Print - Pricing Malfunction: How Microsoft will Bungle the Windows 7 Launch

The reviews for Windows 7, even during the beta, have been stellar and stand in stark contrast to those of its predecessor, Windows Vista. Indeed, the level of excitement Microsoft is experiencing around the next Windows version is unprecedented this decade, which is a sign that its customers are finally ready for an upgrade. And with Windows 7 speeding toward a mid-July finish line, there's almost no way the software giant could screw things up now, right?

Wrong. Microsoft has yet to publicly announce its plans for Windows 7 licensing and pricing. And this final piece of the Windows 7 puzzle—arguably the most important piece—will ultimately determine how successful the OS is. Unfortunately, it seems that Microsoft is getting ready to hobble Windows 7 by making it too expensive and, to a lesser degree, too difficult for most of its customers to upgrade.

As noted previously, Microsoft has yet to announce Windows 7 pricing. But a variety of its suppliers and partners have leaked Microsoft's plans, and the news isn't positive. In stark contrast to its leading OS competitor, Apple, which is offering its next desktop OS (Mac OS X Snow Leopard) for a paltry $29 to those who already own the most recent version (Leopard), Microsoft is apparently getting ready to raise prices.

According to a report in DigiTimes, Microsoft will raise the cost of the lowest-end Windows 7 version, Windows 7 Starter, to $45–$55 when licensed for use on a netbook computer. This is a dramatic increase over the cost of licensing Windows XP on netbooks, which is about $15–$35. This follows news from a Dell executive, Darrel Ward, who said last month that the average selling price of Windows 7 will be "higher than they were for Vista and XP ... licensing tiers at retail are more expensive than they were for Vista." He specifically noted that Windows 7 Professional would be more expensive than the Windows Vista version it replaces (Vista Business).

Now, we know Microsoft is at least aware of the global financial crisis. The company experienced its first ever year-over-year drop in Windows revenues in the most recent quarter, and it recently completed most of its planned 5,000 jobs cuts.

Microsoft will apparently try to ride excitement about the new OS by lowering prices for those who want it the most, at least temporarily. According to a leaked memo from Best Buy, Microsoft's retail partners will temporarily pre-sell Windows 7 Home Premium and Professional for 16 days in late June and early July at vastly reduced prices. The Best Buy memo cited a $50 cost for Windows 7 Home Premium Upgrade and $100 for Windows 7 Professional Upgrade. PC makers will also be supplying free copies of Windows 7 to those customers who purchase Windows Vista–based PCs after a certain (yet to be revealed) date. (Microsoft has offered a similar program for all modern versions of Windows.)

While an anxious Windows community awaits Microsoft's pronouncements about pricing and licensing, there's another issue looming for Windows 7. Customers with Windows Vista will be able to easily upgrade from that OS to Windows 7 when it's released, but most Microsoft customers are still running Windows XP. And those users won't be able to upgrade (though they will qualify for upgrade pricing). Instead, they can use a Windows 7 utility to perform a migration, in which Windows 7 is installed on a PC and then the user's settings and documents are copied over. In a migration, however, applications don't make the trip, so the user is responsible for reinstalling and reconfiguring them, a process that will be lengthy and potentially difficult.

Another gotcha for XP users involves so-called downgrade rights, in which a purchaser of a Windows license or Windows-based PC can opt to "downgrade" to an older Windows version, usually XP. Starting next April, Microsoft will no longer offer downgrade rights to Windows XP, a move that could make life difficult for those companies that choose to stick with XP past that date. To get around this limitation, businesses can enroll in Microsoft's Software Assurance (SA) volume licensing program, which will incur a per-PC yearly fee. (SA customers can actually downgrade to virtually any Windows version dating back to 1995, including, yes, Windows 95.)

Microsoft could easily sidestep most of these issues by making Windows 7 more affordable than its predecessor and by rewarding key customer groups with discounts. For example, the company should offer multi-PC licensing as Apple does with Mac OS X, instead of requiring individuals to buy new copies of Windows for each computer they own. And those that bought into Windows Vista Ultimate could be rewarded with extremely low-cost upgrades since Microsoft never really came through on its promised Ultimate-specific enhancements.

It's unreasonable to expect Microsoft to offer Windows 7 for $29. The leaked Best Buy pricing—$50–$100 for an Upgrade version—is a fine place to start. Microsoft, Windows 7 is too good to screw up with old-school pricing and licensing. This product should be inexpensive, and it should get even cheaper when a customer buys multiple copies.

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If I were Apple and reading the tea leaves (which they tend to do fairly well) then I'd be readying Mac adds that reference the Microsoft tax. If timed well, they could have adds ready and on air the same day Windows 7 pricing is announced.

its like comparing apples to a useful operating system...the pricing should reflect the difference...

Bill Gates said in the past that "the pricing of the operating system constitutes twenty percent of a computer". And I think it is fair. So, the price for the Windows 7 starter is right: the average cost of a netbook is $350, twenty percent of this is $70. The unfair and unwise thing is the inability to upgrade the XP. Microsoft really forgot how to upgrade.

Arghhh, I can see the seas of piracy awash with many copies of the new windows 7. The days be numbered for high priced operating systems when such things can be pulled from davy jones locker for the cost of a simple isp plan. Microsoft, ye has been warned.

Have always been first in line for the yet-next-version of MS OS's and Windows, ever since DOS-3.2. "However", after the past two (plus) years of trying to get Vista Home Premium 64-bit functional on a reliable basis, and only recently realizing that goal, it will be a very cold day in the nether regions when I rush to "upgrade" to the next MS version. I'll let it brew for a couple years and allow everyone else to suffer with the never-ending glitches that plagued Vista. At the same time, I do wish MS the very best of luck and favorable responce for MS Windows-7 with all the other loyal customers who will spring for that next version. I hope it's a doozy with rave reviews from everyone, and then I'll try it first on a box that isn't my main work station. As for the OS being considered as a certain percentage of the total cost of a computer, I'd never pay $800.oo for any operating system, from anyone. There is always a viable alternative.

This is a good warning to Microsoft. I also agree that this sets up a perfect rejoinder from Apple on the price/performance issue that Microsoft has been using in the "Laptop Hunter" ads. Microsoft is hoist by their own petard. After making the point that consumers should buy on the basis of price, they've really stuck it to their hardware "partners" by directing buyers to the cheapest laptops, with thin to zero profit margins. I'm sure Dell, HP, et al are just so pleased to have buyers directed to products where hardware vendors make very little profit. Now, Microsoft has been undercut on the price of the product that they actually make----operating system software---by their competitor, Apple. That is not a good spot for Microsoft. Apple has a real opportunity here, and I think they'll use it. Not only do they have the perfect price rejoinder, they have a MUCH better ad agency than Microsoft does. It will be interesting to see if Apple uses this opportunity.

I REALLY hope MS gets the clue and sets the prices accordingly. Starter shouldn't be more than $5 to $10 more than XP. Home Editions shouldn't be too far off OSX pricing AND offer bundles. Pro should cost the same as Vista, maybe $5 more. Upgrades from Vista Ultimate should be dirt cheap. How much hope do I have that this will actually happen? Very little.

"And those that bought into Windows Vista Ultimate could be rewarded with extremely low-cost upgrades since Microsoft never really came through on its promised Ultimate-specific enhancements." To be honest, none of us really expected any of the Ultimate stuff to see the light of day anyway. Anyone remember the Win 95 Plus Pack?

It is unfortunate that Microsoft seems to be trying to please everyone by releasing info in stages. I recently asked a Microsoft OEM support engineer if there would be an upgrade option for current vista or xp owners. The answer was 'Not at this time, but the situation may change'. Current OEM's can buy VIsta OEM SKUs with Windows 7 upgrade option. There is a $10 charge to cover the media for the future upgrade. Why wait to announce upgrade pricing? DO they thins this wll limit sales of new PC's?

People are still paying attention to this flailing company in the death throes of its downward spiral? See you in line for a Mac.

I knew it was too good to be true. Now that Microsoft' has released its pricing scheme for Windows 7 the other shoe has finally dropped. After doing so many things right in the development of this OS they have screwed up on one of the most important things. This release had the chance to be huge for the company but instead they've fallen back on their typical money-grabbing tactics by pricing Windows 7 way beyond what they should have. They have just cost themselves a substantial number of upgrades with this scheme. It's no wonder that so many people pirate their products given their business practices. What a disappointment.

Now that pricing has been released, I can say that just as with Vista, the prices for Windows 7 are absolutely ridiculous!! 300 bucks for a (mostly) feature-full and useful OS! Are you kidding me?! Home premium isn't much of an OS for a real user in my opinion, and businesses would never buy that version. Guess what other versions businesses won't buy as well? How about all of them! In this economy there isn't a business around that will plunk down 300 bucks (or even 200) for an OS when there are other viable options. I've always been a aupporter of Microsoft, but if this is how they are going to screw over their own customers, then it may very well be time for me to abandon ship!