Microsoft plays tennis match with Apple on Windows 7 pricing

Microsoft and Apple are using upgrade discounts to entice users to move to Windows 7 and Mac OS X Snow Leopard

Microsoft announced late last week a slew of announcements about Windows 7 pricing that enticed buyers with a big pre-order discount, but still left users angry that that the Windows 7 price cuts weren't steeper given the disappointment of Vista and the grim economy.

The discounted pre-order offer started on June 26 and will last through July 11. Buyers can choose the discounted Windows 7 Home Premium for $49.99 or Windows 7 Professional for $99.99.

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The Windows 7 prices that pick up after the pre-order deal ends, though still mostly lower than Vista was at its launch, have been met with some gripes, particularly from users transitioning from the widely-disappointing Vista Ultimate to Windows 7 Ultimate who will see no price reduction.

At the same time, Microsoft is taking deliberate steps to make it easier for users to move to Windows 7. In addition to the pre-order discounts, Microsoft's Windows 7 Upgrade Option Program provides free or nearly-free upgrades to Windows 7 for those who purchase a new Vista PC between now and Jan. 31, 2010.

A perception game with Apple

Yet with Windows 7 pricing, Microsoft had to face more than a skeptical, cash-strapped public. It was also competing with a previous announcement from an old nemesis: Apple.

Three weeks ago, Apple announced that the next version of its OS X, Snow Leopard, will be available a month before Windows 7 with a $29 upgrade charge for a single-user license, and $49 for a five-license pack. Apple traditionally charges $129 for an operating system upgrade.

Rob Enderle, president of tech consulting firm The Enderle Group, views Microsoft's price cuts as a tennis match with rival Apple.

"Apple came out a few weeks ago and said we're going to be cheaper and earlier," says Enderle. "But Microsoft stole back some momentum with the discounted pre-orders. In this economy, $50 for Windows 7 is a heavy incentive to upgrade. These deals will be a huge driver."

On Friday, the $49.99 upgrade for Windows 7 Home Premium, quickly took over the top spot on Amazon.com's best-seller list and the $99.99 Windows 7 Professional Upgrade was No. 2 in software.

Snow Leopard's deceptive pricing

Some industry experts have questioned the true value of Apple's $29 upgrade offer.

A blog post by veteran Microsoft watcher Ed Bott analyzes the Snow Leopard upgrade deal and discovers that getting the $29 upgrade depends on when you bought your Mac.

According to Bott, only those buyers who purchased a Mac between Oct. 2007 and June 2009 qualify for the $29 upgrade. If you bought it before that it will cost you $169 (and that's for Intel-based machines only). If you bought your Mac before Jan 2006, you cannot get Snow Leopard at all.

In contrast, Bott writes, "Any PC purchased with Windows XP or Windows Vista since October 2001 qualifies for a discounted upgrade to Windows 7, for a price as low as $50."

In this operating system pricing duel between Microsoft and Apple, Bott says Apple is the reactionary one, not Microsoft.

He writes: "If Windows 7 didn't exist, how much would Apple be selling Snow Leopard for? (Hint: The correct answer has three digits.)"

Will Microsoft cut prices again?

Enderle says Windows 7 price cuts are the culmination of a bad economy, negative perceptions of Vista, and Apple slowly taking OS market share from Windows.

And a retaliation from Apple is inevitable, Enderle adds. "It's a perception game. So you'll probably see Apple get aggressive with pre-orders of their own for Snow Leopard or other special deals, such as the chance to get a free iPod when you buy a MacBook."

So far, Apple's cheap upgrade strategy may be working against Microsoft. A recent ZD Net online poll of 1,800 users asks the question: "Did Microsoft do the right thing with Windows 7 retail pricing?" Forty-four percent chose, "I'm stunned Microsoft didn't cut even more, given Apple's $29 Snow Leopard pricing. (After all, both Windows 7 and Snow Leopard are glorified service packs, right?)."

It is worth noting that 28 percent chose, "Yes! I am all over that 50+ percent pre-order offer."

It remains to be seen if Apple's lower upgrade price and/or user complaints that Windows 7 is still too pricey will force Redmond to slash prices even more as part of the "perception game."

Says Enderle: "At the very least, Microsoft should offer a big discount for Vista Ultimate users moving to Windows 7 Ultimate. They deserve it."

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This story, "Microsoft plays tennis match with Apple on Windows 7 pricing" was originally published by CIO.

Copyright © 2009 IDG Communications, Inc.

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