Price cuts won’t help Windows Vista: analyst

Microsoft Corp. (NASDAQ: MSFT) plans to cut prices for its Windows Vista operating system, but an analyst says user confusion is an even bigger issue than pricing.

“In some ways, it’s an attempt to remove any barriers that may be dissuading people from buying Vista,” said Michael Cherry, an analyst with Directions on Microsoft, a Kirkland, Wash.-based research firm. “But the missing step here is simplifying what people need to know to buy. People are so confused about the versions and what they need on hardware that they don’t even get to the price.”

Late Thursday, Microsoft announced plans to cut Vista’s retail prices. The company did not flesh out the details — how much prices will drop, or the exact timing — but did say that customers in some developing countries will see cuts of as much as 50 per cent. The price cuts, said a company executive, will be synchronized with the retail release of Vista Service Pack 1 “later this year.”

The Redmond, Wash.-based software giant originally planned to stop selling Windows XP on Jan. 31, 2008, but last October decided to make the XP available until June 30.

The company is currently encouraging users to upgrade to Vista, and says makes it easier for users to find files and folders and to view all applications they have open at any given time.

Microsoft also says Vista has more advanced backup and security features, such as a spyware remover and a new firewall designed to prevent infected PCs from spreading malware.

Microsoft didn’t reduce the number of Vista versions on Thursday; instead, it said it would cut the price of the OS. How much the company’s didn’t spell out except in general terms: In developing countries some prices will be slashed in half, while in established markets such as in the U.S. and Europe, prices may fall just a few percentage points, or not at all.

“So is this really that big of a deal?” Cherry asked rhetorically. Perhaps not, he argued, since Microsoft makes more than 80 per cent of its client operating system revenue from sales to OEMs, who pre-install Windows on new PCs. “That’s the heart of the problem. How many people are going to walk in and buy a retail copy, even with a price cut?”

Instead, Cherry said, this is a pragmatic move that probably doesn’t come with a lot of hidden motives. “They’re playing with price,” he said. “That’s maybe not their usual thing, but these are potentially unusual times.

“For one thing, I don’t sense the need that people think they need to have the latest technology anymore,” Cherry continued, giving his interpretation of what’s forced Microsoft’s hand. “That’s one. The other is that Microsoft has always gambled that if their software got bigger and they added more features, they didn’t have to fine-tune it because the hardware would be there to bail them out.

“That’s not what happened here with Vista.”

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