Betting on Microsoft Windows 7

A few years ago a popular website emerged called “Jump the Shark”. The site was a tongue and cheek look at TV shows that go from being compelling and popular to silly and absurd.

The origin of the phrase comes from one of the late episodes of TV series Happy Days when Fonzie is water-skiing in Hollywood and he jumps over a shark.

Jumping the shark doesn’t only apply to TV and movies. We see it in everyday life, particularly in business when companies take a popular product and innovate it to the point of absurdity.

A good example would be razor blades. When Gillette and Schick came out with their two- and three-blade systems, men across North America suddenly had smooth cheeks and chins, without tiny pieces of toilet paper stuck to bloody nicks.

But things got ridiculous when both companies came out with four- and five-blade machetes that could hack down weed-filled lawns.

Another recent example would be Microsoft, which had evolved its Windows operating system to the point where it was just about perfect. Sure there were some issues with XP, but all it really needed were a few minors tweaks here and there.

But like Coca-Cola in the 1980s when it brought out New Coke, Microsoft pulled a major bone-headed move and jumped the shark when it overhauled Windows and came out with Vista, an error-prone, resource-pig.

Everything looked different on Vista, tools and applications were moved around, annoying and confusing security warnings popped up all over the place.

And to go along with Vista, Microsoft butchered its other killer app, Office. Like Vista, everything looked and behaved differently in the new Office.

Well, as most of you are well aware, Vista was a colossal flop and helped make archrival Apple billions in profits as frustrated PC users turned to Macs.

Realizing that it’s on the verge of killing its golden goose, Microsoft is scrambling to push the reverse button and return Windows to something that looks and acts more like XP. The company announced recently that it will be soon coming out with Windows 7 as a replacement to the Vista disaster.

Microsoft has been pushing hard to get Windows 7 to market, which likely means the company will launch a product riddled with errors and security holes.

Regardless, the date when Windows 7 is released has become a topic for speculators. Intrade.com has posted contract prices (i.e. odds) speculating on when Microsoft will release the new product. Currently, the odds favor a Window 7 release on or before March 31, 2010.

Speculators are currently asking 90.0 for contracts on a Windows 7 release before that date, which means they believe there is a 90 percent chance it will happen.

With odds at that level, the payoff on these contract is slim. A potentially more lucrative bet would be  purchase contracts that set a release date on or before December 31 of this year. With an ask price of 55.0, the payoff would be much more attractive.

Based on pressure from angry PC users who were forced to buy Vista, dwindling market share at the hands of Apple, and antsy shareholders who have already taken a beating as a result of the market collapse, Microsoft will no doubt push hard to get W7 out before Christmas.

Microsoft shares closed at $17.83 on Monday.