July 31st, 2009

Microsoft sticker shock: Anytime Upgrade, Family Pack details

Posted by Ed Bott @ 8:58 am

Categories: Windows 7

Tags: PC, Microsoft Corp., Price, Pricing Strategy, Upgrade, Professional, Ultimate, Microsoft Windows 7, Microsoft Windows, Pricing

With its upcoming launch of Windows 7, Microsoft is trying to walk a fine line on pricing. Maintaining a high average selling price for Windows is crucial to the company’s bottom line, but in a deep recession, PC buyers are more concerned with their own bottom line. That’s especially true of consumers, who are likely to be put off by the high price of upgrading multiple PCs from XP or Vista.

Earlier today, Microsoft announced pricing and delivery details for a pair of eagerly awaited products in the Windows 7 family. If you were hoping for upgrade bargains or a long-term commitment to multi-PC upgrade pricing, prepare to be disappointed.

I first reported on Microsoft’s plans to release a Windows 7 Family Pack about a month ago and saw hints of pricing and packaging a week later. Those details are now confirmed. Estimated retail price in the United States will be $150 for a package that includes Windows 7 Home Premium installation media and a license key that can be activated on three PCs in a single household. The price in Canada will be $200. Expect to see retailers offering discounts of roughly 10% on these prices. There’s no official word on availability of the Family Pack offer in other markets.

The unpleasant surprise in the Family Pack announcement is the detail that it will be available beginning October 22 “while supplies last.” In a briefing yesterday, Microsoft Product Manager Michelle Haven confirmed that the Family Pack is “intended to be a limited-quantity offer” but added that Microsoft plans to listen to customer feedback to “find out if customers love it.” (If you want the Family Pack to be a permanent part of the Windows 7 lineup, you can leave me your feedback in the Talkback section below and I’ll pass it along.)

The second half of today’s announcement involves Microsoft’s Windows Anytime Upgrade program, which allows Windows users to buy a new PC with one edition of Windows 7 installed and move up to a higher edition later. As I reported a few months ago, the upgrade process truly is easy, completing in 15 minutes or less without requiring a reinstallation or tampering with existing programs and data files. (See Microsoft prepares Anytime Upgrade, v2 for a hands-on look at the upgrade process.) So what’s it going to cost for those upgrades? I’ve put together this matrix from Microsoft’s price sheet; find your edition of Windows 7 in the first column and then read across to see how much an upgrade to a higher edition will cost:

So, if you buy a netbook that includes Windows 7 Starter, you can unlock the Aero interface and enable Media Center by paying $80 for the Windows Anytime Upgrade to Home Premium. That price is similar to what Microsoft charged for upgrading Vista Home Basic to Home Premium. Similarly, you can upgrade a consumer PC from Home Premium to Professional for $90; an equivalent option was not available with Windows Vista. These two upgrade options in particular will set de facto upgrade prices for OEMs to offer with new PCs; they’ll have a powerful incentive to offer upsells for significantly less than the Anytime Upgrade price.

Online Anytime Upgrade options will be available online from Microsoft in 13 markets, including the United States, Canada, Japan, Australia, the UK, and much of Western Europe. A more limited selection of shrink-wrapped Anytime Upgrade packages will be available in retail stores worldwide at similar pricing. These upgrade packs are limited to the following scenarios: Starter or Home Basic to Home Premium; Home Premium to Professional; and Home Premium to Ultimate.

The one price in that matrix that makes no sense whatsoever is the obscenely high cost of moving from Windows 7 Professional to Ultimate. If you’re considering the Anytime Upgrade option from Starter or Home Premium edition, that difference is $50. But if you’re thinking of moving up from Professional to Ultimate, you’ll be gouged for $130. Here’s a graphic example of how stupid that pricing decision is: If you bought a Windows 7 Home Premium upgrade in the U.S. at the limited-time price of $50 last month, you can move up to Ultimate for $140, making your total upgrade cost $190. But if you took the $100 Professional offer instead, you’ll have to pay an extra $130 for the Ultimate upgrade, making your total cost $230, or $40 extra for the exact same end result.

Microsoft’s pricing decisions are often difficult to understand, but this one is shockingly wrong. Why the disparity? I suspect that Microsoft is trying to protect its volume license business and discourage enterprise customers from using the Anytime Upgrade option rather than pay for an Enterprise license that has the same features. But that’s not going to go down well for a small business owner who buys a new PC with Windows 7 Professional installed and then discovers that adding BitLocker encryption is going to cost another $130.

Would-be upgraders in the EU and the UK are in for some sticker shock as well, as the table below illustrates. Again, the pricing decisions are difficult to understand. Why does it cost essentially the same to upgrade from Starter or Home Premium to Professional, for example? And again, the price to move from Professional to Ultimate seems ludicrously high when the effect for non-Enterprise customers is to simply unlock support for BitLocker encryption and additional language packs.

Overall, I think Microsoft has blown a couple of excellent opportunities with today’s announcements. The Family Pack offer is an excellent deal and reflects today’s consumer landscape: people have multiple PCs in their households. So why make this a limited-quantity offer? The Family Pack should be a permanent addition to the Windows consumer lineup.

Similarly, the Anytime Upgrade pricing is a disappointment and another missed opportunity. As I wrote a few months ago:

The devil, as always, is in the details. In this case, the most important missing detail is price. If Microsoft can offer easy upgrades from Starter to Home Premium and from Home Premium to Professional for $49 or less, this is a great way for Microsoft to boost the average selling price of Windows (a metric that adds directly to the bottom line) and give customers value. On the other hand, if those upgrades are priced too high, as in $99 or more, then fuggedaboutit.

The upgrade prices from consumer editions are reasonable; the prices for Ultimate edition are not.