Apple versus Microsoft. who will win the competition?

By Peter Burrows | Businessweek

The entire personal computer industry is gearing up for Microsoft's (MSFT) Oct. 22 release of Windows 7, by most accounts the best version of its operating system in years. Yet Apple (AAPL), Microsoft's nearest competitor, is quietly planning to capitalize on the launch, too. "It presents a very good opportunity for us," says Philip W. Schiller, Apple's senior vice-president for marketing.

The Cupertino (Calif.) company sees Windows 7 as its best chance in years to win over longtime PC users. Millions of PC owners are expected to head to stores over the next year to replace their aging machines. The surge is expected to be unusually large because Microsoft's last operating system, Vista, was so poorly reviewed that many people simply stuck with machines running the eight-year-old Windows XP system.

In the coming weeks, Apple is expected to hit those computer buyers with advertising aimed at luring them to its Macs. It will likely make the case that Macs are less susceptible to viruses and are best suited to its popular iPods and iPhones. And look for it to poke fun at Microsoft for making XP owners go through an arduous process to upgrade to Windows 7—one that includes backing up all their files to an external drive, reformatting their PC, and then reinstalling all of their old programs, assuming they still have the CDs. "Any user that reads all those steps is probably going to freak out. If you have to go through all that, why not just buy a Mac?" says Schiller.

No question, Microsoft and partners such as Hewlett-Packard (HP), Dell (DELL), and Acer will benefit from the Windows 7 debut. PC makers will be rolling out a raft of eye-catching new models—from $300 netbooks to sleek desktop computers with touch-sensitive screens. Microsoft downplays the hassles of upgrading to the new operating system and says most people are going to buy new PCs anyway, which means they won't install the software themselves. "For the vast majority of people that get Windows 7, most will move to new hardware," says Parri Munsell, Microsoft's director for consumer product management.

PC makers are likely to benefit from their machines being much cheaper than Apple's, especially given the soft economy. The average price of a Windows PC is $537, compared with $1,434 for a Mac, says analyst Stephen Baker of researcher PC Data. "I just don't think you're going to have a huge influx of people who have perfectly good XP machines deciding they need to buy an all-new Mac," he says.

Schiller won't say if Apple is planning to cut prices, which would certainly attract a flock of new buyers. He points out that the company already has programs for helping PC users switch; people who pay $99 a year for its One to One training program can bring their PCs to an Apple Store and have all their files transferred.

Schiller says the success of Apple's operating system is indicative of the changing fortunes in the tech industry. While less than 20% of Windows users have moved to the three-year-old Vista, more than 70% of Mac users have upgraded to the Apple operating system introduced at about the same time. He has similar hopes for Apple's four-month-old Snow Leopard OS. Says Schiller: "I expect Snow Leopard will have an amazing upgrade rate, and Windows 7 won't."

That's Apple—calm, cool, and confident that the tech world is marching in its direction. "We've been through these transitions before, and no matter how you look at it—it's still Windows," says Schiller. "When all is said and done, the Mac picks up share a bit at a time."

Burrows is a senior writer for BusinessWeek, based in Silicon Valley.