Opening Windows

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Microsoft Corp.'s biggest product introduction since Windows 95, the next-generation operating system Windows XP, goes on sale Oct. 25, but those close to the software giant say ad and marketing spending to support the global launch has been pared from the original $1 billion pledged.

Insiders and industry analysts estimate as much as a third or more has been trimmed, though previously planned spending levels could resume next year. Microsoft had committed $200 million, while an estimated $800 million was earmarked via co-op dollars from Intel Corp., Compaq Computer Corp., Dell Computer Corp., Hewlett-Packard Co. and others.

While Windows XP is positioned as the biggest change to computing since Windows 95, economic pressures following the terrorist attacks and the general malaise in the PC market this year have conspired to damp anticipation for the product. Windows 95 had consumers queuing up outside computer stores shortly after midnight the day of its launch.

"I don't think Windows XP in and of itself was ever going to be the thing that gets everyone into the store to buy a new computer," said Stephen Baker, director of research, NPD Intelect. "The entire computer business, and electronics in general, is going to be impacted by whatever consumer confidence [or lack thereof] there is."

Launching globally, the Windows XP campaign, created by Interpublic Group of Cos.' McCann-Erickson Worldwide, San Francisco, will target businesses and consumers with TV, print, outdoor and online media. The Sept. 11 attacks forced creative changes. One ad featuring people flying through the air, tying the operating system to the idea of freedom and fun, was scrapped. Microsoft also ditched the campaign's tag line, "Prepare to fly." Microsoft declined to comment.

This is no ordinary year for Microsoft, which has two major product introductions in the fourth quarter. Its Xbox videogame console debuts Nov. 15, supported by $500 million in global marketing led by McCann, New York. (AA, Oct. 1.)

Known for staging glitzy, star-studded launch events, the New York City Oct. 25 XP affair is expected to be markedly different. "It may not be quite as exuberant," said Michael McLaren, executive VP-client service on the Microsoft account at McCann, San Francisco. "Obviously it's a big deal. It's going to be appropriate, and sensitive to the environment." Imagery and ad copy were tweaked. Modifications were made to the ads, "but not wholesale changes," Mr. McLaren said. "We've put a very sensitive eye on some of the images we've created."

Creative revolves around themes of empowerment and the ways in which people can get more from their PCs by using Windows XP. Microsoft says XP makes it easier for PC users to embrace digital photography and instant messaging, as well as business-productivity tools. The message is "accessibility for everybody," said Mr. McLaren. "There's something that's going to make your life better."

Gateway broke a TV spot late last month promoting XP, and other Wintel partners will begin preliminary ads touting the operating system as soon as this week. Microsoft has already placed a billboard in New York's Times Square and will break several more before Oct. 25.

Microsoft's mission with Windows XP is fraught with challenges: the economy and the nation's mood could not be worse; PC demand is at an all-time low and no one can reasonably predict when there'll be a turnaround. Microsoft and its partners desperately need XP to spur a PC upgrade cycle.

Several Wall Street analysts continue to revise forecasts downward. Morgan Stanley analysts are only looking for 7% year-over-year growth in PC unit sales for 2002, instead of the 11% previously forecast. "Buying PCs is just not on top of consumers' minds," stated a Sept. 14 Morgan Stanley report. Merrill Lynch further reduced its 2001 global PC unit growth forecast to decline by 6% rather than 5%, and its 2002 forecast for sales to grow 10.5% rather than 17.5%.

International Data Group's IDC estimates Windows XP sales growth for the first year at about 5% compared with Windows product sales in the previous year. Windows 95 boosted Microsoft's revenue by 104% in the quarter it launched. In 1995, the number of PCs in the world was estimated at 150 million, but today with 500 million units globally, the stakes are much higher.

"No one really knows exactly what the impact of the last six months is going to be, but we're going to put the best proposition forward," Mr. McLaren said.

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