Windows 7 Pricing: How Much Lower?

For months, the news about Windows 7 has been encouraging. The product looks good, but the one thing we didn't know was how much it would cost. Now, we know that too -- or at least some of the picture.It's a nice touch that Microsoft dropped the Windows 7 retail prices a bit from Vista. Almost nobody pays retail though. Fewer than five percent of Windows licenses are sold at retail, since most users get their Windows licenses with a new computer. The most enticing pricing is the 50 percent off deal available directly from Microsoft and select retailers such as Amazon and Best Buy. The company is trying to create a sense of urgency and grab some advance money with deals like an upgrade license of Windows 7 Home Premium for only $49, but the deal only lasts until July 11th.

Microsoft's official retail price for Windows 7 isn't really the benchmark of whether prices will truly be lower. Even when a user buys a retail license, they they can often pay less than the official retail price. There are deals to be had out there. Here's one example: NewEgg is currently selling a full license (not an upgrade license) of Windows Vista Home Premium for $109, including a free upgrade to Windows 7. Microsoft's official retail price for the full version of Windows 7 Home Premium is $199; even an upgrade license is $119 retail.

The acid test for Windows 7 pricing is what happens with OEMs, who deliver nearly all Windows licenses. Will Windows 7 OEM prices be lower, or higher, than Vista? Notice that the low-end Windows 7 Starter Edition isn't even included in Microsoft's retail plans. You can't buy it. Even OEMs can't buy it unless they pledge to put it on wimpy hardware. By forcing computer makers to limit their hardware to qualify for Windows 7 Starter Edition, Microsoft can "firewall" their low-priced version and avoid eroding profits from the rest of the Windows 7 family. Based on this, I'm not convinced that Microsoft intends to give any ground on OEM profits.