Vista prices cut by as much as 48%, but not in U.S.

Prices for the OS will be trimmed 15% to 20% in the U.S.

Microsoft Corp. is cutting the retail price of its Windows Vista operating system by as much as 20% in the U.S., but will slash at least some versions' price tags by more than 46% in both the U.K. and the European Union, the company confirmed today.

Late Thursday, Microsoft announced sweeping price cuts to boxed copies of Vista, saying then that the cuts would range from as low as 3% in developed countries to nearly 50% for some editions sold in poorer nations.

But by the numbers that Microsoft released today, even customers in Western Europe — France, Germany, Spain and the U.K., among others — will also see prices fall by nearly half.

"This is a perfect case of price elasticity of demand; this is Economics 101," said Chris Swenson, an analyst at the NPD Group Inc.

U.S. Vista Pricing

U.S. Old Price New Price Price Cut
Home Premium, Upgrade $159.95 $129.95 18.8%
Ultimate, Full $399.95 $319.95 20.0%
Ultimate, Upgrade $259.95 $219.95 15.4%

He noted that cutting the price increases demand to the point that revenues at the new, lower prices outstrip the money made at the old prices. "Microsoft now has a year of sales data, so they were able to calculate sales elasticity, which told them they needed to drop the price," Swenson said.

Although he acknowledged that the comparison wasn't apples-to-apples, Swenson held out Microsoft's $149 Office Student and Teacher edition as an example the Vista team likely looked at. "When they dropped the licensing restrictions, that essentially cut the price of Office in half at retail," said Swenson. "[Revenue] went up significantly, the growth curve looked like a hockey stick."

According to Microsoft, the price for the upgrade version of Vista Home Premium will drop 18.8% in the U.S., from $159.95 to $129.95. The full edition of Vista Ultimate, on the other hand, will be cut 20%, from $399.95 to $319.95.

But in the U.K., Vista Home Premium upgrade will get chopped by 46.8%, while the price of the full edition of Ultimate drops by 43.5%.

U.K. Vista Pricing

U.K. Old Price New Price Price Cut
Home Premium, Full £94.29 £50.20 46.8%
Home Premium, Upgrade £60.97 £44.56 26.9%
Ultimate, Full £233.60 £131.92 43.5%
Ultimate, Upgrade £153.59 £122.11 20.5%
Home Basic, Upgrade £60.97 £44.56 26.9%

Cuts in the EU, said Microsoft, will be just as dramatic: the Home Premium upgrade will be slashed by 46.2%, and the full version of Ultimate will be cut by 44.3%. Some of the pound and euro amounts yanked off Vista's retail price are impressive: Ultimate sheds £101 in the U.K., and €165 in the EU.

EU Vista Pricing

EU Old Price New Price Price Cut
Home Basic, Full € 188.27 € 124.19 34.0%
Home Premium, Full € 223.24 € 147.26 34.0%
Business, Full € 277.98 € 201.10 27.7%
Ultimate, Full € 373.67 € 208.17 44.3%
Home Basic, Upgrade € 97.26 € 64.16 34.0%
Premium, Upgrade € 150.42 € 80.86 46.2%
Business, Upgrade € 186.98 € 186.98 0.0%
Ultimate, Upgrade € 245.03 € 194.04 20.8%

In other markets, such as India, some cuts are even deeper; the full version of Vista Home Basic will drop by 48%. (In many markets, including India, Microsoft is combining the former full and upgrade packages into one SKU.)

Microsoft plans to institute the cuts when Vista Service Pack 1 (SP1) reaches retail. Earlier this month, the company announced it had shipped the SP1 code, and added that it would not deliver it to users via Windows Update for another six weeks. The company, however, has not set a specific retail date-of-availability.

"Retail customers will see a boxed product with SP1 code on shelves in the next few months," said a Microsoft spokeswoman today.

"They're still extracting a premium for Ultimate," said Swenson, "but this really brings down the price of Home Premium, which is smart. They want that version in more hands than any other.

"They want [market] penetration, that's what they're after," Swenson concluded. "If [users] are happy with XP, it's hard to get them to upgrade. If all grandma does is e-mail and the Web, it's hard to get her to upgrade. But price is one of the levers they can pull to get grandma to upgrade."

Copyright © 2008 IDG Communications, Inc.

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