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Microsoft scores big with early Windows 7 sales

'Pretty good,' says analyst, but deep discounts on pre-orders cut into revenue

November 5, 2009 02:44 PM ET

Computerworld - Microsoft sold over three times more copies of Windows 7 in the week surrounding the Oct. 22 launch than it did Vista during its opening days in 2007, a retail marketing research analyst said today.

For the week of Oct. 18-24, and including the large numbers of pre-orders that Microsoft and online retailers took starting last June, Windows 7 unit sales were 234% higher than Vista's in its first days in January 2007, said Stephen Baker, an analyst with the NPD Group.

"I would call it pretty good," Baker said, "but I wouldn't call it great."

Baker said that expectations for Windows 7 were even higher than its actual performance, but the tough economy and retailers' reluctance to give up on either Windows XP or Vista created what he called a "headwind" for Microsoft's new operating system.

"The fact of the matter is that prior to the launch, there were a lot of operating systems out there," Baker said. "When Vista launched, you didn't see a lot of Windows Millennium PCs," he said, referring to the edition that preceded Windows XP. "Windows 7 will be more of a long haul."

More retailers kept computers powered by Windows XP or Vista on their shelves in the days just before, and also after, Windows 7 launch, explained Baker. "We didn't see the precipitous decline in inventory that we saw before Vista. Then, retailers were 'cleaner,' they didn't have really anything available except for Vista. But now, netbook sales made it easier for retailers to carry inventory with XP up to Windows 7's launch."

While unit sales of Windows 7 were up dramatically over Vista's early numbers, the new operating system brought in a less-than-stellar 82% revenue increase over Vista.

Baker credited the smaller revenue boost to Microsoft's deep discounting of pre-orders last summer, when it sold Windows 7 Home Premium Upgrade for $49.99 for two weeks in the U.S. Microsoft. And its OEM partners have also offered a second deal that discounts a Windows 7 upgrade as much as 58% when consumers purchase a new PC equipped with the operating system.

Those bargains pushed down the average sales price, or ASP, of Windows 7 in NPD's initial tracking. The ASP of Home Premium Upgrade, for example, was just $76 by Baker's estimate, much lower than the $119.99 list price.

"Those lower ASPs kept revenue from growing as much as unit sales," Baker said, adding that while NPD could not break out the percentage of sales for each retail edition, it was clear from the Home Premium ASP that that version made up the bulk of the early sales.

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