June 11, 2001 5:00 AM PDT

Messaging may boost Windows XP sales

Advanced instant-messaging technology could help Microsoft break a string of mediocre-selling upgrades to its ubiquitous operating system, analysts say.

Microsoft last week unveiled Windows Messenger, which takes the simplicity of instant messaging and extends it to videoconferencing, telephony and collaboration. The technology will be available to consumers who upgrade to Windows XP, the next generation of Microsoft?s OS that will be released in October.

While Windows XP offers many performance improvements over earlier consumer Windows versions, such as better memory management and improved crash resistance, those attributes are hard to sell to consumers, analysts say. In fact, in surveying the features that might attract consumers, few analysts had seen anything remarkable enough to radically drive XP sales--until Windows Messenger.

"Up until now, I saw no compelling reason for consumers to upgrade, or businesses for that matter," said ARS analyst Toni Duboise. "But with this new Microsoft announcement, I think that is going to give consumers a reason to upgrade to Windows XP. This might change my forecast for fourth-quarter PC sales."

Sales of software upgrades have been a major concern in recent years for Microsoft and the PC industry, which is suffering through a severe sales slump and price war. Although customers gobbled up new computers and software when Windows 95 was released, sales have been far less robust for subsequent upgrades.

Windows 98, Windows Me and Windows 2000, for example, failed to spark upgrade fever. Windows 2000, in particular, has been adopted at a slower rate than expected.

The forecast for U.S. 2001 PC sales is at best dismal. Researcher IDC last week revised its sales forecast to a 6.3 percent decline from the preceding year, after earlier predicting modest growth of 2.2 percent. Dataquest, which is expected to release a revised forecast later this month, has predicted flat U.S. PC growth on the assumption of a fourth-quarter sales spurt.

For PC and peripherals makers looking for a sign of any sales relief going into the holidays, Windows Messenger may be the answer, said Duboise and Gartner analyst Michael Silver. Windows XP goes on sale at retail outlets Oct. 25 but is expected to appear on new PCs earlier.

"This may be the killer feature because it's the one that consumers can understand," Silver said. "Consumers can't relate to a lot of the other changes, but this is something they can see and use right away."

Still, Silver remained guarded about the larger effect Windows XP might have on holiday PC sales, in part because of the slowing economy. Because of Windows XP's increased memory requirements, "I think a lot of people will be incapable of running it out of the box" and therefore may delay their purchases because they will need to upgrade their PCs or buy new ones, he said.

Third wave of computing
Microsoft's delivery of the feature, which combines videoconferencing and other interactive communications with instant messaging, may be timed just right.

"If you look at the trends in the marketplace with handhelds and other devices, people want to communicate, whether that be at home or work," said Technology Business Research analyst Lindy Lesperance.

During the first wave of computing, software applications, such as word processors and spreadsheets, drove sales. During the second phase, people bought PCs to get on the Internet. The next stage will be about communications and other devices attached to PCs, analysts say.

"The videoconferencing, chat, telephony, etc., places Microsoft well in what I call the PC-plus era," Duboise said. "That's where I see the future of the desktop and the expansion of the use of the PC."

While Microsoft might be hitting the crest of the next computing wave, the company still must deliver. Microsoft's ability to do so "still remains to be seen," Silver said. Windows Messenger is just now entering beta testing and might not find its footing until the second or third version, which is typical for many Microsoft products. The first version of the Internet Explorer Web browser, for example, won few fans.

In addition, Microsoft must deal with the proverbial chick-and-egg conundrum: Consumers may balk at upgrading to XP until they see that several of their friends or co-workers also have upgraded.

Nevertheless, some users are already anticipating the release of Windows Messenger. Dan St. Hilaire, a Windows user and online gamer from Essex, Vt., described Windows Messenger's features as "pretty cool. It's definitely something I would like to try."

In many ways, the features offered in Windows Messenger are not new. Microsoft, for example, provides online collaboration and videoconferencing through NetMeeting, as does video software maker CuSeeMe, among others. AOL Time Warner, Microsoft and Yahoo all offer Internet phone calling with their instant messengers.

But wrapping all those features into one piece of software is unique, said Peter O'Kelly, an analyst with Patricia Seybold Group. While he sees Windows Messenger as a compelling reason to buy Windows XP, he sees at least one other.

"I think many people will see the multi-user login to be a very attractive feature," O'Kelly said. Unlike previous versions of Windows that forced one person to log out before another signed in, Windows XP lets multiple people sign in simultaneously, with the ability to switch quickly from one to another.

CuSeeMe added MSN Messenger to version 5.0 of its videoconferencing software about a month ago, recognizing significant pent-up demand for the combination, said marketing director Tracy Wemett. "Microsoft is getting onto something we?ve been talking about for more than a year now," she said

Ultimately, what will distinguish a Windows Messenger or CuSeeMe 5.0 from other video messaging products is what happens on the back end, with the server software. Because CuSeeMe?s server software supports multiple operating systems and offers multi-user conferencing, the company doesn?t see Windows Messenger as a serious competitive threat, Wemett said.

"It?s all the back end stuff that?s going to make or break this type of offering,? she said. ?We believe our back-end stuff is going to make it.?

?We have Windows XP in house with Windows Messenger, and we see no reason why we won?t be able to support it as well as other video instant messengers out there,? Wemett said.

NPD Intelect analyst Stephen Baker isn't convinced that Windows Messenger or "any single feature will drive Windows XP sales."

"That's the back tires, not the front tires," he said. "The front tires of XP is (that) every single PC is going to have it. Any type of cool stuff they can put in that will enhance their experience and make them, from Microsoft's view, more indebted to Microsoft--that is a bonus."

Let's communicate
Windows Messenger's broader appeal may have much less to do with traditional instant messaging and more with how it simplifies an otherwise complicated and fragmented communications landscape.

Windows Messenger aims to make such tasks as video conferencing and telephony as simple as instant messaging. Considering the mass appeal of instant messaging and the robust sales of PC video cameras, for example, the company could tap a sweet spot in the market.

There are tens of millions of registered users of Yahoo Messenger, AOL?s Instant Messenger and MSN Messenger. In addition, retailers sold 2.2 million PC cameras last year, used for recording or transmitting video and voice from computers, according to NPD Intelect. Sales in 2001 are off to a good start, up 76.3 percent in the first quarter compared to the year-earlier period.

"The Holy Grail is trying to get people to use their computers like telephones," Baker said. "It's like letters and e-mail. E-mail has overtaken letters. But people want some more personal connection than e-mail. Instant messaging solves some of that, but obviously the next step beyond is being able to see people. There's no question video is the next step to making instant messaging the killer app."

But videoconferencing is difficult for many consumers and even businesses because of certain constraints handicapping the technology. One issue is slow frame rates that hamper picture quality. Cameras that use USB 2.0, which is several times faster than current USB connections, are expected to resolve this problem.

Another hurdle to the widespread adoption of videoconferencing is technical prowess needed to establish a call. Typically people must know each other's Internet Protocol (IP) address or connect through an Internet Locator Service (ILS) server. The same constraints affect online gamers.

New Zealander Sam Look said he didn?t like fiddling "around with IP addresses" when doing videoconferencing. "A client that was like ICQ/AIM which would allow one click video conferencing would be very, very cool especially over a large network or with a broadband internet connection," he said.

Windows Messenger uses the Microsoft .Net service or another company's servers to easily connect two computers. Two people with video cameras, for example, would be notified each was online through instant messaging and then would be able to immediately start a videoconference as easily as they now send text messages.

"People want to communicate with other people," said Shawn Sanford, Microsoft's group product manager for Windows. "Before, it was all about phone calls and leaving messages, then you sent e-mail, and now you don't even have to do that. My friends are online, so let's have a quick videoconference."

IDC analyst Roger Kay sees businesses seriously looking at the ability to do video, voice, instant messaging and application sharing all from within one program.

"In this era of budget constraints, people want to save on travel costs but still work closely together," he said. "So this kind of collaborative software is all the more attractive."

Besides videoconferencing and online collaboration, Microsoft sees the game market as one of the most important for Windows Messenger. The main reason is the ease of online gaming, particularly for games written to take advantage of Windows Messenger.

"I use ICQ to keep track of the people I game with all over the world," Hilaire said. Being able to play games without fussing over IP addresses would be appealing, "but I wouldn't base a couple-hundred-dollar software purchase just on instant messaging or chat."

 

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