Microsoft Cutting Windows 7 Prices for Momentum, Strong Holiday Sales

Microsoft's strategy of cutting prices and offering free upgrades for Windows 7 could be part of a larger strategy to build momentum and impel a strong holiday buying season. However, with free upgrades to Windows 7 limited to 25 PCs per company, some smaller businesses could experience difficulties in updating hardware purchased before the operating system's Oct. 22 rollout.

Microsoft's strategy of aggressive price cuts and free upgrades for its upcoming Windows 7 operating system, due to be released Oct. 22, could be one of driving both initial momentum and a strong holiday sales season.

However, with free upgrades from Vista to Windows 7 limited to 25 PCs per company, some SMBs (small and midsized businesses) could find themselves debating whether to wait until late in 2009 to implement a hardware refresh. Certain companies may indeed choose to maintain with their existing system until the Windows 7 release, having already held off and kept their hardware infrastructure operating on Windows XP as opposed to wrestling with a Vista upgrade.

Microsoft announced on June 25 that Windows 7 will sell for roughly 10 percent less than Vista, and that its retail partners will make the operating system available for preorder at a substantial discount starting June 26. For purchasers in the United States, the Windows 7 Home Premium upgrade will cost $119.99 instead of $129.99, according to a Microsoft spokesperson, while the full retail version of Windows 7 Home Premium will cost roughly $40 less than its predecessor.

Those purchasing a PC with Windows Vista installed will have the ability to trade up via the Windows 7 Upgrade Option Program, which will run through Jan. 31, 2010.

In order to push the operating system onto as many PCs as possible, Microsoft is partnering with Hewlett-Packard to streamline the Upgrade Option Program for those purchasing HP systems before the Windows 7 release. Under the agreement, in addition to receiving both the upgrade and an upgrade utility disk, customers will have access to an HP Upgrade Assistant that will install any necessary drivers for running the OS on their machine.

Fujitsu America is offering Windows 7 upgrades for LifeBook notebooks purchased with Windows Vista Home Premium or Windows Vista Business installed.

Starting Oct. 22, Windows 7 will be available in 14 languages ranging from English and Spanish to Russian and Korean; a few days later, on Oct. 31, the company plans to follow this with another 21 languages, including Hebrew, Thai and Latvian.

Despite increased chatter over the migration of applications and software platforms to the cloud, Microsoft remains substantially bound-at least at the moment-to the traditional model of desktops and laptops running software from a local drive. Roughly a third of the company's 2008 revenues, or $20 billion, came from OS sales.

But the amount of public rancor directed toward Vista, combined with increased competition from alternative offerings by Google and Apple, means that Microsoft needs the next version of its operating system to be a substantial hit-hence the price cuts, free upgrades and other incentives accompanying Windows 7.

"It's really to get the bad taste of Vista out of peoples' mouths; plus they need to get Windows 7 off to a good start," Mike Silver, an analyst with Gartner, said in an interview. However, he cautioned, "For enterprises, the situation is not quite as good because Microsoft is limiting the number of free upgrades you can get to 25 per customer."

Such a move could impact larger SMBs refreshing their hardware before Windows 7's Oct. 22 release date. One potential backdoor to that 25-PCs-per-company stipulation could come through OEMs, which could negotiate with Microsoft directly over the issue. "The OEMs will have some latitude, but they will need to specifically request it," Silver said.

Microsoft's push with regard to Windows 7 pricing, Silver added, is born out of a need to generate momentum: "They're making sure they have a good uptake initially and then a strong holiday season."