The IT Nerd

I’m not sure I buy this myself, but Microsoft has responded to this lawsuit by saying that it doesn’t make any money from Vista to XP downgrades:

“Microsoft does not charge or receive any additional royalty if a customer exercises those [downgrade] rights,” said Microsoft spokesman David Bowermaster in an e-mail late last week. “Some customers may choose or need to obtain media or installation services from third parties to install the downgrade version.”

Now that sounds like what I was talking about in my original post about this issue. Microsoft never used to charge you if you wanted to downgrade to an earlier OS. So the charges that OEMs like Dell and Lenovo have been charging have always struck me as being weird. This therefore implies that the OEMs are screwing the consumer. Dell for one says that’s not the case, and the costs that they charge consumers come from Microsoft:

Dell countered that although it did charge $20 to install XP on the machine, as well as to cover the cost of the additional media, the bulk — $120 of the $150 — was the price of upgrading the PC from the standard Home Premium to the more expensive Business edition.

And:

“Microsoft mandates that customers who want to downgrade to XP must purchase the license to Vista Business or Vista Ultimate,” said Dell spokesman David Frink last December. “[That’s] typically about a $130 premium, though some retail outlets charge more.”

The reason for the upgrade to Vista Business or Ultimate is that there are no downgrade rights from the home versions of Vista. Therefore you have to buy more upscale version of Vista to downgrade back to XP. I’m sure that the cash from that will somehow end up in Microsoft’s bank account at the end of the day. Which means that one could argure that they do in fact make money from XP downgrades. After all, If a customer wanted a XP and they were buying a machine with Vista Home on it, they have to upgrade to the Business or Ultimate version of Vista to get XP. That’s extra cash for Microsoft as the customer has just been upsold.

But I’m likely pulling a Fox Mulder here. Having said that, the truth is out there and will likely be revealed in court.

The Seattle Post-Intelligencer has a claim from Keith Leffler who is an “expert” on the side of the plaintiffs in the Vista capable lawsuit that Microsoft made $1.5 billion from PCs that run only the most basic version of Vista, but were branded as “Vista Capable”:

I have been asked by Plaintiffs’ counsel to estimate the amount of revenue earned by Microsoft from the licensing of Windows XP on Vista Capable but not Vista Premium Ready PCs sold to Plaintiffs. In Microsoft’s Supplemental Responses it estimates that it received revenue of [redacted] from Windows XP licenses on upgradeable PCs sold in the U.S. during the April 2006 through January 2007 period. From the estimates of Windows Capable but not Vista Premium Ready PCs compared to all upgradeable PCs as in Table 1, I estimate that [redacted] of the [redacted] from Windows XP licenses on upgradable PCs were for XP licenses on Vista Capable but not Vista Premium Ready PCs — those PCs purchased by the Plaintiff class. From these figures, I have, therefore reached the opinion that Microsoft revenue from the Windows XP licensing on Vista Capable but not Vista Premium Ready PCs sold to Plaintiffs was $1.505 billion.

If this is true, then it shows that Intel was not the only company to gain from pushing out these “Vista Capable” PCs despite the fact they they aren’t capable enough to run things like the “Aero” interface. Although I’d love to know how much money Intel made due to the “Vista Capable” program.

This should be fun.

According to the Seattle Times, US District Court Judge Marsha Pechman has ruled she wants Microsoft CEO Steve Ballmer to answer questions in the Vista Capable lawsuit. Specifically, she wants to hear what Ballmer said to Intel CEO Paul Otellini on January 30th, 2006. Because after that call, Microsoft changed to its Vista Capable marketing program that would help Intel move hardware that would soon be obsolete. Microsoft released a statement saying that it will comply with the judges order.

I guess the Sgt. Schultz defence didn’t work after all.

I tripped over this article in ComputerWorld today that got my attention. The latest tidbits released in the Vista capable lawsuit shows that Microsoft was worried that it would end up on the wrong side of comparisons between the Mac and Vista over a year before Windows Vista’s release. An e-mail thread from October 2005 showed that an article in the Wall Street Journal by Walt Mossberg grabbed the attention of managers at Microsoft:

“You also won’t have to worry about Vista if you buy one of Apple Computer’s Macintosh computers, which don’t run Windows. Every mainstream consumer doing typical tasks should consider the Mac. Its operating system, called Tiger, is better and much more secure than Windows XP, and already contains most of the key features promised for Vista.”

It should be noted that Tiger was the most recent Macintosh OS available at the time Mossberg wrote the article.

Freaked out by this, Padmanand Warrier, a developer in the Windows group fired this article around Microsoft and made this statement:

“A premium experience as defined by Walt = Apple. This is why we need to address [the column].”

Richard Russell, a Microsoft development manager shot back almost immeidately with this:

“My takeaway from Walt’s article is that we have failed to communicate Vista’s value,” Russell said in an e-mail reply sent just 20 minutes after Warrier fired off his.

So. What does it mean? My guess is that Microsoft reacted to this badly and set a bunch of events into motion that got them into the situation they are in today. Not to mention making Vista the target of Apple ads.

Some more internal e-mails relating the the “Vista Capable” lawsuit have hit the streets. These ones are good as it proves that Microsoft caved to Intel to allow Vista to run on computers that can’t run Vista well:

“At the heart of Intel’s pressure was its 915 chipset, which was incapable of running Vista’s Aero interface. Intel had a significant number of those chipsets on hand. Because the chipsets were incapable of running Vista, Intel wouldn’t be able to unload them. That’s why they pressured Microsoft into putting “Vista Capable” stickers on PCs with 915 chipsets, even though those PCs couldn’t run Aero or other parts of Vista.”

Now, if you’ve followed this story on my blog you’re likely saying “Yeah, you’ve said that before, so what’s new?” Here’s what’s new. First Microsoft CEO Steve Ballmer may have known more than he claims to:

“Less than a week later, after a great deal of internal bickering going on at Microsoft, Microsoft backed off and acceded to Intel’s wishes. Intel CEO Otellini even sent a note personally thanking Ballmer.”

That sure doesn’t sound like someone who used the Sgt. Schulz defence to keep himself out of court. Next is this e-mail from Microsoft exec Mike Ybarra who was one of many Microsoft employees who were furious at this decision:

“This kind of [s**t] drives me crazy, Chris. We have pushed UI in Vista so hard in the last 18 months and we get our OEMs to go with higher end chipsets and graphics parts on existing PCs to really drive the experience for consumers and at the last minute we cave to Intel and give 915 and other chipsets a backdoor into the programs. I hate the idea of a consumer upgrading a PC that we have marked as “Vista Capable” and not getting the great UI experience.”

Ex- Microsoft exec Jim Allchin was even more furious:

“I’m sorry to say that I think this plan is terrible and it will have to be changed. I believe we are going to be misleading customers with the Capable program. OEMs will say a machine is Capable and customers will believe that it will run all the core Vista features. The fact that aero won’t be there EVER for many of these machines is misleading to customers. … We need to meet on this. Please set this up ASAP. We need something simpler in my view. I know we don’t want to hurt the OEMS, but end-customers must be the top priority. We must avoid confusion. It is wrong for customers. And we probably will have to change your current plans”

You can guess what happened next. The plan went ahead, end-customers were pissed, Microsoft got sued. I’ve said it before and I will say it again. Microsoft needs to settle this out of court and make this go away. These e-mails paint Microsoft in a rather negative light and it is in their interest to stop the bleeding ASAP. Otherwise, Apple will quickly replace Microsoft at the top of the food chain.