The Case For Vista

We bought Microsoft in Aug. 2002 at $22.50. So far, we’re up 39%. I was too early in buying, however. Just last June, we were at break-even. All of the gains have come since then, which lends credit to my thesis of the past year that the Vista and Office upgrades would drive the stock higher. Last summer is when the press began covering Vista in earnest.

Last week, I received a note from longtime Kelly Letter subscriber Chris pointing me to a Techworld article troubled by Vista’s protection of premium content. The ultimate worry is that people will hold off on upgrading, which was Chris’s primary concern. It’s a widely held and valid one.

My reply to Chris was:

Yes, there’s commonly a refrain to wait on an upgrade. Every major OS stage has faced the same warning to avoid being an early adopter. There are good reasons for it, but the upgrade cycle eventually covers everybody, even if not in the first month or so.

I, too, have a perfectly capable XP notebook and I won’t rush to upgrade. However, already, we’re seeing gaps that Vista will fill nicely. They’ll add up, and one day the only option available to new computer buyers will be Vista.

Quick example: you can’t burn files to a DVD by just dragging and dropping in XP’s file explorer, the way you can with a CD. In Vista, you’ll be able to. With much more capacity and data files growing all the time, DVDs are preferable to CDs. With XP, you need third party software to burn a DVD.

Then, MS Office won’t be backwards compatible forever with XP files. As others upgrade, so shall ye. That’s how it’s always gone.

So, while I recognize that there’s a lot to be said for waiting, not everybody will. No company has proven better at getting money on upgrades than Microsoft, and Vista and Office together are the biggest release in the firm’s history.

The events of last week confirm those ideas. Microsoft is widely despised in the computing business and much of that disdain comes from its lack of innovation. Microsoft’s business plan most often consists of taking ideas from others and then outmarketing those others.

I’ve mentioned this before, but to jog your memory: DOS was purchased, Word copied Wordperfect, Excel copied Lotus 123, Windows copied the Mac OS (which was based on an OS developed by Xerox at its famed Palo Alto Research Center), Money copied Quicken, the Xbox copied the Playstation, Internet Explorer copied Netscape Navigator, and even Microsoft’s mouse was a knockoff of other designs.

Microsoft makes no bones about it. If you have a good idea, they’ll gladly take it and destroy you in the marketplace with their fabulous sales team, bottomless bank account, and a few well-placed pieces of proprietary software that favor their own products. It’s what they do. It’s good for profits, but bad for accolades. It makes more enemies than friends in the computing industry, which craves innovation. It’s the reason everybody loves the dazzlingly innovative Apple.

Imagine, then, what a breakthrough it was for Microsoft to win the “Best of CES” award at the Consumer Electronics Show, and for an operating system no less. The OS is not usually where the oohs and ahs come from on a computer. That gives an indication that what’s on the way is a needle-mover. Vista will do things that we’ll all want to be able to do. That will boost sales of new computers, sales of software, and reliance on the internet. We own investments in each area.

Even if the doubters are correct and there isn’t a massive rush to upgrade at the end of this month, there will still be an upgrade cycle. It might span months or even years. That would be fine for long-term holders of companies on the gravy train, like us.

Will there be problems? Sure. There always have been, but Microsoft has always dealt with them and managed to still bank its billions. It’ll happen again.

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