The End of Windows XP

Microsoft has announced it will stop selling windows XP for new PC's beginning June 30, 2008. The decision has sparked some controversy, and a petition, among loyal XP users who prefer it over the company's new operating software, Vista. The article states that many chief technology officers and IT managers found "no compelling reason" to switch. Stating that the amount of money this is needed to be spent on new hardware and training to support the new interface is not worth what added features Vista has to offer.

Given Microsoft's market power; it only makes good business sense for the company to make this move. As current user's PC's age and they shop for a new replacement, they will have little choice but to buy a new PC with the more costly Vista OS. Microsoft is only doing what any business with market power would do. I say, let them go for it.


Trinity said...

I think your suggestion to go ahead and only sell Vista is a little myopic. In today's software industry, there are many operating systems to choose from that may even work better than Windows. Microsoft may be wiser to listen to its customer base on these major decisions or people may begin to switch to companies with less predatory strategies. Microsoft must continue to work hard to maintain its dominant marketshare.

John said...

I'm going to agree, to a point, with what trinity said "there are many operating systems to choose from that may even work better than Windows." This is true in that many other operating systems are more reliable, have better security, and consume less resources than windows, especially Vista (don't even think about running vista with less than a gig of RAM), but many of these systems have problems, a major one being software compatibility. Many programs don't work on other operating systems; in fact you'll see that most companies produce only Microsoft compatible programs. We're starting to see more options available, but the market still demands Microsoft compatibility. I agree with Rearden, Microsoft has the market power, but perhaps they need to be looking forward and realize to protect some of that power they may need to make a few more concessions to their users to make them happy so they can retain them as competition enters the market.

TheFindlay said...

Can we be completely honest with ourselves? Whether we agree with their decision or not they are Microsoft and they will do as they please. It makes perfect business sense for Microsoft but becomes a big, and unnecessary, fetter for the consumer. For this reason a whole lot of really great people created something called OpenSource. OpenSource is a far better solution, with more options, ridiculously less bugs, and a solution that doesn't laugh at you all the way to the bank. OpenSource is free from monetary consumption and free from Microsoft’s “All Seeing Eye.”

Olivia said...

Can an intelligent manager honestly say with some sense of self respect that they could not see this one coming? And here is what I have to say, petitioners should stop complaining and just stop buying. I take issue with those that think that some process outside of market transactions is the answer to unwelcome conditions. We should all wake up and have a little faith in the power of our own dollar.

Rearden said...

Olivia, I think you hit it spot on! The fact is, if we don't agree with Microsoft's business plan, or feel its products are not worth their price, we take our money elsewhere. We don't petition the government or anyone else to step in and do something we can do ourselves.

Dr. Tufte said...

I'm bothered that no one mentioned network externalities.

XP has them, which is one reason why people don't want to switch.

Microsoft has no reason to create them for Vista other than the chance to resell operating systems to people who already have them. One way to jump-start a network externality is to cut out the cannibalism.

John Smith said...

It is interesting to read this article in 2015, due to the fact that Microsoft is now on Windows 10, having gone through Vista, Windows 7, Windows 8, and Windows 8.1 since the article was originally written. It is also of interest to view this line from the article, “Given Microsoft’s market power… they will have little choice but to buy a new PC with the more costly Vista OS.” A couple of years ago, I purchased a PC that came with Windows 7. Now, a couple of years later, I have the same PC, but it is now running Windows 10. I haven’t had to purchase a new OS, as Microsoft’s strategic plan has switched to giving away their OS, rather than selling it. The question that must be asked is “Why?”

There are several reasons. A quick Google search of, “Why does Microsoft give away Windows 10?,” produces over 20 million results. The one I would like to focus on is the economics of marginal rate of substitution. Microsoft wielded market power in years past. They had been a price maker, rather than a price taker. Then came the development of the iPhone and the iPad. Though there were some that came before and many that came after, these two versions of smart phones and tablets were a disruption in the market. People no longer needed PCs to perform their work. They had numerous other options, which were pushing the PC toward obsolescence. If consumers weren’t using a PC, they didn’t need Windows. With Microsoft being slow to the smart phone and tablet party, when they put their OS on those products, respectively, there were too many other options that consumers were more familiar with, and which many reviewers classified as being better.

At one time, Microsoft basically had a monopoly when it came to personal and business computing. When consumers began to substitute other goods for their PC, however, and still maintained the same level of satisfaction or increased in satisfaction, Microsoft began to decline. Microsoft was forced to give away their OS for free to consumers to get them to substitute back to them. Monopolies only have power until there is a disruption in the industry; and, when such disruptions occur, those monopolies better be ready, or they could be in for a huge fall.

Dr. Tufte said...

John Smith: 50/50 (I think I'd accept "smartphone" or "smart phone" as long as you are consistent. You were.

Interesting John — this is an ancient post ... I'm sitting here trying to remember who these other students were. :-)

I'm not sure that at least some of what Microsoft did wasn't related to the hardware and the underlying security of what's known as the kernel. Vista was an attempt to address those issues. When people didn't like Vista, they substituted Windows 7. Again, Windows 8 was an attempt to deal with new hardware. When that went badly, they moved on to the new and improved Windows 10.

But for all of these, to what extent were they actually charging much for them at all? Think about how this should work: with software, it's almost all fixed costs, with exceptionally low variable costs (especially for OEM installations or downloads). So most of what we call the price is already a huge mark-up over marginal cost. Even so, I wonder if those mark-ups could be even larger? If mark-up depend on elasticity, it seems to me that operating system demand should be very inelastic (since you can't do without one), and thus the mark-ups will be huge. I wonder if Microsoft is actually not charging you the mark-ups that it could, but is instead playing some sort of strategic pricing game?

In the end, I generally like your position that Microsoft was a monopoly that lost that power through the innovations of others. This is consistent with the theory of contestable markets. I'm just not sure that I'd sell the case for Microsoft's monopoly as hard as you did.