Analysts: Slow road to new Windows

Research firm Gartner estimates that between 60 percent to 70 percent of Windows Server users run NT 4, the grandfather of Windows Server 2003 that runs on millions of servers. Microsoft's own estimates are closer to 35 percent. But 64 case studies released last week suggest the number is much higher.

The large number of customers that use NT 4 are in no rush to upgrade to newer software or are in the process of moving to Windows 2000, analysts say, and that could hurt Windows Server 2003 sales for some time.

Gartner estimates that by the end of 2004, as much as one-third of NT 4 users will move to Windows Server 2003. "Two-thirds to 75 percent" will still be NT 4 customers by the end of next year, said Gartner analyst Tom Bittman. "There's a lot of NT 4 dark matter out there."

A Microsoft representative said it's difficult to forecast conversion rates. "It's hard to have a meaningful discussion about install base," said Bob O'Brien, Microsoft's group product manager for Windows Server. Different ways of quantifying numbers could lead to different results, he said.

At the same time, Gartner expects the majority of customers moving to Windows Server 2003 will be from Windows NT 4--as much as 80 percent. The remainder will be coming from Windows Server 2000.

"We don't expect that much migration from Windows 2000, because most of those deployments are new," Bittman said.

"I would agree," Microsoft's O'Brien said. "That's consistent with what we've been saying."

In fact, Gartner doesn't expect many Windows Server 2000 customers will be ready to upgrade until around 2005. The successor to version 2003, code-named Blackcomb, isn't expected until 2006 or 2007.

Anecdotal evidence seems to support that conclusion.

Pierre Baudet, business systems manager for sports shoemaker New Balance, runs most of the company's business on Windows servers but isn't in a hurry to upgrade to Windows Server 2003. The company is about three-quarters of the way through moving its NT 4 servers to Windows 2000, he said.

"Windows Server 2003 is for us probably a little bit off," Baudet said. "From an administrative standpoint we don't have a huge need...We generally like to wait until there've been some patches out for the OS before we'll consider it."

Baudet's concern about patches is expected to be a common one. Guernsey Research analyst Chris LeTocq said most businesses considering a move to Windows Server 2003 will wait until the release of the first collection of bug fixes, or service pack, which is not expected for at least six months.

While Microsoft has added an automatic update feature to Windows Server 2003, many customers may be reluctant to use it, LeTocq said. The reason: Some patches can cause problems with existing applications.

Peter Forte, data warehouse director for Analog Devices, also is in the process of migrating from NT 4 to Windows Server 2000. "I don't think we would go from Windows NT to Windows 2003," he said. "We would finish off the Windows 2000 migration first."

Microsoft also will likely lose some customers during the move away from Windows NT 4 Server. "We do expect some of that NT install base to move to Linux," Bittman said. "I would say that by the end of next year, 2 percent will upgrade to Linux. It's not a small number, but it's a small percentage."

Microsoft clearly is aware of the slow migration away from Windows NT 4 Server. In January, the Redmond, Wash.-based company extended support for Windows NT 4 Server from the end of this year to 2004. The company also purchased the virtual server assets of Connectix, which can be used to facilitate the consolidation of NT 4 applications onto Windows Server 2003 systems. The product is being tested.

Microsoft's problem is one facing many companies with a successful product. During the early 1990s, Corel's WordPerfect had a virtual lock on the word processing market. One factor contributing to the product's decline: users satisfied with version 5.1 who were unwilling to move to WordPerfect for Windows. A decade later, Corel still struggles with the problem. The company's new version, WordPerfect 11, comes with a special mode for simulating version 5.1.

People think Windows--with its monopoly on the desktop and with server market share around 50 percent--doesn't have much competition. But, in reality, Microsoft faces competition from its own products.

"Right now, the competition isn't really Unix or Linux but it's NT," Bittman said. This competition from within is one of the reasons that Microsoft in December relaxed Windows Server 2003 licensing terms compared with earlier versions.

The internal competition, which also affects Office, is one of the reasons Microsoft has moved to a subscription-like licensing model, where customers pay upfront under two- or three-year contracts for software.

"Until Microsoft can smooth out its revenue through licensing, there's going to be this problem of trying to get customers to move up from older versions," Bittman said.

Cases in point
Microsoft recruited customers as part of an early adopter program, offering an opportunity to try out Windows Server 2003 ahead of its official release. For many businesses this meant working with beta, or testing, code, a process Microsoft also used to sniff out bugs in the software.

O'Brien described the program as "seed corn for having the right product for some customers."

While Microsoft says Windows Server 2003 is an enterprise-class operating system that will push aside Unix servers and mainframes, some case studies reveal a different picture. The majority of the studies involve existing Microsoft customers interested in expanding performance of existing systems or consolidating servers. In many other circumstances, companies adopted or planned to adopt Windows Server 2003, because they needed the software to run some other Microsoft product.

This latter scenario is one many businesses, particularly those using Microsoft software, will encounter, analysts say. Many new products, such as Office SharePoint Portal Server 2003, Windows Rights Management Services and Exchange Server 2003 require the new Windows Server. At the same time, many companies moving to Windows Server 2003 will find they will need to upgrade existing products, such as Exchange Server 2000, because the software won't run on the new server software.

In the case of Analog Devices, planned adoption of Office SharePoint Portal Server 2003 contributed to the decision to eventually move some systems to Windows Server 2003.

Chicago-based Information Resources Inc. (IRI), which provides sales and market research for companies selling consumer goods and pharmaceuticals, is on the slow path to Windows Server 2003.

"We have a very small cluster of servers today running Windows Server 2003, as we're beginning to roll out this product," said Marshall Gibb, IRI's chief information officer. "I would expect that we will almost exclusively be on Windows 2003 in our data production environment."

Gibbs said that IRI would move off Unix "as the business warrants. We have a significant legacy environment that provides the data access today across a variety of infrastructures. For the foreseeable future Unix will play a role in that."

While Microsoft arguably has bulked up Windows Server 2003's enterprise capabilities, particularly the 64-bit version running on Itanium 2 processors, few companies will be moving from Unix for the foreseeable future, Gartner's Bittman said.

Still, some existing Windows NT 4 server customers are excited about version 2003 and are planning rapid migrations. The Kentucky Dept. of Education plans to move from NT 4 to Windows Server 2003 as a way of consolidating servers and centralizing systems management.

The school system, with about 700,000 staff and student users, plans to switch completely to Windows Server 2003 by the end of the year. Currently, the school system runs about 3,500 Windows NT 4 servers and 50 Windows Server 2003 systems.

The existing model puts much of the management burden on local technology managers.

"We want the schools to get back to educating kids rather than being technology" troubleshooters, said Chuck Austin, senior product manager for Kentucky Education Technology System.

Following the consolidation, the Kentucky school system expects to reduce the number of domains to 178 from 320 and domain controllers from about 2,000 to less than 400. Each of the 176 school districts would have two Windows Server 2003 servers.

"For the NT 4 customers that haven't moved (to Windows Server 2003), we're focused on showing them the cost savings--like in server consolidation," O'Brien said.

News.com's Stephen Shankland contributed to this report.