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Win2k smoke and mirrors – how MS is hiking OS prices

Prices will be in line with NT, but a lot more people will have to buy Win2k...

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For reasons that aren't at the moment entirely clear, Microsoft has released prices for Windows 2000, although it was only the other day that the company said it wasn't going to do the big product rollout until 17th February. Ordinarily Microsoft releases the prices when the product itself is released. The data released so far doesn't however telegraph any possible changes in Microsoft's pricing strategy, although the company has said it will be moving over to a 'services' model, and that means, sooner or later, it will have to switch from the current pricing system to some kind of fee-based model. But the prices so far show clear traces of spin - they're being presented as in line with prices for current operating systems, but that kind of depends where you're sitting. The full estimated retail cost for Windows 2000 Professional will be $319. An upgrade from NT will cost $149, and upgrades from Windows 95 and 98 $219. The price for the full product is pretty much in line with the full theoretical price for NT, but as the latter is now pretty much on close-out it can be had for $90-200, depending on where you look. The Windows 9x upgrade costs on the other hand represent a hefty hike over previous upgrade costs for the 'consumer' type operating systems. A Windows 98 upgrade will currently cost you $90 max, while the full product is $170. These numbers mean several interesting things. First, Microsoft will not be pushing Win2k at retail initially. No way is the company going to get killed in the rush of people trying to spend $219 on upgrade from 9x. Second, isn't the OEM market going to be interesting? If OEM prices are going to be in line with NT rather than Win9x ones, then Microsoft's revenue levels will be dictated by how hard the OEMs are going to push Win2k. NT pricing levels haven't previously been a major factor in Microsoft's consumer revenues, because NT uptake, where it's happened, has been in business. But if the OEMs increasingly sell Win2k to consumers as well, and start to phase out Win9x (this will happen, you know it will), then Microsoft will be able to get substantially increased revenues per PC, while at the same time being able to claim prices haven't gone up, because they're in line with NT pricing. At this level the consumer will obviously pay, and as OEMs won't be in a position to increase their prices or margins, the extra tab will go straight to Microsoft. But how does this fit with Microsoft's intention to push Win2k hard into the market? Well, so long as the OEMs can be induced to switch over to Win2k fairly quickly, customers won't have much choice, and in this area the extra cost of the OS will be hidden in the total price of the PC. Getting it into the corporate arena might be trickier, but at the client level there are plausible arguments (which were recently bought by IBM) that Win2k is actually a money saver. And then of course at corporate level there are going to be all sorts of pricing and discount schedules designed to induce IT management to switch early. So lots more revenue, Win2k sales performance 'above expectations' in the first full quarter, and a high speed transition to the new product as well. It's a wonderful business to be in, isn't it? And by the way, have you considered how useful it will be for Microsoft not to have a cheaper consumer OS like Millennium available in the early stages of the Win2k switchover? ®

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