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Microsoft: We’re not gouging Europe on Windows 7 pricing

A top Microsoft executive today denied reports that European users will pay more for Windows 7 because of the company's wrangling with antitrust regulators.

In a statement first posted as a letter to the Financial Times Web site, Bill Veghte, the senior vice president for the Windows business group, said “nothing about this [case] will mean higher prices for Windows 7 in Europe.”

Today, Microsoft's public relations firm forwarded the same Veghte statement to Computerworld, IDG Publication.

Veghte was countering a Financial Times story last Friday that noted that because Microsoft has unilaterally decided to strip Internet Explorer 8 (IE8) from Windows 7, users would need “a fuller version of the new software when they upgrade.” The newspaper, however, also made it clear that Microsoft was selling that software, dubbed “Full” or “Full Packaged Product” (FPP) to differentiate it from editions labeled “Upgrade,” at the lower prices of the latter.

Microsoft has said it will price the full editions of Windows 7E — the “E” stands for “Europe” — at the lower upgrade prices until at least Dec. 31, 2009. Windows 7E is part of Microsoft's campaign to head off European Union antitrust regulators, who have charged the company with illegally tying Internet Explorer (IE) to Windows, from mandating even more drastic measures.

Microsoft is making the price concession on Windows 7 because of technical issues involving upgrades from Windows Vista. Microsoft will block customers in the EU from doing “in-place” upgrades, which would leave some version of IE on the machine. So it will not be selling “Upgrade” editions in the market, at least not when Windows 7 launches in late October.

Veghte explained the move in his statement. “We typically offer two Windows versions to retail customers: a full version for use on any computer and an upgrade version — at a lower price — that can only be used on computers that are already licensed for Windows,” he said. “In light of recent changes we made to European versions of Window 7, we will not have an upgrade version available in Europe when we release the new operating system.”

Those Upgrade-labeled editions, however, are high-priced compared with the same versions offered to U.S. users. The “full” version of Windows Professional will cost EU users €285, or $400.28, at Tuesday's exchange rate, even though that edition will be priced at the “upgrade” amount. In other words, EU customers will pay twice the $199.99 U.S. price.

Microsoft disputed that today through its public relations firm, Waggener Edstrom, calling Computerworld's story “inaccurate” when it forwarded Veghte's statement to the Financial Times. Later, another Waggener Edstrom spokesperson argued that the Computerworld headline — “Microsoft to charge Europeans double for Windows 7” — was inaccurate because the EU prices include the VAT (Value Added Tax) consumption tax. The spokesperson claimed that the VAT accounted for 17-18% of the price of Windows 7.

She was unable, however, to provide pre-VAT prices. “There is no way to quote you the prices without VAT without misleading people about what they will pay since VAT is always included,” the spokesperson said in an e-mail.

The difference between EU and U.S. prices, however, are not as dramatic as she claimed. According to Pennsylvania-based Vertex, a software developer that specializes in high-end tax automation for corporations, the average combined sales tax burden in the U.S. — state, local and city sales taxes — was 8.6% in 2008.

Veghte, however, also warned that European prices could climb even higher. “In the future we may have an upgrade offering of Windows 7 available in Europe, and at that time we would revert to differential pricing of the full and upgrade versions, as we have in the rest of the world,” he said in his statement.

At some point after Dec. 31 — the only date Microsoft has given as a possible end to the lower “Upgrade” pricing — the company could conceivably figure out the technical issues involving “in-place” upgrading Vista, which has a browser, to Windows 7, which won't. With a true “Upgrade” edition available, Microsoft would, Veghte indicated, price the “Full” versions at their higher numbers.

The full version of Windows 7 Professional has been priced at €309, or $433.99 at today's exchange rate, while Home Premium will cost €199.99, or $280.89. Those same editions in the U.S. are priced at $299.99 and $199.99, respectively.

Microsoft did not make an executive available to explain the pricing strategies of Windows 7 or why the same editions cost significantly more in Europe.

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