Windows 7 Pricing: Microsoft Responds to Snow Leopard Threat with Hot Deal

Rob Enderle

Windows Vista was a huge advantage for Apple -- since it launched and up until last quarter, Apple was aggressively taking market share from Microsoft. Last quarter, Microsoft responded with a strong marketing campaign and stopped the erosion. Apple got a bit more aggressive in the second quarter and it is not yet clear whether it has started to take share again. However, in looking ahead to the second half of the year, Apple had itself positioned to take a massive amount of market share from Microsoft in the third quarter, due to a combination of aggressive upgrade pricing and actually having its new OS and hardware available in that quarter. In what continues to look like a tennis match, Microsoft has struck back with an aggressive, though short-lived, massively discounted preorder program which, based on recent surveys, may result in the company mitigating Apple's attack and announced initial pricing. I wrote earlier on Apple's move into the enterprise. Let's now go over the pricing program, discounts, upgrade recommendations and a few closing thoughts on Windows 7.


Microsoft Pricing


In every geography, pricing for Windows 7 will generally mirror or be under pricing for Windows Vista. In addition, there will probably be sales specials during the fourth quarter that will be announced close to launch. In retail, there will be three versions of Windows 7 Home Premium (for those who don't need Domains), Professional (for those who do), and Ultimate (for those who like the word "Ultimate").


Except for Europe, there are two announced retail versions of each product type -- an upgrade version and full version. The full version exists largely to set a price that Microsoft can discount to keep large business customers happy, and I can think of no real reason anyone else will need it. In Europe, there is only one version and, while Microsoft is calling it a "Full Version," it is actually unique and more like what is given to OEMs in that it can't be used to upgrade an existing Windows Vista or XP machine. As a result of European Commission rulings, the only way Europeans will be able to install Windows 7 is clean (by eliminating the existing version of Windows in order to erase the Microsoft browser and reinstalling all drivers and applications). This product will also come without a browser built in, but disks will be available from retailers with browser software (keeping that up to date will be interesting) so that folks will actually be able to get online. (Pulling a browser out of an OS in this decade seems insane to me. but then I'm not in government.) There are few people I know who I would trust to do this right so this should be an interesting few months for both the EU Commission and Microsoft in what is likely to be a finger-pointing fest if, as I expect, buyers get really upset with this result. Upgrade services should be hot in Europe post launch.


There is one unannounced version of Windows that is also generally available in retail and that is the OEM version. Similar to what is being provided to European customers, but coming with the requirement of a new motherboard or hard drive purchase, this version is generally not announced but typically runs 20 percent to 30 percent below the upgrade version and can only be installed on a fresh machine (the upgrade capability is turned off). This is closer to what you pay for the OS on new hardware. It is interesting to note that Apple gets credit for charging less for its OS while charging substantially more for its hardware to maintain the highest PC margins in the segment, yet folks think of it as providing a lower-cost offering. That's either Apple brilliance or a bad reflection on our own intelligence. Probably more than a little of both.




Starting on June 26th and running to July 11th in the U.S., and from July 15th to August 14th in Europe, there are pre-order specials offering between 50 percent and 58 percent discounts in the U.S., and between 58 percent and 61 percent discounts in Europe. These only apply to the Home Premium and Professional versions, in their respective configurations. These offers are limited by both the dates and the number offered and they will only be available from a limited number of retailers. In the U.S., these are Amazon, Best Buy, Microsoft, Office Depot and Costco. This should help Microsoft spike volumes, with estimates approaching 30 percent of those surveyed indicating they'll likely buy the upgraded product. Actual numbers will probably fall below this due to volume and time limitations but it should be enough to offset the impression that Snow Leopard is stealing substantial share from Apple due to its release in the quarter prior to the one in which Windows 7 will be launched.

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