft by the Numbers
Profit Margin: 30.02%
Operating Margin: 39.51%
Return on Assets: 18.82%
Return on Equity: 43.76%
Revenue: $62.48B

Quarterly Revenue Growth: 22.40%
Gross Profit: $50.09B
Quarterly Earnings Growth: 48.40%
Total Cash: $36.56B

Total Debt: $5.97B

Source: Capital IQ

Instead, many industry experts and observers paint a grim picture of the 35 year-old Microsoft in a midlife crisis, well past its prime and unable to compete in new and emerging markets like smart phones, search engines, online search and advertising and the cloud against edgier rivals, most notably Apple and Google. Recent articles have made much of the fact that Microsoft garners far fewer headlines these days – about one-third to one-half as many mentions – as Apple, Dell, Google, Hewlett-Packard, IBM, Oracle, Research in Motion (RIM) and VMware to name a few.
Press of course, is relative, depending on the type of news one is generating. Still the prevailing sentiments in the news business are that “No news is not good news” and “It’s better to be damned than ignored.”
Microsoft executives are no doubt grateful that for a change, they are not one of the headliners in the increasingly vitriolic verbal volleyball that characterizes HP and Oracle’s disintegrating partnership. Similarly, press reports about Microsoft and its executives have been remarkably devoid of scandals – such as those that have recently rocked the HP board of directors.
That then begs the question, if Microsoft’s financials are so rosy, its core Windows and Office products in the black and thriving, why then are some industry observers writing the company’s epitaph?
A Tale of Two Microsoft’s
The answer of course, is that while the numbers aren’t lying, they don’t tell the whole story. For all intents and purposes, there are two Microsoft’s: one is the company that exists in reality and the other exists in the public’s perception. And the two Microsoft’s are indivisible.
The reality is Microsoft’s core businesses – Windows and Office continue to thrive – for now. The industry however, is inexorably changing. It is morphing from a fixed premises, subscription-based licensing model that has been the foundation of Microsoft’s astounding success and dominance over the past three decades to an increasingly mobile workforce that uses smart phones (Blackberry, iPhone, Android et al); tablets (the Apple iPad) and free Email and applications (Google Mail, Google Docs) to stay connected. In these emerging environments, Microsoft is playing catch-up and struggling to stay relevant as rivals like Google and Apple continually assault its core applications businesses.
It doesn’t help Microsoft’s case when high level executives decide to exit the company “to pursue other interests.” Chief Software Architect, Ray Ozzie, the iconic developer of Lotus Notes, is the latest high profile departure. Ozzie, who was touted as Bill Gates’ successor as Chief Software Architect, announced earlier this week that he was leaving Microsoft. No departure date has been publicly announced and until he exits Ozzie will lend his considerable talents to the entertainment division.
Ozzie’s exit follows on the heels of Robbie Bach and J. Allard’s departures earlier this year as executives in the entertainment and mobile divisions, respectively. Bach and Allard reportedly clashed with Microsoft chief executive and other executives on technology direction. Such divisions were made sharper by the flagging fortunes of Microsoft’s mobile and entertainment initiatives. After suffering the stinging embarrassment of pulling its KIN 1 and KIN 2 phones off the market on June 30, a scant six weeks after the product debuted to near non-existent sales.
The company is now regrouping around the Windows Phone 7, which it is targeting at business users. The new Microsoft mobile OS has garnered good reviews so far, now it has got to get users onto the platform. Microsoft will reportedly spend $400 in a fall and winter marketing campaign throughout the U.S. and Europe. Microsoft has more than just money invested in Windows Phone 7’s success. If it fails to gain tangible and significant traction, Microsoft may effectively be shut out of the lucrative but increasingly competitive and crowded smart phone arena.
Microsoft has other definite challenges – and they are daunting ones. It must:
• Make more headway in the search market. Bing is a very good search engine and does have traction. The latest statistics released by ComScore earlier this month, show Bing with an 11.2 percent market share. However, that is far behind Google’s 66 percent.
• Clarify its Azure and BPOS cloud strategies. Microsoft has made significant strides in its cloud offerings and strategies. But its marketing is still muddy. Microsoft must craft a cogent and cohesive cloud strategy and communicate it so that it resonates with the masses of existing Windows customers and potential users.
• Retain and attract top talent. Truthfully, the number and caliber of executive departures from Microsoft over the past several years has been no better or worse than the majority of high tech firms. But Microsoft is under a microscope and is judged more harshly than most of its rivals. Many of the departures were predictable; coming after decades of tenure and after the executives in question had made millions. That said Microsoft must retain and attract top talent. Easier said than done, I know.

The biggest blow of all of course, was Bill Gates’ decision to retire from day-to-day Microsoft operations to concentrate on his philanthropic pursuits. This is great for Gates and his charities but he’s as close as you get to the indispensable man. Remember how Apple’s stock stumbled when speculation was rampant during 2009 about Steve Jobs’ health? Microsoft has also taken a beating in the press with rumors that Ballmer may leave or be forced out of the top spot. The truth is every high tech firm needs a visible face like Jobs at Apple, the triumvirate of Larry Page, Sergey Brin and Eric Schmidt at Google and of course, Larry Ellison at Oracle. Right now, there are no obvious successors or heirs apparent to Gates or Ballmer. For Microsoft’s sake Ballmer should stay at the helm for the time being.
Despite Microsoft’s issues, it would be a big mistake to write the company off. There are lots of positives. They include:
• Revenue and entrenched market share and continued dominance in the Windows and Office markets which should continue for the next several years.
• The Xbox Kinect and Windows Phone 7 appear to be gaining real traction.
• Broad, deep portfolio of cloud products which has shown impressive growth in the past 12 months.
• Robotics: Microsoft is also a pioneer in another crucial emerging market: robotics. Microsoft’s Surface is a multi-touch, combination hardware/software product that enables users to manipulate digital content via gesture recognition, such as hand signals or real world objects. Available since 2008, it has racked up some impressive wins and is in use at Disneyland’s Tomorrowland, select Sheraton Hotels and Harrah’s Entertainment.
• Security and Reliability improvements in the core Windows products. Microsoft’s 2002 Trustworthy Computing Initiative has been a rousing success. According to the National Institute of Standards and Technology’s (NIST) Common Vulnerability and Exposures Database (CVE) SQL Server is the most secure of the major database platforms, with the fewest number of reported vulnerabilities associated with the platform since 2002. And the results from the ITIC 2010-2011 Global Server Hardware and Server OS Reliability survey indicate that 86 percent of respondents rate the security of Windows Server 2008 and Windows Server 2008 R2 as either “Excellent” or “Very Good.” Similarly, 50 percent of survey participants indicated that Windows Server security has “improved significantly” while 24 percent say it has “improved somewhat” over the last three years. At the same time, none of the survey participants indicated they were contemplating wholesale defections to rival platforms, although the number of individual users deploying Apple Macs and iPads is on the rise.

There is no question that Microsoft will survive and continue to thrive in its core markets. The looming question is can Microsoft get its groove back to aggressively mount a challenge to Apple, Google et al, in the lucrative mobile, online, entertainment and cloud markets. It must go back to its roots and aggressively play to its strengths. Microsoft’s $36.56 billion in cash should buy a lot of advertising and a lot of talent.

Everyone loves a good battle. And no market segment has experienced more bellicosity than the operating system arena.

For the last two decades, Microsoft Windows was the undisputed, dominant player with 90% of the desktop OS market share. Today, Microsoft Windows is still the most widely deployed operating system. But its dominance is no longer undisputed.

Microsoft faces an array of formidable challengers including Apple, Google and Ubuntu. Google’s initiatives over the last two years have obviously attracted a good deal of attention – just as they are meant to do.

The recent media coverage and talk of the looming battle between Google’s Chrome OS and Microsoft Windows 7 and Office 2010 conveniently ignores two important facts: 1) the Chrome operating system doesn’t ship until sometime in 2010, and 2) when it does debut it will initially run only on low-cost Netbooks, a miniscule if rapidly growing part of the market.

Other considerations are not as easily answered: What tangible, material impact will this rivalry have on customer deployments? Will Google’s entrance into the Netbook OS market really force Microsoft to slash prices and cut into its Windows profits, the heart and soul of its business? And who besides the press, Google and Microsoft really cares?

It is abundantly clear that Google and Microsoft — each of whom dominates in their core markets – are desperately attempting to encroach on one another’s turf. Google is a convincing leader in the search engine and online advertising market. And Microsoft continues to be the market leader in operating systems and office productivity applications. The sparring has been exacerbated and honed by the ongoing economic downturn. Hence, the series of recent one-upmanship maneuvers. Microsoft announces it’s moving up the release date for Windows 7 and Google responds with headlines of its own about directly competing with Windows. Google said it will partner with top OEM manufacturers like Acer, HP and Lenovo to port Chrome OS onto their Netbook platforms by the second half of 2010. Microsoft counter-punched by releasing details about some of upcoming Office 2010 applications becoming untethered.

Microsoft is aiming straight for Google with its new Office Web Applications. Microsoft Word, PowerPoint, Excel and OneNote are heading to the cloud in scaled down versions of the immensely popular software that will be browser based and completely free. And although details have been sketchy at best, sources within Microsoft indicate company intends to meld the Office platform across traditional PCs and servers, the Internet and smart phones.Microsoft did release new details about Office at its Worldwide Partners Conference (WPC) in New Orleans last week.Among the disclosures: Office 2010 – due out in the first half of next year – will include a free Web edition and it will finally offer interoperability with the Mozilla Firefox and Apple Safari browsers. The Office 2010 Web edition will also incorporate “lite” versions of Word, PowerPoint, Excel and OneNote. Microsoft will likely release more details at its Worldwide Partners Conference (WPC) in New Orleans, this week.

Microsoft and Google continue to circle each other like the battle scarred veterans they are –looking for the weak spot and the right moment to attack, hoping to score a direct hit and encroach on the other’s turf in a meaningful way – e.g. stealing sales and market share.

In truth, neither company has drawn first blood, although not for lack of trying.

Google vs. Microsoft: A Historical Perspective

The rivalry between Google and Microsoft dates back several years. Both covet what the other has and both have met with limited success in their attempts to extend their empires beyond their core competencies and revenue streams. While Microsoft has for the last few years been unceasing in its efforts to penetrate the online search engine and advertising market, it still derives 50% of its revenue from the Windows and Office platforms.
Microsoft’s Bing search engine debuted earlier this year to generally positive results. In fact, Bing is Microsoft’s best effort to date but it remains to be seen how much impact it will have on Google.

For its part, Google launched its first serious offensive strike at Microsoft’s dominance in the operating system and applications arena in early 2006 with Google Apps, a set of web-based and desktop applications. Google Apps consists of Gmail, Google Maps, Google Docs & Spreadsheets and Google Calendar. The company continues to bolster the functionality of the platform, and in 2007-2008 added Standard and Premier offerings that incorporate remote and mobile access capabilities, email migration tools and stronger online technical support. The Standard version of Google Apps is free and the Premier version lists for $50 per seat.

Microsoft & Google by the Numbers

From a financial standpoint, both Google and Microsoft remain healthy, although like every other ITfirm, both have felt the effects of the continuing economic crunch. So far this year, Microsoft has laid off 5,000 employees; this is the first substantial layoff in the company’s history. More worrisome for the Redmond, Washington giant is that its Quarterly Revenue and Quarterly Earnings Growth fell into negative categories (See chart below) from the 2008 to the 2009 third quarter ended March 31. The company hopes that Windows 7 (due out on October 22) and Office 2010 will spur sales and revenue and reverse the decline. At the same time, Microsoft knows it must diversify and so it looks to the Web and the emerging cloud computing market, where companies like Amazon and Google dominate.

Google, for its part has yet to loosen Microsoft’s hold in the rich operating systems and office productivity suite. Google Chrome is free and as such does not generate any revenue for the company but that may change because Netbook sales are poised to explode over the next 12 months and could provide Google with the needed momentum to establish itself as an applications provider.In the meantime, Google hopes that the good news from its latest financial earnings (see chart below) and its aggressive high profile marketing strategy will generate a buzz and create pent-up demand for Chrome in the run-up to its 2010 debut.

Performance Criteria – Q3 2009
Google
Microsoft
Market Cap: $135 billion $206.7 billion
Profit margin: 20.6% 25.9%
Operating margin: 32.6% 37.1%
Total Cash: $19.3 billion $24 billion
Debt: $0 $2 billion
Return on Assets: 14.2% 20.3%
Return on Equity: 16.% 42.5%
Annual Revenue: $22.7 billion $60.4 billion
Annual Net Income: $4.6 billion $22.5 billion
Quarterly Revenue Growth: 2.9% -5.6%
Quarterly Earnings Growth: 19% -32.2%

***Editor’s Note: Google’s fiscal year coincides with the calendar year, while Microsoft’s fiscal year begins on July 1. The above figures represent Google’s most recent second quarter ended June 30.

Future Prospects
What does this posturing and verbal sparring mean for corporate and consumer customers? In the near term, Google and Microsoft’s dueling headlines and pronouncements will have very little impact on customers in terms of platform commitment and purchasing decisions. The ongoing rivalry does mean that neither company can relax or relent for a Pico-second. Each must continue to deliver first-rate, full featured, bug-free products that deliver ease-of-use and integration and interoperability with existing applications and platforms. And both companies must stick to their announced timetables and deliver on their promises, lest one or the other exploit the opportunity.
Microsoft can’t afford a repeat of the lack of backwards application compatibility that plagued its much-maligned Vista desktop. At the same time, Google’s hopes for penetrating the applications and OS market rest on the functionality of its offerings beyond the simple basics that are adequate for Netbook sales.
Ultimately, corporate and consumer customers will demand and receive high performance products at a reasonable price – or they’ll simply sit on their wallets.
The biggest winners in this ongoing war may be the end users. And isn’t that a refreshing change?