Microsoft this morning announced prices for Windows 7, the latest version of the operating system, and cut prices by 10 percent over Windows Vista, the version it will replace.

"I think the 10 percent cut is a good start," said Richard Shim, an analyst at research firm IDC. "It takes into account the economy and some of the challenges with consumer spending."

Most sales of Windows 7 are made when a customer buys a new computer with the operating system already installed, and the computer maker pays Microsoft. Microsoft does not disclose how much it makes per copy sold installed on a computer. Shim pointed out that given these lower retail prices, Microsoft is probably also charging computer makers less per copy.

"What are the implications to [computer maker] OEM pricing for Windows 7 since the majority of the revenue comes from the [operating system] OS?" he said. "...The volumes have to improve if the [average selling prices] ASPs decline."

When Windows 7 launches on Oct. 22, this is how much boxed copies of Windows 7 will sell for at retail:

But wait! There's more. U.S., Canadian and Japanese customers who pre-order between Friday and July 11 can get a steep discounts of more than 50 percent at Best Buy, Amazon and the Microsoft online store. No extra Shamwows are included in this offer. This is how much the Windows 7 pre-orders will cost:

For anyone who buys a new computer between Friday and Oct. 22 that comes installed with Windows Vista, Microsoft will offer a free upgrade to Windows 7.

Shim said there's been some "bad blood with Vista" between the computer makers and Microsoft, referring to many early technical problems with Vista. "With Windows 7 coming up it's a chance for Microsoft to win back some goodwill." Early reviews have been positive for Windows 7, which Microsoft has been describing as everything Windows Vista should have been -- smooth running and easy to use. For our earlier coverage, click here and here.