Microsoft and retailers are starting to battle back and forth about the cost of the new Windows 7. For the entry level edition which has less features then the current Vista standard edition, Microsoft wants to charge retailers about 3 times the current price. Friendly Computers found this article, which should shed some light on the matter:
As Microsoft (MSFT) prepares to launch a new version of its Windows operating system this fall, the software giant and PC makers are squaring off over pricing for the new software. The battle's outcome will have a broad impact on the cost and capability of PCs available to consumers and corporations.
Microsoft has much on the line with Windows 7, scheduled to be introduced in October. The Redmond (Wash.) company is counting on the new operating system to end years of complaints about its predecessor, the buggy Windows Vista, and to keep the Windows franchise churning out profits. While the early reviews for the new software are strong, many PC makers question the proposed pricing and features. Microsoft wants to charge about $50 for an entry-level version of the operating system, called Windows 7 Starter Edition, say analysts and PC makers. That's roughly triple the price the company gets for the cheapest version of Windows available now.
The Starter Edition also will be missing key features such as top-flight security and graphics, and Microsoft plans to charge customers another $50 to upgrade to premium versions of Windows 7. PC makers want Microsoft to cut that fee. So far, the software maker has refused to budge. "It looks like Microsoft [is] paying a lot of attention to their own profitability rather than how to expand the market," says Gianfranco Lanci, chief executive of Acer, the Taiwanese personal computer manufacturer.
Microsoft declined to discuss specific pricing plans. CEO Steven A. Ballmer has said the new software will be the "best version of Windows ever."
The standoff points to a broader problem in the tech industry. The number of PCs sold each year is flattening, and the average selling price is falling fast. That leaves Microsoft, Intel (INTC), Hewlett-Packard (HPQ), and Dell (DELL), which once shared profits from a fast-growing market, fighting harder for every dollar. "These guys feel like they're getting their wallets picked," says Roger L. Kay, president of Endpoint Technologies Associates.
Notebooks, once the most profitable segment of the business, have seen the most dramatic change. Average prices have tumbled to $788 from nearly $1,420 in 2004, according to researcher IDC. The average notebook is now, for the first time, cheaper than the average desktop. The declines in notebook prices accelerated last year with the growing popularity of low-cost netbooks designed primarily for checking e-mail and surfing the Web. Netbooks that sell for less than $400 account for a fifth of total unit sales.
The tangle between Microsoft and the PC makers is over who wins and who loses as profits get squeezed. PC companies typically pay $60 to $150 for Vista, but they can use the older Windows XP for roughly $15 for netbooks. Acer, HP, and others often make only about $20 in profits on a $400 netbook. If Microsoft raises the price of the operating system for such machines to $50, the PC maker has to raise prices or watch profits get wiped out. "These are issues we still need to work out," says Phil McKinney, chief technology officer for HP's PC group, who declined to comment specifically on future Windows pricing.
The cost of Windows could rise more sharply on other machines. Microsoft has told PC makers the $50 Starter Edition will be available only for netbooks with screen sizes smaller than 10.2 inches and chips that aren't capable of playing most games or watching video. Larger netbooks would have to use Windows 7 Home Premium, which would add $200 to a unit's cost, says Mike Abary, a senior vice-president at Sony's (SNE) Vaio PC unit.
Source: http://www.businessweek.com/magazine/content/09_26/b4137044277552.htm?chan=rss_topStories_ssi_5
