Microsoft cuts retail Vista prices

Microsoft will slash prices of Windows Vista by up to 50 percent, mainly in developing countries; U.S., Europe will see smaller cuts, if any

Microsoft on Thursday said it plans to slash prices for retail copies of Windows Vista up to almost 50 percent 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.

[ Analysts say: Price cuts don't get to heart of Vista's problems ]

"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 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 percent 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 percent from those of its predecessor, Windows XP, according to NPD.

U.S. retail sales for all versions of Windows in 2007 were up 41 percent from 2006, according to NPD. (That figure sounds less impressive when one considers that 2006 Windows sales were actually down 18 percent 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 $174, according to NPD. The pricey Ultimate edition, which sold for an average $274, made up 24 percent 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 percent 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.