June 26, 2001 3:10 PM PDT

Windows XP marketing tab to hit $1 billion

Microsoft said Tuesday that it, together with Intel, PC makers and retailers, will spend $1 billion promoting Windows XP, the software giant's upcoming operating system.

Microsoft and Intel alone will spend $500 million to market Windows XP, which is slated for an Oct. 25 launch, with PC makers and retailers spending another $500 million. In May, Jim Allchin, Microsoft group vice president, said the company would spend "hundreds of millions of dollars" promoting Windows XP.

Microsoft will spend a combined total of more than $700 million on marketing to launch Windows XP and the Xbox video game console this fall, according to estimates from the company and Merrill Lynch. Xbox is set to debut Nov. 8.

Greg Sullivan, Windows XP lead product manager, positioned the huge marketing investment as more than just Windows XP.

"Intel has mentioned they will spend at least $300 million marketing Pentium 4," he said. "When we talk about what the industry is doing, it's not just about marketing Windows XP but Windows XP PCs." Sullivan said Intel rival Advanced Micro Devices "is going to getting behind Windows XP" as well.

Microsoft finalized Windows XP marketing plans on Tuesday during a Las Vegas meeting with 600 partners, including PC makers and retailers.

Analysts have been divided over what impact Windows XP's release will have on fourth-quarter PC sales, with others speculating the operating system's release could even cut into third-quarter PC sales. Earlier this month, market researcher IDC issued a chilling forecast that U.S. PC sales would decline by 6.3 percent year-over-year.

But Sullivan believes Windows XP's release will lift sagging PC sales. "Fourth quarter is going to be the biggest thing the industry has ever seen," he said. "This is a unique opportunity."

Microsoft wants to ensure that happens through a clear, coordinated marketing effort.

"We're taking the cooperation we've had on a technical level with the PC (makers) and said, 'How can we work together in marketing how to communicate the benefits of a Windows XP PC,' " Sullivan said.

Product managers at Gateway, for example, said they have seen a greater willingness from Microsoft to partner than in any previous operating launch.

Several PC makers also dismissed concerns that building hype around Windows XP could drive down third-quarter sales as consumers and businesses delay purchases until the operating system's release.

"We do not expect overall buying patterns to change dramatically in the third quarter," said IBM spokesman Ray Gorman. "Typically, large accounts do not transition to a new operating system this quickly. Consumers, on the other hand, tend to want the latest and greatest.

"Small-business and middle-market accounts are a mix." he added. "Some will move to XP right away, others will migrate over time. In all cases, we are working with Microsoft to make sure that our PC products are Windows XP-enabled now."

The news comes as Microsoft reaches the final stages of Windows XP product development. The company last week released what is expected to be the last test version of Windows XP before a highly anticipated preview release. Sources close to the company said the preview code could be sent to manufacturing as early as Friday, but possibly as late as July 4.

Sullivan confirmed that the preview, which would also be the first Windows XP release candidate, could come later this week. "We're working hard and coming down the home stretch," he said. A release candidate is a final test version before a software package is distributed. Microsoft is expected to have a second candidate by early August.

Microsoft is expected to deliver a completed version of Windows XP to PC makers by the end of August, according to sources close to hardware manufacturers.

Last week, Microsoft unveiled the "Windows XP Ready PCs" program, working with computer manufacturers to deliver hardware that fully supports the new operating system.

In preparation for the launch of Windows XP, major PC makers have been offering coupons for Windows XP upgrades for PCs bought after June 1. Gateway's Windows XP upgrade, for example, costs $15 with its coupon, while Dell Computer charges $39.

Windows XP is Microsoft's most ambitious consumer and business desktop operating system since the release of Windows 95 about six years ago. The new version sheds the last ties to DOS and Windows 3.11, as XP is based on Windows 2000, the version of the operating system originally created for business consumers. Because of its heritage, Windows XP is expected to be more stable than Windows 95, 98 or Me and to offer better memory management and multi-tasking--the ability to run many programs at the same time.

Sullivan said Microsoft would spend double what it did to launch Windows 95.

"In some respects, the Windows 95 launch was a singular event in our industry's history," he added. "Some of that we will never be able to recreate. There will never be another Windows 95, but there's never been anything like Windows XP."

That's because "the PC industry is certainly a different ecosystem than it was in 1995," Sullivan said. "You certainly didn't have some of these digital cameras, whole host of devices and Internet services that are no considered part of the PC."

Windows XP will be available in two versions: Home and Professional. While the basic features are expected to be similar, the business version will have more robust networking and security features, said Shawn Sanford, Windows group product manager.

New features include a new Windows Media Player, which will not be available separately; Windows Messenger, a communications console featuring instant messaging, videoconferencing, telephony and application sharing; an Internet firewall; a file migration utility for transferring settings and programs from older PCs; multiple user log-in; and Windows Movie Maker, among others. Support for Bluetooth wireless technology and USB 2.0 is not yet available but is expected to be soon after Windows XP ships.

But some of these new features could come at a price: the need for more memory and processing power. While Microsoft says a 400MHz Pentium II and 128MB of memory will be adequate for running Windows XP, analysts warn much more may be needed when using the new features, such as videoconferencing and multiple-user log-in.

"I would recommend an additional 64MB of memory for each person using the same system at the same time," said Gartner analyst Michael Silver. Gartner recommends at least a 600MHz Pentium III PC and 128MB or more of memory.

But some Windows XP beta testers scoffed at this and similar recommendations as too high.

Nik Simpson, a Windows XP tester from Coral Springs, Fla., conceded some high-end multimedia features, such as video editing, would demand more processing power. But he blamed software applications and not Windows XP.

"Granted, now Microsoft is making it easier for you to use it for other things that will require additional CPU power when you use those applications, but it's not the OS's fault," he said. "My sister has a Dell 300MHz (PC) with 128MB of memory that she bought a couple of years ago. For the things she does--surf the Net, use office apps and send e-mail--she will not need an upgrade."

 

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