Analysis: Microsoft could cut Windows 7 list price to $100

Calculations based on Feb. 2008 Vista price cuts

Microsoft could drop the price of Windows 7 to around US$100 when it announces retail prices later this month, according to calculations based on an earlier Vista cost-cutting move.

Although Microsoft is not expected to go public with Windows 7 retail prices until next week, if it drops them by the same percentages it did in February 2008 when it cut U.S. prices for three editions of Vista, the upgrade to Windows 7 Home Vista could be $106.

If it does cut prices, Microsoft's motivations could range from a recognition of the recession's impact on consumers to a desire to move as many users as possible to Windows 7 -- which has been generally praised by reviewers -- to stem defections to other platforms, such as Apple's Mac OS X.

In that Vista price cut, Microsoft dropped the list prices of Vista Home Premium Upgrade, Vista Ultimate and Vista Ultimate Upgrade in the U.S. by 18.8%, 20% and 15.4%, respectively.

Vista Home Premium Upgrade, which had been priced at $159, fell to $129 in February 2008. Vista Ultimate Upgrade, meanwhile, dropped from $260 to $220. In other markets, such as the U.K. and the European Union, prices fell even more: Home Premium Upgrade was slashed by 46% in the EU.

Using the 2008 percentage price cuts for Ultimate as the basis for further reductions would put Windows 7 Ultimate at $256 and Windows 7 Ultimate Upgrade at $186.

Those calculations, however, present problems with the pricing of Windows 7's other edition, dubbed Professional, the replacement for Vista Business in the line-up. Microsoft has been adamant that each version of Windows 7 will be a superset of the one immediately lower on the price/feature ladder. Such a strategy would hint at prices set accordingly; in other words, Business would be priced higher than Home Premium but lower than Ultimate. Because Microsoft declined to cut the U.S. prices of Vista Business or Vista Business Upgrade, however, relying on the 2008 decreases means that, by Computerworld's calculations, Windows 7 Professional would remain at $300 and Windows 7 Professional Upgrade at $200. That's unlikely, given that those numbers would price Professional higher than Ultimate.

Another tack that Microsoft could take would be to simply cut prices for all editions by the same percentage, thereby lowering prices while still keeping its tier structure intact. In a scenario where the company cuts prices 10% from the current Vista list, for example, Windows 7 Home Premium Upgrade would list at $117, while Professional Upgrade and Ultimate Upgrade would be priced at $180 and $198, respectively.

A 20% across-the-board cut would put Windows 7 Home Premium Upgrade at $104, with Professional Upgrade and Ultimate Upgrade at $160 and $176, respectively.

Last week, a memo attributed to Best Buy said that the retail chain will pre-sell Windows 7 Home Premium Upgrade for $50 and Windows 7 Professional Upgrade for $100 for a limited time starting June 26. The memo didn't specify whether those prices were set by Best Buy or would be part of a general promotion by Microsoft, nor did ir specify the price of those editions once the 16-day special sale expires.

Best Buy's sale prices may provide a clue about the list prices. The chain's $100 sales price for Windows 7 Professional Upgrade is exactly 50% of the $200 price tag of Vista Business Upgrade. If Best Buy is offering Windows 7 Home Premium Upgrade at the same 50% reduction, that means the full list price of the edition will be $100.

The June 26 start date for Best Buy's promotion is also the date when the Windows 7 Upgrade Option will kick off. That separate marketing campaign will provide free or discounted upgrades to Windows 7 for people who purchase a Vista-powered PC between June 26 and Jan. 31, 2010, according to TechARP, a Web site that has repeatedly accurately called Microsoft future plans.

Microsoft declined to confirm the Best Buy memo's details last week, saying, "We're excited to share additional details regarding these programs soon, but do not have additional details to announce at this time."

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