A Nonsensical Pricing Model

By Don Reisinger  |  Posted 2009-07-01

Why Is Microsoft Windows 7 Pricing So Confusing?

Microsoft is at it again. 

The software giant announced more details about its launch of Windows 7, which is slated for release on Oct. 22. And in true Microsoft fashion, it announced a pricing scheme that could easily confuse consumers who are going to the store to pick up a copy of the new operating system.

It shouldn't surprise us. Right now, Microsoft offers four versions of Windows -- Home Basic, Home Premium, Business and Ultimate. They are priced at $199.95, $259.95, $299.95 and $319.95, respectively. Of course, Microsoft contends that pricing its versions like this has nothing to do with confusing consumers and everything to do with ensuring the company is getting what it deserves for the features each version of the operating system has.

On one level, that makes some sense. The more versions of an operating system, the more differences between the packages, the greater the need for different prices. At the same time, not everyone who buys an operating system at the store has done their research. And worst of all, depending on where they buy the software, the sales clerk might not even be able to help them. So, as they consider the various differences between the four operating systems Microsoft currently offers, they're left guessing which version is best for them by considering their name and price.

It must work for Microsoft. With the announcement of Windows 7 pricing, the company has further confused consumers. This time around, Microsoft announced that it will ship three versions of Windows 7, instead of four that it shipped for Windows Vista. Great. But it didn't do much to limit confusion in the marketplace.

Windows 7 Home Premium will cost $120 for an upgrade and $200 if the user decides to purchase the full version. Windows 7 Professional boasts a $200 upgrade price tag and a $300 charge for the full version. Finally, Windows 7 Ultimate, the best version Microsoft has to offer, will retail for $220 as an upgrade and $320 as a full version. Microsoft contends it's making it "easier than ever" for consumers to find the right version of the software they want. But for most consumers and business customers that need to consider this pricing, it looks similar to what Microsoft tried with Windows Vista.

A Nonsensical Pricing Model

What's so bad about making things easy? Perhaps it makes sense to Microsoft, since it spent so much on the development of the operating system. But for everyone else, the company's pricing model is nonsensical. When the average consumer goes to the store looking for a new install of Windows 7, they'll need to come armed with some good information to make that decision. If they don't, they'll be left deciding at the store if they want the upgrade or the full install. Then, they'll need to determine which version they want. If they don't have much knowledge of the differences, that could be a real problem. The same might be said for small companies that don't have dedicated IT staff.

Apple, which is releasing a new version of its operating system in September, made it easy. If you want to upgrade your installation of Leopard to Snow Leopard, you'll only need to pay $29. Those looking for a family five-pack will need to pay $49. Granted, Snow Leopard is more of an iterative update than a full, new operating system like Windows 7, but I still think it proves a point. Much to Apple's credit, it has maintained a pricing strategy with its operating system that will still help it turn a nice profit, while ensuring its customers don't get confused when they want to buy it. Simply go to the store, order a copy of Snow Leopard, and you're all set.

The one thing working in Microsoft's favor is the number of people who actually buy standalone operating systems. In the Windows ecosystem, it's relatively small. For the most part, users both in the enterprise and in the consumer space buy computers from vendors that have already bundled the operating system with the hardware. That has historically helped the company dodge criticisms over its pricing models. And it will probably work again.

Regardless, Microsoft's decision to release so many versions of Windows 7 at so many different price points is a mistake. Instead of offering multiple SKUs with varying degrees of usefulness, Microsoft should simply sell one version of Windows 7 with all the features installed. For Netbooks, it can maintain the Windows 7 Starter edition to ensure it runs well. That way, it can charge a hefty price for Windows, while at the same time, offer users what they really want -- an extremely capable operating system.

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