Price cuts don't get to heart of Vista's problems, says analyst

It's the muddle of multiple SKUs and hardware uncertainty that's stymieing sales
If Microsoft Corp. thought a lower price for Windows Vista was what the operating system needed to kickstart sales, it should have thought twice, an analyst said early Friday.

"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%. The price cuts, said a company executive, will be synchronized with the retail release of Vista Service Pack 1 "later this year."

"You can justify three versions of Windows, I think," said Cherry. "Consumer, business and server. But as it is, it's too confusing." Consumers often never reach the "What is the price again?" moment, he added, because they're too muddled by the multiple choices, and bewildered by the hardware requirements needed to run the flashier Windows Home Premium and Ultimate.

In the U.S., Windows Vista is available in four retail editions: Vista Home Basic, Vista Home Premium, Vista Business and Vista Ultimate. In some markets, Microsoft also sells a stripped-to-the-bone version called Vista Starter.

Confusion over hardware and Vista's SKUs, in fact, is at the heart of the class-action lawsuit that Microsoft now faces over the marketing program dubbed "Windows Vista Capable." The program, the plaintiffs have claimed, misled consumers into thinking that older, less-powerful PCs sold in the last half of that year would be able to run all versions of Vista, not just the scaled-back Vista Home Basic.

But 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% 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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