Much depends on whether the company can meet its target date for releasing the Windows XP final, or gold, code to computer makers. Computer makers contacted Monday said that late last week Microsoft told them it would release the final code for XP--an upgrade to Windows 95, 98, Millennium Edition and 2000--in late July or early August.
If Microsoft meets that target, the company can launch Windows XP this year as planned. By releasing the software to manufacturers by the end of July, some PC companies could start selling it at the tail end of the "back-to-school" season, which is the second-busiest buying period of the year.
But Microsoft described its window for delivery as tight, telling several PC makers that if the date slipped, Windows XP's launch would be pushed back to 2002. Postponing it that long would also mean missing the holidays, the busiest consumer shopping season, and the end-of-the-year budget blowout at corporations.
"Microsoft broke the news on Thursday or Friday last week that if (gold code) went beyond early August, they would hold back Windows XP until early '02," one PC maker said. "We were briefed at a fairly high level and exited the meeting with the impression all bets were off for this year."
The issue apparently revolves around Xbox and Microsoft's concerns that marketing for Windows XP could interfere with the gaming console's introduction, slated for the fall--just in time for the holiday shoppers.
"If they found themselves in a position where they were messaging on Windows XP and Xbox at the same time, they would give on XP," Guernsey Research analyst Chris LeTocq said. "Microsoft would push back XP until next year."
The date that Microsoft releases the final code to Windows XP is crucial for PC manufacturers, which typically take anywhere from four to eight weeks getting the software onto new computers. The later the delivery date, the more likely computer makers--and retailers selling shrink-wrapped copies of Windows XP--will miss the lucrative holiday sales period.
Windows XP initially will ship in two versions: consumer and professional. Given how revolutionary the consumer upgrade is from earlier incarnations, "even early August doesn't give us much time for the holidays," one PC maker said. "Any later, and it's game over."
The issue is testing, because computer manufacturers must certify the shipping version of Windows XP for a variety of PC configurations. The more lead time, the less likely PC customers will encounter troubles with the operating system later on.
The Xbox factor
Several PC makers expressed surprise that Microsoft would consider delaying Windows XP because of Xbox, but LeTocq said it makes sense.
"Do you want to be doing those two messages at the same time?" he asked. "Microsoft is betting a whole bunch on Xbox. If they can't get the Windows XP messaging out in time, that is a recipe for consumer confusion."
Piper Jaffray analyst Ashok Kumar agreed.
"They don't want to steal thunder from the Xbox announcement," he said. "Microsoft initially will be selling (Xbox) for about a $150 loss per box." The company needs to get game developers and the gaming community excited as quickly as possibly to recoup part of its investment, he added.
Although Windows XP is an important product for Microsoft, the company has much more riding on Xbox. It is investing $500 million to promote the game console, for example. Xbox will compete directly against Sony's PlayStation 2.
Windows XP, by contrast, competes mostly with other versions of Windows. Although Windows XP will likely account for far more revenue and profit than the Xbox, the dynamics of marketing it are vastly different.
Since the release of Windows 95, consumers haven't shown a great deal of upgrade fever. Most get new versions of Windows when they buy new computers. Windows 2000, according to nearly every analyst, took off far more slowly than expected. Delaying Windows XP would no doubt hurt, but it wouldn't mean missing a golden opportunity.
If it's released on time, LeTocq said, he sees "Windows XP as a good lead-in for Xbox, with the marketing of one benefiting the other." But if Windows XP hits store shelves after October, he asserts, competing promotions could hurt Xbox.
"The drop-dead (deadline) for final Windows XP code is the end of September," LeTocq said. "If it's October, then I think they will look instead to first-quarter 2002."
Kumar agreed. "If they can't make September, I see January as the most likely trajectory," he said.
However, Gartner analyst David Smith disagrees with the assertion that marketing Windows XP and Xbox at the same time would present a problem. "It's inconsequential," he said.
Shawn Sanford, Microsoft's group product manager for Windows, also rebutted concerns that Xbox could affect Windows XP's release.
"Xbox and Windows XP are two completely different sides of the company," he said. "There's no real dependency of one on the other."
Gold or fool's code?
Kumar isn't convinced that Microsoft can complete Windows XP by early August.
"There are massive driver issues, and Intel's changing processor road map creates problems as well," he said. "Bottom line, Windows XP is nowhere near ready for release."
Microsoft's Sanford dismissed any rumors of delays.
"We've never been public about any delivery dates outside of saying it would be publicly available in the second half of this year," he said. "The important piece is having software and hardware available for the holidays. That's where we're going, and that's where we're targeting."
Sanford said it's too early to tell from the Beta 2 feedback whether Microsoft could finish Windows XP for the end of back-to-school buying season, which implies an early September availability on new systems. At least one so-called release candidate, or nearly completed version, is expected before Microsoft locks down the code, he noted.
"Right now, you're looking more at public availability in the later second half of this year," Sanford said.
That timetable fits with what Microsoft told PC makers last week, LeTocq said.
"Release to manufacturing by end of July means the direct (sellers) could start selling Windows XP on systems sometime in early September," he said. And companies such as Compaq Computer or Hewlett-Packard that rely on dealers "would begin offering Windows XP systems in late September or early October."
As recently as two weeks ago, Microsoft told some PC makers they would get final code in June, which would have ensured Windows XP on new systems for the lucrative back-to-school selling season.
"They already missed back-to-school," Kumar said. "They can't afford any more delays."
At least two PC makers reported they are getting new systems and marketing programs in place based on the assumption that Microsoft will deliver gold code as scheduled.
But others, citing repeated delays, have put their Windows XP plans on hold. "We don't have a lot of confidence in the delivery as stated," said one. Another laughed at an early August release to manufacturers, calling it "a long shot."
Kumar said he believes Microsoft internally has already shifted the date for gold code release to September or October. "October is too late," he said. "It has to be September, otherwise it creates serious hiccups with their (sales) channel."
Smith could see Microsoft delaying Windows XP's launch if the final code isn't ready until the end of October. "That could put the holiday season a little bit at risk. If they figure they've lost the holiday season anyway, they might decide why rush and not push it out until later for that reason."
LeTocq asserts that with three months ahead of it, Microsoft still has a "good shot at making the target date it gave PC (makers). If not, expect January."