Vista prices will be lower

Microsoft is cutting prices on some retail versions of Windows Vista in a bid to stoke demand for the company's flagship operating system ahead of a significant upgrade.

The price cuts vary by market but in general will range from 20 to 40 percent. In the U.S., an upgrade from earlier versions of Windows to Vista Home Premium will cost $130, compared with the current $160. A full version of the top-end Vista Ultimate edition will sell for $320, down from $400.

The new prices will take effect with the launch of Vista Service Pack 1 (SP1), a set of fixes and updates expected soon, though Brad Brooks, the newly minted corporate vice president in charge of global marketing of Windows to consumers, would not specify a date.

After a year with the Premium and Ultimate editions in the market and a series of test promotions that the company conducted in December and January, the lower prices are driving sales.

"It's been a positive revenue thing for us," Brooks said Thursday.

But Microsoft does not sell many copies of Windows at retail. The vast majority of consumers buy the operating system preinstalled on a new computer. Last month the company said it had sold 100 million copies.

In emerging markets, Microsoft is also cutting prices, but it's making another change, too. The company is dropping its upgrade version of Vista for simplicity.

Brooks said the majority of Vista customers in those markets are buying their first operating system, rather than upgrading from earlier versions. It will still sell an upgrade version of the Ultimate edition, however.

Despite the majority of sales coming through new PCs, there is still a market for boxed retail software and Vista is an important product for retailers, said Chris Swenson, director of Software Industry Analysis at The NPD Group.

In 2007, Vista sales at U.S. retailers accounted for close to 4 percent of total nongames PC software sales, by dollar volume. Microsoft's other flagship product, Office, accounted for 22.7 percent.

Early adopters and enthusiasts building their own PCs typically buy operating-system software sold at retail. Consumers with older hardware — PCs built in 2006 or earlier — who are still using Windows XP are another major target market.

"There's a ton of people like that," Swenson said.

Microsoft is eager to get the Premium and Ultimate editions of Vista, which have more desirable features than the Home Basic edition, in their hands, he said. "Microsoft needs to differentiate itself from its competitor Apple."

Compared to Apple, which has gained market share in the last year, Microsoft has done a poor job highlighting must-have features that would spur people who are content with their current operating system to upgrade, Swenson said.

"Changing pricing is a great first step," he said. "They also have to couple this with really solid marketing."

Microsoft has hired Crispin Porter & Bogusky for a consumer-focused advertising campaign. Advertising Age cited unnamed sources saying the campaign could spend up to $300 million.

Brooks would not provide details of the campaign.

With the price cuts, Microsoft is essentially encouraging people to buy Vista and install it on their own — a process that caused frustration a year ago when Vista was new to the market.

Many PCs did not have the horsepower for all its features. Software and devices such as printers and digital cameras weren't immediately compatible with Vista.

That frustration, and a marketing program meant to identify computers that could run Vista in the months before its delayed release, are at the heart of a class-action lawsuit in Seattle. In e-mails filed as evidence in the case, Microsoft executives anticipated the problems well in advance.

"We've made significant strides in terms of compatibility both from a hardware and software perspective and [that issue] is not a consideration for most people now upgrading to Windows Vista at this point," Brooks said, declining to comment on the specifics of the lawsuit.

Benjamin J. Romano: 206-464-2149