Microsoft scores big with early Windows 7 sales

Microsoft sold over three times more copies of Windows 7 in the week surrounding the Oct. 22 launch than it did Vista during its opening days in 2007, a retail marketing research analyst said.

For the week of Oct. 18-24, and including the large numbers of pre-orders that Microsoft and online retailers took starting last June, Windows 7 unit sales were 234% higher than Vista's in its first days in January 2007, said Stephen Baker, an analyst with the NPD Group.

“I would call it pretty good,” Baker said, “but I wouldn't call it great.”

Baker said that expectations for Windows 7 were even higher than its actual performance, but the tough economy and retailers' reluctance to give up on either Windows XP or Vista created what he called a “headwind” for Microsoft's new operating system.

“The fact of the matter is that prior to the launch, there were a lot of operating systems out there,” Baker said. “When Vista launched, you didn't see a lot of Windows Millennium PCs,” he said, referring to the edition that preceded Windows XP. “Windows 7 will be more of a long haul.”

More retailers kept computers powered by Windows XP or Vista on their shelves in the days just before, and also after, Windows 7 launch, explained Baker. “We didn't see the precipitous decline in inventory that we saw before Vista. Then, retailers were 'cleaner,' they didn't have really anything available except for Vista. But now, netbook sales made it easier for retailers to carry inventory with XP up to Windows 7's launch.”

While unit sales of Windows 7 were up dramatically over Vista's early numbers, the new operating system brought in a less-than-stellar 82% revenue increase over Vista.

Baker credited the smaller revenue boost to Microsoft's deep discounting of pre-orders last summer, when it sold Windows 7 Home Premium Upgrade for $49.99 for two weeks in the U.S. Microsoft. And its OEM partners have also offered a second deal that discounts a Windows 7 upgrade as much as 58% when consumers purchase a new PC equipped with the operating system.

Those bargains pushed down the average sales price, or ASP, of Windows 7 in NPD's initial tracking. The ASP of Home Premium Upgrade, for example, was just $76 by Baker's estimate, much lower than the $119.99 list price.

“Those lower ASPs kept revenue from growing as much as unit sales,” Baker said, adding that while NPD could not break out the percentage of sales for each retail edition, it was clear from the Home Premium ASP that that version made up the bulk of the early sales.

Windows 7 Ultimate, he added, sold fewer copies than did Vista Ultimate in 2007, another factor that contributed to the smaller revenue gain by the new OS.

Microsoft, in fact, has gone to some lengths to downplay Windows 7 Ultimate, with executives saying that it would account for a very small percentage of sales, and the company's marketing materials stressing that Home Premium is the version most consumers should purchase.

Neither message about Ultimate will come as a surprise to many consumers who paid top dollar in 2007 for Vista Ultimate, then complained when Microsoft didn't deliver on promises for the “Ultimate Extras” feature. Microsoft subsequently discontinued development on Extras, which was to provide Ultimate-only free downloads, and then ditched the concept for Windows 7 Ultimate.

While retail copies did well, PC sales were less impressive. They were higher than any week during the high-volume third quarter, when back-to-school sales dominated, but they weren't as strong as the uptick during Vista's launch, Baker said.

PC sales during the week of Oct. 18-24 were up 49% year-over-year, and up 95% over the week prior to Windows 7's debut. During the corresponding periods for Vista, however, PC sales were up 68% and 170%, respectively. Because of the drop in PC prices since 2007, particularly in the new netbook category, Windows-powered PC sales revenues were actually down 6% compared to sales during Vista's launch week.

Baker expects Windows 7 hardware sales to improve. “There was a lot of speculation before Windows 7's launch about how many netbooks would be out there with XP,” Baker said. “But it looks like the PC makers and Microsoft came to some kind of accommodation, because almost everything [in netbooks] is now running Windows 7 Starter. XP is going to be much smaller as we go into 2010 on netbooks.”

Microsoft has characterized early Windows 7 sales as “positive,” but has declined to reveal figures, saying that it's too soon to tell exactly how well it's doing. CEO Steve Ballmer, however, crowed that Windows 7 was doing great in Japan. “We've had a great response here in Japan,” Ballmer said at a Tokyo news conference on Wednesday. “Certainly, we've seen initial sales be fantastic. The first 10 days were bigger than the first 10 days of XP or Vista or any other Windows launch that we have done.”