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The slow road to Windows XP

New study underscores a recurring problem for Microsoft: Convincing customers to upgrade to new versions of its software.

Use of Microsoft Windows XP has grown inside corporations, but a new study shows that nearly half of business PCs are still running the older Windows 2000.

The study, released Tuesday by AssetMetrix, underscores a recurring problem for Microsoft: While the company spends billions of dollars developing new versions of Windows and its Office desktop software, many customers are slow to give up older versions of software that's paid for and works just fine.

The AssetMetrix study shows that many companies have moved off of other versions of Windows, including Windows NT 4, Windows 95 and Windows 98.

Windows XP use surged to 38 percent by the first quarter of this year, up from 6.6 percent in the third quarter of 2003. However, the popularity of Windows 2000 has remained high, with the venerable operating system still in use in 48 percent of business PCs during the first quarter of 2005, down just four percentage points from the third quarter of 2003.

"I think (Windows 2000) worked too well."
--Steve O'Halloran,
managing director,
"The findings of this study suggest that Windows 2000 still plays an important part in many IT environments," Steve O'Halloran, managing director of Ottawa-based AssetMetrix's research division, said in a report.

And, if anything, analysts say that customer reticence in upgrading has increased in recent years.

"It seems to be taking longer each time" for customers to upgrade, said Michael Cherry, an analyst at Directions on Microsoft.

The sustained use of Windows 2000 is particularly significant as Microsoft prepares to end mainstream support for it at the end of this month. The company will still patch any important security flaws, but most other updating of the OS will cease. Support calls on nonsecurity matters will also be handled only on a paid basis.

Microsoft is preparing one final update to Windows 2000. The software maker opted last year to forgo a full service pack and is instead releasing what it dubs an Update Rollup, a lesser collection of security patches and updates issued since the release of Service Pack 4 in June 2003.

The company has said to expect the Update Rollup by midyear but has not said what features will be included beyond already released patches and updates. By not releasing a more full-featured service pack, Microsoft may be trying to send a signal that customers need to upgrade to get new features.

"I think Microsoft would obviously prefer they were running Windows XP, in part because Microsoft has invested so much to improve the security of XP with Service Pack 2," Cherry said.

For Microsoft, the fact that customers hang on to older versions of its software has become a chronic bugaboo. To some degree, the sluggish upgrade pace affects the company's revenue. In many cases, however, customers have already paid for a license to newer versions.

More significantly, Microsoft believes that when customers stick with older software, their satisfaction level is lower than it might otherwise be--a situation that could ultimately lead to lost sales.

In addition, the situation threatens to undermine the vast sums that Microsoft is spending to increase security in its most recent versions of Windows: Windows XP and Windows Server 2003.

There are several reasons for customers' foot-dragging. Many companies aren't getting rid of their older PCs running Windows 2000. Instead, when new XP-based machines are purchased, businesses are passing on the Windows 2000 machines to workers lower in the pecking order, O'Halloran said.

Windows 2000 is, in some ways, also a victim of its own success.

"When Windows 2000 came out, it was fantastic blend of security and user interface," O'Halloran said. As a result, companies planned their whole infrastructure around it. Many of its management tools have continued to be updated, leaving companies relatively satisfied.

"I think it worked too well," he said.

O'Halloran does expect that the percentage of Windows 2000 machines will drop further now that companies have largely gotten rid of all their Windows 95, Windows 98 and Windows NT 4 machines. Still, O'Halloran predicts that the decline will be a gradual one rather than a large exodus spurred by the June 30 change in support status.

"I don't see anyone having a knee-jerk reaction," he said.

In some cases, Cherry said businesses may decide they want to wait for Longhorn, the new version of Windows due out in the second half of next year. But that transition--if and when companies decide to make the move--could be a far more dramatic one than the move from Windows 2000 to XP. O'Halloran said that most companies won't see a big shift if they move to XP. Windows XP is really just a bulked-up version of Windows 2000.

"It's an SUV versus a minivan," he said. "They both can get you there. It's the same type of vehicle. You still understand how to drive it."