In a research note released this week, Goldman Sachs analyst Sarah Friar put some hard estimates on Microsoft’s revenue take per copy of Office 2007 and Windows Vista. There is potential profit in the number of new versions.
Goldman Sachs expects Microsoft Business Division to generate more revenue during fiscal 2007, which ends on June 30, than Windows client; 31 percent and 29 percent, respectively.
“About 40 percent of Office revenues are from fully packaged product and volume license agreements, 40 percent are from annuity contracts, and 20 percent are from OEM sales, compared with about 5 percent, 15 percent, and 80 percent for [Windows] client revenues, respectively,” Friar wrote.
That means more copies of Office are sold through volume licensing, while Windows is generally bought with new PCs. For both products, higher-end SKUs could add to revenues. Bigger upside would be for Office, at least initially.
Goldman Sachs expects that, worldwide, consumers bought 1.9 million Vista upgrades in the second quarter and will buy 1.5 million million upgrades in the third quarter. The expectation is that upgrades will dramatically diminish after the first six months of widespread Vista availability.
While most people will buy Vista on new PCs, “adoption in the beginning will likely be slower than for Windows 95 or Windows XP,” Friar explained.
Minding the Office
Goldman Sachs estimates that one in eight PCs ships with Office Standard.
Goldman Sachs sees new SKU Office Basic cannibalizing sales from Standard. However, the expectation is for higher Basic volumes—some replacing pirated older Office versions—as leading to a net revenue gain.
“We believe the introduction of the lower-priced Office Basic 2007 SKU can add about 1 percent to Information Worker (now part of MBD) revenue growth in FY2008,” Friar wrote.
Her observations about the Office consumer market is sensible: “Consumers tend to not pay for most copies of Office, but instead bring it home from the office, purchase lower-priced academic versions, or purchase one copy for many machines. While Office is widely used by consumers, it is not widely paid for.”
NPD estimates that Office “Student”—with “Teacher” for version 2003 and “Home” for 2007—commands 80-percent retail share of the desktop productivity category.
What I find interesting is how the OEM revenues for Office and Windows compare. Goldman Sachs estimates put the OEM category highest for Office, whereas for Windows upgrades generate more revenue per copy. That said, the higher OEM volumes lead to greater overall revenue.
Microsoft, Windows Vista, Office 2007, Earning, Marketing, Revenue