June 25, 2009 / 1:08 PM / 10 years ago

Microsoft to cut prices on Windows 7 system

SEATTLE (Reuters) - Microsoft Corp (MSFT.O) will sell the standard home-user version of its new Windows 7 operating system for 8 percent less than the comparable version of its Vista system, as the global downturn hits spending on technology.

The world’s largest software company, whose recent ads champion low-priced PCs against more expensive Apple Inc (AAPL.O) computers, said the new system will be available at even lower prices for a short time, as it looks to tempt buyers ahead of the holiday shopping season.

The new operating system, which Microsoft hopes will be a bigger hit than the poorly received Vista, will be generally released on October 22. It will be available on pre-order from U.S. stores such as Best Buy Co Inc (BBY.N), online retailer Amazon.com Inc (AMZN.O) and the company’s own website from Friday.

Microsoft did not detail how much it would charge PC makers such as Hewlett-Packard Co (HPQ.N), Dell Inc DELL.O and Acer Inc (2353.TW) for preloading Windows 7 on their machines, which is how most customers will come to use the operating system.

The price Microsoft charges manufacturers is becoming a thorny point, as both sides look to maximize their share of profits as PC sales dip and prices are driven down.

The software giant said it would sell the Home Premium upgrade version of Windows 7 — which most nonbusiness customers already using Windows will want — for $49.99 from Friday until July 11 in the United States. The discs would be shipped after general release.

After July 11, the pre-order price will be $119.99, 8 percent less than the current $129.99 price tag for the comparable version of Vista, which cost $159.99 at launch in early 2007.

The Professional upgrade version of Windows 7 — aimed at small companies using multiple computers — will be on sale until July 11 at $99.99, then at $199.99 afterward. The comparable Vista version is the same price.

Prices for the full retail versions of the software — for customers who want to install the system from scratch rather than upgrade their existing Windows system — are also being reduced or held.

Microsoft will sell the full Home Premium version of Windows 7 for $199.99, 17 percent less than the comparable Vista version. Full versions of the more advanced Professional and Ultimate editions will be unchanged at $299.99 and $319.99, respectively.

To further tempt buyers, Microsoft said it was making a free upgrade option available to computer makers, meaning that customers who buy a PC or laptop with all but the most basic Vista versions from Friday should be able to get a free upgrade to the equivalent Windows 7 version.

How that offer is made available to customers is up to the individual PC makers. Both Microsoft and the manufacturers are hoping such an offer will avoid a sudden drop-off in already falling PC sales by persuading customers not to hold off on purchases until Windows 7 is launched.

Because the upgrade option means Microsoft is essentially selling two operating systems for the price of one, the company is deferring half the revenue from Vista sales over the next several months.

As a result, it said it would defer about $200 million to $300 million revenue from its fiscal fourth quarter, ending June 30, to later quarters, recognizing it either when a customer takes advantage of the upgrade, or at the end of the program on January 31, 2010. The move has no effect on cash flow.

In contrast to the Vista operating system, which was released in different language versions over several months, Microsoft said Windows 7 would be available in 14 languages on October 22 and a further 21 on October 31.

Versions for sale in Europe will not have Microsoft’s Internet Explorer 8 web browser included, due to the company’s recent decision to detach it in the face of a pending European Commission antitrust ruling on charges that Microsoft does not allow fair competition among browsers by including its own on its operating systems.

However, Microsoft said it will make IE8 available as a separate package for no extra charge. Customers can also install a competing browser.

Microsoft said on Thursday it will only offer full versions of Windows 7 in Europe rather than both full and upgrade versions. For a short time it is offering the Home Premium version for 49 euros ($68) and the Professional version for 99 euros ($138).

Microsoft also said the packaging of discs for the operating system was being reduced and would use recyclable plastic.

The company’s shares were up 1.3 percent at $23.75 in midday trading on Nasdaq.

(1 euro = $1.39)

Reporting by Bill Rigby; editing by Carol Bishopric and Andre Grenon

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