System Builders Applaud Vista Upgrade Coupon

free or discounted upgrade to Windows Vista

As part of the deal, designed to drive PC sales though the holiday season, Microsoft plans to include coupons with new Windows XP SKUs that give buyers a free pass to the next-generation operating system when it ships in the first quarter of 2007, industry sources said.

The Windows Vista Technology Upgrade Program runs from Oct. 26, 2006, through March 15, 2007. Distributors are expected to have the new Windows XP SKUs in house for system builders by Oct. 15.

"We see this as a win-win for our customers and PCPC Direct," said Joe Vaught, COO of PCPC Direct, a VAR in Houston. "It motivates our customers to move ahead with planned fourth-quarter purchases so they can meet their business needs while giving them the assurance that they won't lose out on the Vista upgrade cycle. It protects our business from potential delays in buying cycles during a time of the year traditionally strong for hardware purchases."

Industry observers praised the coupon plan and predicted that the holiday selling season won't be as rough as system builders initially expected when Microsoft disclosed earlier this year that it would delay the shipment of Vista until January 2007. The company originally had said Vista would be generally available by the end of 2006 and in time for the holiday PC buying season.

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Business customers will get free upgrades. For instance, customers who buy PCs equipped with Windows XP Pro, Windows XP Pro Tablet PC Edition and Windows XP Pro x64 Edition are entitled to a free upgrade to Vista, sources said.

Consumers also will get free coupons, but in some cases, they will have to pay fees to upgrade to more full-featured Vista Home Editions. Customers who buy retail systems running Windows XP Home Edition through the end of the year, for example, can upgrade to Vista Home Basic Edition for a flat $49 fee and to the higher-end Vista Home Premium Edition for $79.

Microsoft would neither confirm nor deny that a coupon program is in the offing.

"We are talking with all of our partners about plans for an offer. But those discussions are ongoing, and we have nothing more to share at this time," a spokesperson said.

System builders must meet certain requirements to sell the new SKUs of Windows XP. Microsoft's Technology Upgrade Program, for example, states that only systems running Windows XP that meet Windows Vista requirements will be eligible for the Express Upgrade, sources said.

Each of the new SKUs will ship with an amended system builder license that requires PC makers to ship the coupons only with complying systems. System builders also must agree to support the systems after the user upgrades to Vista. Executives from several tier-one manufacturers, including Dell, have said they expect Microsoft to launch promotions in the fourth quarter, ahead of the official Vista launch next year, to keep the market buying systems until the OS ships.

"They don't want us to miss the holiday buying season," said David Chang, president of Agama Systems, a system builder in Houston.

"I think this is [targeted at] end users and small-business accounts. The big companies, the government and the schools will continue using what they are using until Vista comes out. The Fortune 1000, top corporate and medium-size businesses—many of them are not going to just switch everything to Vista until it proves they can work with the interface," he added.

"I am glad Microsoft is releasing Windows XP to the system-building channel with the coupons allowing customers to get a free or low-cost upgrade path to Windows Vista," said David Stinner, president of US itek Group, a system builder and managed services provider in Kenmore, N.Y. "This will ensure I can keep selling PCs to business and consumers without the hesitation they might otherwise have to delay the purchase until Vista releases."

Dell, Round Rock, Texas, has been particularly bullish about Microsoft's plans for Vista pre-launch upgrade coupons or discounts.

Michael Dell, on a conference call with financial analysts earlier this year, said the Vista upgrade coupon could spark a sales boost on the corporate side, as well.

"I'll even go so far as to say that once this gets out into the hands of consumers, six or nine months, I think you'll see a number of consumers kind of coming back to the office and saying, 'How come my computer is no good?' " Dell told the analysts. "So we think there will be a consumer-led drive to upgrade the desktop in the corporate [market] some time after Vista really starts to take hold in the consumer market."