Microsoft to cut price of Vista operating system

Microsoft Corp., the world’s biggest software maker, will cut the retail price of its Windows Vista operating system by as much as 48 percent to encourage customers to upgrade and to cut piracy in countries such as China.

The cost of upgrading to the Premium and Ultimate editions of Vista will fall between 20 percent and 30 percent in so-called mature markets such as the U.S., Japan and Europe, Microsoft Corporate Vice President Brad Brooks said in an interview. Full versions will have less of a discount.

Microsoft, which made about 30 percent of its $51.1 billion in the last fiscal year from Windows, is cutting prices to lure consumers that haven’t upgraded from Windows XP, the previous version. Test promotions of the new prices have boosted profit, Brooks said.

“It’s not so much competition with other companies; they’re competing with themselves,” said Chris Swenson, an analyst at Port Washington, New York-based NPD Group Inc. “If you’re using XP, you may be happy with your computing experience, you may love your computing experience. They really have to work that price lever.”

The price cuts are for versions of Vista sold by retailers, which account for a “very small percentage” of Windows revenue, Brooks said. About 80 percent of revenue in the Windows unit comes from software installed on personal computers. Microsoft spokeswoman Ange McLaughlin wouldn’t comment on whether prices will change for computer makers.

“Price is a pretty good lever,” Brooks said. “By dropping prices, we’re seeing a significant quantity uptake.”

Microsoft dropped 16 cents to $27.77 at 9:34 a.m. New York time in Nasdaq Stock Market trading. The Redmond, Wash.- based company’s stock had fallen 22 percent this year before today.

Price Cuts

Prices for full versions of the Basic and Premium editions of Vista will fall 30 percent to 48 percent in emerging markets, Brooks said. The company will eliminate upgrade packages in those countries because they haven’t sold well, he said. Price cuts for Vista Ultimate will mirror those in developed markets.

Customers in countries such as India and Russia typically buy full versions of Vista rather than upgrading, Brooks said. That’s because they are often seeking to replace pirated software, he said.

About half of Vista sales in 2007 were of the Premium package and upgrade products, which cost about $173.95 on average, according to Swenson. Ultimate sales made up 24 percent and Basic products accounted for 17 percent. The remaining 9 percent of sales came from Microsoft’s Vista Business.

Service Pack

The price cuts will come into effect when Microsoft releases Vista Service Pack 1, a package of fixes to the operating system. That program will be released soon, Brooks said, declining to elaborate.

Distributors such as such as Amazon.com Inc. that have been participating in the trial pricing will have the lower prices sooner, he said.

The suggested price for Windows Basic in the U.S. is $199.95, according to Microsoft’s Web site. Vista Home Premium costs $239 and Vista Ultimate is $399. Retailers such as Amazon.com sell the software for less.

Vista, the first new version of Windows since 2001, was released to corporate customers in November 2006 and to consumers in January 2007. The product boosted Microsoft’s U.S. sales of Windows products by 41 percent in 2007, according to NPD’s Swenson.