Microsoft's Windows Vista 'Capable' bill could hit $8.5bn

A Microsoft marketing scheme persuading consumers to buy PCs "capable" of running Windows Vista could cost more money than Microsoft made from the program.

An expert witness giving evidence in the class-action suit against Microsoft's Windows Vista Capable program has estimated the cost of upgrading so-called "capable" PCs to machines able to run premium editions at between $3.08bn and $8.52bn.

Microsoft, by contrast, is calculated to have earned just $1.505bn in Windows licensing from the program, which ran between August 2006 and July 2007.

The calculations, based on data from Microsoft and analyst Current Analysis, are important because they could be used by U.S. District Court Judge Marsha Pechman to calculate damages in the case, should she find that Microsoft misled US consumers through the program. These numbers would not include fees Microsoft pays its legal team or other case fees, so the final cost of the program to Microsoft could go even higher.

University of Washington associate economics processor Keith Leffler arrived at the numbers after he was asked by plaintiffs in the case to calculate the impact of the program on the demand and prices of PCs and judge whether there'd been an adverse impact on consumers.

Leffler's upgrade costs are based on the fact that consumers who'd bought a Windows XP machine designated as "capable" of running Windows Vista would need to buy additional RAM and a video card and the fact some notebooks couldn't run Windows Vista.

At the crux of the case is the question of whether Microsoft deliberately mislead consumers who bought a Windows Vista "capable" machine into thinking they could install the full operating system. Windows Vista Capable got you a machine able to run the stripped down basic editions such as Home Basic, but not the premium-edition Windows Vista Ultimate.

Leffler said consumers by spring 2006 knew Windows Vista was coming and were likely to have held off buying PCs until Windows Vista shipped. That would have damaged sales of PCs and revenue from Windows licensing.

According to Leffler, Microsoft and OEMs knew this and the program was created to help increase sales of PCs, which he said it did while also raising the price of PCs. "According to basic and fundamental economic principles, as a result of a reduced demand for PCs, prices will fall," he said in the document. "The increased demand from the program resulted in increased sales and higher prices for these PCs than in the absence of the program."

"In addition to paying higher prices for these PCs, these consumers did not receive computers that were capable of running a premium edition of Vista that included important and promoted features of the Vista operating system."

Microsoft refused to comment on the document, beyond what it had said in its own filings in the case. In a reply to the court last December (here, warning: PDF), Microsoft called Leffler's $8bn figure "absurd" and said this: "To give class members free upgrades to premium-ready PCs would provide a windfall to millions."

Leffler's document can be found here (warning: PDF). ®