Expert: Microsoft made $1.5B on 'Vista Capable' campaign

Computerworld - Microsoft Corp. earned more than $1.5 billion from the sale of PCs marked as "Vista Capable" in the months leading up to the 2007 debut of Windows Vista, according to an expert's estimate.

University of Washington economist Keith Leffler pegged Microsoft's income from sales of Windows XP licenses on Vista Capable-labeled computers at $1.505 billion. Leffler has testified for the plaintiffs in the ongoing class-action lawsuit that accuses Microsoft of deceiving consumers during its Vista Capable marketing program. The company created the program to maintain PC sales momentum as the launch of Vista neared.

In a heavily redacted document unsealed on Friday, Leffler outlined how he arrived at his estimate.

"In Microsoft's supplemental responses, it estimates that it received revenue of [redacted] from Windows XP licenses installed on upgradeable PCs sold in the U.S. during the April 2006 through January 2007 period," said Leffler, referring to the nine-month run of the Vista Capable campaign. "From the estimates of Windows [Vista] Capable but not Vista Premium Ready PCs compared to all upgradeable PCs as in Table 1, I estimate that [redacted] of the [redacted] from Windows XP licenses on upgradeable PCs were for XP licenses on Vista Capable but not Vista Premium Ready PCs -- those PCs purchased by the plaintiff class.

"From these figures, I have, therefore, reached the opinion that the Microsoft revenue from the Windows XP licensing on Vista Capable but not Vista Premium Ready PCs sold to plaintiffs was $1.505 billion," Leffler concluded.

The "Vista Premium Ready" program was a separate marketing campaign that Microsoft promoted with stickers affixed to PCs able to run all versions of Vista, including the pricier and more feature-packed Vista Home Premium and Vista Ultimate editions.

The unsealed document was not the first time that Leffler had set Microsoft's take from Vista Capable. In an exhibit attached to a Nov. 20, 2008, filing, Leffler not only estimated the XP licensing revenue at just over $1.5 billion, but also said that computer makers sold approximately 19.4 million PCs in the U.S. that met the Vista Capable criteria, but not the higher Vista Premium Ready requirements.

However, Leffler did not spell out the amount Microsoft received from computer manufacturers for each of those 19.4 million XP licenses. Microsoft jealously guards its reseller pricing and has repeatedly demanded that documents in the case have such information redacted. But simple calculations show Leffler estimated that Microsoft received an average of $77.57 for each copy of XP it sold to computer makers during the Vista Capable program.

The lawsuit, which began in April 2007, claims that marking hardware as Vista Capable inflated the prices of PCs that were able to run only Vista Home Basic, the lowest-priced edition of the operating system that lacks such features as the Aero user interface. Microsoft has denied that it duped consumers and has countered that Home Basic is a legitimate version of Vista.

In November, Microsoft asked U.S. District Court Judge Marsha Pechman to end the class-action lawsuit, which has been the source of a treasure trove of embarrassing insider e-mails that show the company bent to pressure from Intel Corp. and infuriated longtime partner Hewlett-Packard Co.

Microsoft has rejected Leffler's estimates in past filings, including the November request for dismissal, in which it argued that the economist had not been able to come up with a model to quantify the price inflation charged by the plaintiffs.

The case is currently set to start trial in April.

Read more about standards and legal issues in Computerworld's Standards and Legal Issues Knowledge Center.