Microsoft Corp. on Thursday
said it plans to slash prices for retail copies of Windows Vista up to almost
50% for certain editions in poorer countries, in order to boost sales that one
analyst said have failed to meet expectations.

But many customers, especially those in wealthier countries such as the U.S.
or Europe, may only see additional discounts as small as 3 percent -- or none
at all -- depending on which of Vista's four consumer versions they are interested
in.

"The vast majority of our retail customers -- especially those in developed
markets -- may not notice anything different from the promotions they've already
seen in their region," according to a spokeswoman. "This is really
about formalizing promotions we've run with several partners already to continue
to grow our retail business."

In a Q&A interview posted on the PressPass
section of Microsoft's Web site, Brad Brooks , the new corporate vice-president
for Windows consumer product marketing, said that the cuts will arrive "with
the retail release of Windows Vista Service Pack 1 later this year," though
some markets will see reduced prices sooner through promotions such as with
Amazon.com in the U.S.

In developed markets, according to Brooks, Microsoft is mostly cutting prices
for retail upgrade versions of Windows Vista Home Premium and Ultimate. "In
emerging markets, we are combining full and upgrade Home Basic and Home Premium
versions into full versions of these editions and instituting price changes
to meet the demand we see among first-time Windows customers who want more functionality
than is available in current Windows XP editions. "In addition, we are
also adjusting pricing on Windows Vista Ultimate in emerging markets to be comparable
to price changes developed market customers will see."

"I think this is a smart strategic move," said NPD Group Inc. analyst,
Chris Swenson. "Vista hasn't hit their initial expectations."

While Microsoft has sold more than 100 million Vista licenses in its first
year -- a figure which excludes the tens of millions of Windows licenses sold
to corporations -- more than 80% of those licenses have been sold to PC makers
to install on new PCs, according to Swenson.

Retail copies of Vista sold through online and brick-and-mortar stores make
up most of the rest, Swenson said. They are mostly bought by consumers upgrading
their existing computers, as well as some do-it-yourselfers assembling their
own PCs, he said.

Microsoft can afford to make the discounts, since it makes much more money
per retail copy of Vista sold compared to OEM licenses sold to a PC manufacturer.

In fact, Microsoft has previously done just that, offering a flock of retail
discounts at Vista's launch a year ago.

But first-week retail Vista sales in the U.S. were
off 60% from those of its predecessor, Windows XP, according to NPD.

U.S. retail sales for all versions of Windows in 2007 were up 41% from 2006,
according to NPD. (That figure sounds less impressive when one considers that
2006 Windows sales were actually down 18% from 2005.)

In terms of the mix in the U.S., half of the copies of retail Vista sold last
year were for the Home Premium edition, which sold for about US$174, according
to NPD. The pricey Ultimate edition, which sold for an average $274, made up
24% of unit volume.

Swenson says one reason retail Vista sales are weaker than XP's is because
of the many years -- five -- between its release and XP's. By contrast, XP was
released only one year after Windows 2000 and ME. That meant that consumers
who bought a new PC with 2000 or ME would have been more likely to upgrade it
with XP. Not so for consumers who bought a new XP PC three or four years ago;
machines of such comparatively advanced age are unlikely to have been upgraded
to Vista's requirements.

Moreover, hardware price points have fallen another 25% since XP's release,
according to Swenson.

Finally, running Vista with its full Aero desktop turned on requires fairly
powerful PC hardware. All of these factors combine to make it more attractive
for consumers to buy a whole new computer with Vista on it than to upgrade an
existing PC, he said.

Swenson doesn't think Microsoft's move is a tactical attempt to combat
ongoing negative publicity of Vista, including a lawsuit
alleging that 'Vista Capable' PCs were not truly Vista capable.

"I doubt the two are tied," he said. Microsoft "really wants
to help spark Vista sales, though I don't see it taking off like a rocket like
the way Office did after its price was cut."

He also doesn't see a link between the price cuts and the failure
of Microsoft's Anytime Upgrade program, which let consumers upgrade their
edition of Vista by purchasing a digital key from Microsoft online. Microsoft
terminated the program last month.

"It was probably ahead of its time, and thus not successful, and so they
got rid of it," he said.

» posted by abennett

Computerworld

• Email
• Print
• Share
  • Slashdot
  • Digg
  • Stumble
  • Reddit
  • Newsvine