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Sunday, March 2, 2008

Will Price Cuts save Windows Vista Fly Off The Shelves?

In an unexpected and quite surprising move, Microsoft announced it will slash the prices of Windows Vista versions as soon as Service Pack 1 will be officially released.
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.

As you might already know, the retail copy of Windows Vista Ultimate will cost $320 instead of $399, while the upgrade version has been reduced from $259 to only $219.

Slashing the price of an operating system that has been introduced just one year ago is quite an unusual move, especially for Microsoft.

Officially, the company said the move is intended to speed up the Windows Vista adoption. It seems like after more than a year, Microsoft is still having hard times to convince users that the new OS is better than Windows XP.

Although Windows Vista is more technically advanced than its predecessor and it offers more features and advanced security options, it seems like the problems with the missing drivers for all kind of devices and the stiff hardware requirements are holding back users from migrating to Windows Vista. Microsoft is in a quite strange situation: it is competing against itself.

And as the Windows Service Pack 3 is on its way, it will remain to be seen how it will play out for Microsoft. From another point of view, Microsoft’s move to cut the price of its flagship product is not such a big surprise. The market dynamic in 2008 is very different from the one in 2001, the year when Windows XP was introduced.

Still 90 percent of the PCs are running Windows, but in the past years Apple’s Mac OS X and Linux have gained a lot of traction amongst consumers, partially because Microsoft’s repeated delays of its Windows Vista.

According to the Gartner’s estimated in the last year only 39 percent of the new computers were shipped with Vista pre-installed, while back in 2002 Windows XP was credited with a market share of 67 percent in the new computer sales. It is a clear sign that things are evolving.

The same company, Gartner predicted last month that by 2011, Apple will double its U.S. and Western Europe unit market share in computers.

“Apple's gains in computer market share reflect as much on the failures of the rest of the industry as on Apple's success. Apple is challenging its competitors with software integration that provides ease of use and flexibility; continuous and more frequent innovation in hardware and software; and an ecosystem that focuses on interoperability across multiple devices (such as iPod and iMac cross-selling),” the market research company said.

Let us not forget that the Windows Vista was launched with a delay of at least one year and selling as a premium a product which may have been a real revolution in 2006 is hard even for a big tech giant like Microsoft. So maybe the price cuts are only the price Microsoft should pay for its delays.

However, it is interesting to see if the price cuts will help Microsoft to reach its target of 200 million Windows Vista units sold until the end of 2008.

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