By Michael Cherry [bio]
Posted: Mar. 20, 2006

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. More samples of our content, as well as a list of upcoming articles and reports are also available.

Five main editions of Windows Vista, each with installation options for either 32-bit or 64-bit processors, will target consumers and businesses. Key Windows Vista features, such as being able to build a single, multiple-language deployment image for multinationals and high-end data encryption, will require new, higher-priced editions. The multiple editions also create a potentially lucrative revenue stream as customers upgrade from one edition to another. The changes could mean higher license costs for some customers and could reduce the dependence of Microsoft's Windows Client business on PC manufacturers, but it could also bring those manufacturers more revenue per PC.

Windows Vista for Businesses

The following Windows Vista editions are aimed at corporations and other organizations:

Windows Vista Business replaces Windows XP Professional and targets businesses of all sizes. It includes the core Windows Vista improvements, such as the User Account Control security feature, the new Windows Aero user interface (UI), integrated desktop search, and improved versions of the pen and "digital ink" features that were previously in a separate Tablet PC edition in Windows XP.

Windows Vista Enterprise targets larger organizations and will be available only to organizations that have bought upgrade rights on the Windows client OS through the Software Assurance (SA) maintenance program or an Enterprise Agreement (EA). Enterprise Edition features not available in the Business Edition include the following:

• Multilingual User Interface (MUI) support improvements, which enable multinational organizations that use multiple languages to more easily deploy and maintain Vista, since a single OS image can be used globally
• Trusted Platform Module hardware support, which enables advanced security measures, such as full hard-disk encryption (a feature called BitLocker Drive Encryption)
• Virtual PC Express, a special edition of Microsoft's Virtual PC product that allows a user to run a single virtual machine to support older applications that won't run on Windows Vista
• Subsystem for UNIX-based Applications, which allows users to run some UNIX or Linux applications on Windows.

Windows Vista Business and Windows Vista Enterprise will be available with installation options for both 32-bit and x64 64-bit processors.

Windows Vista for Consumers

The following Windows Vista editions are aimed at consumers.

Windows Vista Home Basic will be the lowest-cost version for consumers, especially those with older or less-powerful computers who mainly browse the Internet, send e-mail, and perform basic document creation and editing. It effectively replaces Windows XP Home Edition. Home Basic does not include the new Windows Aero graphics effects, though it retains most of the look and feel of the new Windows Vista UI. Home Basic includes the new version of IE, improved search, and Parental Controls to make it easier for parents to manage what children and teens do with their PCs, such as which type of games they are allowed to play or where they're allowed to browse on the Internet. As with Windows XP Home, Windows Vista Home Basic cannot join a Windows domain and will lack other features required for organizational use.

Windows Vista Home Premium includes all the features in Home Basic plus Windows Aero and features that were formerly available only in the separate Windows XP Tablet PC and Media Center editions. Applications targeting digital entertainment, such as the Media Center interface and Windows Movie Maker, have been updated, and new digital media features, such as the ability to create and burn DVDs and work with high-definition video content, have been added. Like Home Basic, Home Premium lacks features required for organizations, such as the ability to join a Windows domain.

Windows Vista Ultimate targets consumers who want every feature of Windows Vista. A particular target is high-end laptops used at both home and at work. While Microsoft says this will be a consumer edition, and not eligible for volume licensing, it will be a full superset of Windows Vista Enterprise and so will offer businesses without SA or an EA a way to get features such as MUI and BitLocker Drive Encryption.

All three of the editions above will be available with installation options for both 32-bit and x64 64-bit processors.

Specialized Editions

In addition to the mainstream consumer and business editions, Microsoft will ship Windows Vista Starter Edition, a low-cost edition for 32-bit processors that is intended for use in less-developed countries. Like its predecessor, Windows XP Starter Edition, the OS meets basic requirements for an Internet-ready PC, but it is designed for low-end hardware and dial-up-networked environments, and is now available in nine languages and 33 countries.

In the European Union (EU), Microsoft will also offer "N" editions of Windows Vista. In response to a legal order by European antitrust regulators, the "N" editions of Windows XP Home and Professional lack the Windows Media Player and some associated technologies. Microsoft is working with the EU to determine which Windows Vista editions will be offered as "N" editions (with installation options for 32-bit and 64-bit processors).

Higher Licensing Costs, OEM Challenges

Microsoft has not announced prices, but organizations will probably face higher licensing costs if they want all of Windows Vista's deployment and data protection features. The MUI feature, while not new (it was introduced in Windows 2000), will be valuable for multinational organizations that want to deploy Windows Vista centrally, while the BitLocker Drive Encryption feature will be important for protecting data on laptops that could be lost or stolen. Microsoft clearly hopes that organizations will buy SA or EA coverage for Windows client to get these features with Windows Vista Enterprise. Relatively few organizations buy Windows client SA or EA today, and the percentage fell in the last six months of 2005, according to the company's financial statements.

Another reason for the large number of SKUs is to create more upgrade opportunities within the Windows client, a product that has generally offered few such opportunities. (Windows XP has a single such option, from Windows XP Home to Windows XP Professional.) By cutting features out of low-priced entry-level editions, Microsoft can keep initial customer prices low (or, more likely, no higher than today's costs for Windows) and can generate additional revenue by encouraging consumers to upgrade. Potentially, a Home Basic customer could upgrade two or three times, to Home Premium, Business, and Ultimate.

To facilitate such upgrades, Windows Vista home and business editions will support a new Anytime Upgrade feature—every version of Vista contains all the bits for higher-level versions, and consumers will be able to unlock higher-level functionality simply by purchasing a new product key. Microsoft will probably keep much of the revenue from such transactions, most of which will be conducted online, bypassing OEMs and retailers. (Microsoft may offer upgrade licenses through retailers, but most customers will find it easier to click on a button in an Anytime Upgrade screen to buy and download new licenses and activation keys.)

The new packaging presents several challenges for OEMs, who account for more than 80% of Windows client sales by revenue today, and whose percentage has risen steadily as SA and EA revenue from Windows client have fallen. In the short run, the large lineup of editions could prove confusing for consumers, giving OEMs a tricky marketing problem to solve—even though Anytime Upgrade allows customers to upgrade to a version with more features, the viability of those features will depend on the underlying hardware. For example, Windows Aero requires significant graphics hardware capabilities. If the customer has initially purchased a machine with the wrong hardware configuration, he may blame the OEM for the post-upgrade experience. Longer term, if Microsoft succeeds in selling more SA/EA coverage, the percentage of Windows client revenue that comes through OEMs will fall, Microsoft will become less sensitive to PC sales rates, and the influence OEMs have on the overall strategy of the Windows Client business unit could decrease.

However, the news is not all bad for OEMs. The new packaging creates two new higher-priced consumer editions, Home Premium and Ultimate, that OEMs can use to help sell more powerful PC hardware and boost their revenue per PC along with Microsoft's. And Ultimate could also bring in more money per PC from businesses, which might turn to that higher-priced edition, rather than SA or EA, to get BitLocker Drive Encryption and other features of Enterprise Edition.

The larger number of editions can also complicate software testing for ISVs, who may have to expand their testing to include all consumer and business versions, as well as 32-bit and 64-bit platforms. Corporate developers may need to test their applications on both Windows Vista business editions and Ultimate, as well as 32-bit and 64-bit platforms.

Windows Vista packaging is explained in more detail at www.microsoft.com/windowsvista/versions.

For an overview of Windows Vista features, see the Dec. 2005 Research Report, "A First Look at Windows Vista."