Microsoft's Non-Family Values

A few bloggers such as Ed Bott have noted that Microsoft quickly retracted its special offer of the Windows 7 Family Pack, which allowed home users to upgrade 3 PCs for a reasonable $150 price. Instead, you'll need to shell out about $120 per PC for an upgrade now. But I have a feeling Microsoft wasn't the driving force behind the demise of the Family Pack.Given the price of PCs nowadays, paying $120 just to upgrade the operating system seems pretty steep. I think it's much too high. Compare Microsoft's price to the upgrade prices in the Apple world. If you have a Mac with Leopard and want to upgrade it to Snow Leopard, it will cost you about $25. Apple's Family Pack lets you upgrade five computers, and it only costs about $50. So what's Microsoft's justification for much higher prices?

Historically, Microsoft has said that upgrades purchased by users represent fewer than five percent of all Windows licenses sold. You'd think they would price those upgrades lower in order to encourage more users to upgrade. If Windows 7 upgrade prices were $25 per PC, you can bet that more users would give it a thought. Plus, it would help Microsoft -- and its reputation -- by reducing the number of Vista and XP users that need to be supported.

Here's the obstacle: Retail sales of Windows are not that big a market for Microsoft, because the primary customers for Windows licenses are OEMs. Every major OEM ships lots of brand new PCs, each with a Windows license. Microsoft wants to keep those customers happy. And, Microsoft makes more than $25 per PC for the licenses that OEMs buy.

In the Windows world, most people (consumers and corporations) stick with the version of Windows that was installed when they got the PC. There's just too much perceived hassle in trying to upgrade; sometimes that hassle is real when you find out that some of the existing hardware isn't fully supported or compatible with the new version of Windows. High upgrade prices just make that worse. As a result, the easiest way to upgrade the operating system is to just buy a new PC, one that has Windows 7 already installed and tested for that hardware.

This PC tradition of buying new hardware to upgrade Windows suits the OEMs just fine. They don't want people to upgrade their OS, they want to sell new PCs. Besides, if more people try to upgrade the old hardware, OEMs will have to deal with complaints and requests for working device drivers on models they no longer sell and would prefer not to support. That's just a drag to their bottom lines. There's a lot less hardware variation in the Apple world, and Apple makes most of that hardware; low prices for software upgrades cause much less of a headache for them.

So, one reason that Microsoft wants to price upgrade licenses so high is because it makes OEMs happy. If you have an older PC and want Windows 7, pony up your $120 and be glad it doesn't cost more. Otherwise, make an OEM happy and buy a new PC with Windows 7 already installed.