Microsoft exec says XP will revive PC sales

"The timing is incredibly good for the PC industry right now," Jim Allchin, group vice president at Microsoft, said during a speech at the Intel Developer Forum on Tuesday. "We should have a very good next year, and when I say we, I mean the industry."

The PC industry has been in a slump for almost a full year. Market analysts say sales will likely decline for the first time ever in 2001, and few executives have been able to give rosy predictions for the future.

In the midst of this gloom, Microsoft will launch the next version of its operating system Oct. 25.

"If XP, after Microsoft spends a half a billion dollars delivering this message, isn't a success, I will be amazed," said Nathan Brookwood, an analyst at Insight 64. "XP is the thing that will create the desire in consumers to get a new computer."

The PC picture will begin to change through a returned focus on the ordinary user's experience, Allchin and Intel executives predict. Although recent Microsoft releases haven't been that exciting, Allchin admitted, Windows XP will contain a number of new services and inspire new applications, especially in the consumer area.

"There are 140 million computers out there that haven't been upgraded in three years," he said. "The operating systems and applications haven't changed enough--haven't added enough value--to get people to upgrade."

Yet analysts and Windows XP beta testers have been less than enthusiastic about the operating system's prospects.

First and foremost, Windows XP will cost more than previous versions of Windows. The new operating system comes in two versions--one for home users and one for business professionals. For those who are upgrading, the Home Edition carries a manufacturer's authorized price (MAP) of $99--about $10 more than Windows Me. Those buying the full version will have to pay $199, an increase of about $20.

The Professional Edition will cost around $199 as an upgrade or $299 for the full version, which in both instances is about a $20 increase over Windows 2000. But excluding a special $120 promotional offer for Windows 2000 Professional, the commercial XP version will cost nearly $80 more.

Beta testers lukewarm
So far, Windows XP beta testers have offered mixed reviews of the operating system, giving some indication of how consumers and businesses may welcome the release. Compared with the upgrade whirlwind that followed Windows 95, the last three Windows OSes have been greeted with tepid applause. Consumers have bought Windows 98, Me and 2000 but generally have not seen the new OSes as a strong reason to upgrade.

Business customers will most likely also take their time adopting Windows XP. A survey of 225 chief information officers, conducted in July by Morgan Stanley Dean Witter, found that nearly 30 percent were planning to upgrade desktop systems and servers to Windows 2000--an older version of Windows--later this year. That means it could be a year or more before those companies adopt Windows XP.

Common wisdom among many IS managers is to wait for at least one or two "service packs," or bug fixes, to be released by Microsoft for a given operating system before adoption.

Microsoft hopes to entice buyers with a number of new features planned for Windows XP. An image clipboard, for instance, lets XP users collect photos or video on a sidebar to make it easier to clip and edit them. CD burning will be much easier. Notebooks equipped with 802.11b wireless connections will be allowed to roam.

The OS also functions much more efficiently than Windows 2000, according to Allchin. Boot-up time is three to four times faster, he noted. In tests, Microsoft has found that 80 percent of notebooks can run through the shutdown/resume cycle in five seconds, while 70 percent recover in three seconds.

Microsoft would benefit from an XP-inspired uptick in PC sales, but so would third-party hardware and software makers. Microsoft is building in point-to-point videoconferencing in its new version of messenger, but "there are already companies building multi-point videoconferencing," Allchin said. "There will be many new digital media devices."

Microsoft's focus on making a splash with Windows XP has even prompted the company to slightly de-emphasize backward compatibility--ensuring the new operating system works with older applications--in favor of providing a whiz-bang experience.

"We thought of quality first and compatibility second," Allchin said.

Obsolescence will also help the PC industry, added Paul Otellini, general manager of the Intel Architecture Group. Businesses and individuals generally upgrade their PCs every two to three years. And right now, there are a lot of older systems out there.

"You've got an installed base that is (at 400MHz), when the state of the art is a gigahertz and above," he said. "That difference creates such a vacuum that demand is created."

News.com's Joe Wilcox contributed to this report.