Microsoft pulls last lever, discounts Windows 8 to OEMs to spark sales

Microsoft has done something it's historically been loath to do: discount prices for the copies of Windows it sells to computer makers, online reports said today.

Both the Wall Street Journal and the Asian electronics supply chain publication DigiTimes published reports claiming that Microsoft has cut prices of Windows 8 and Office 2013 in an attempt to spark sales.

"They've always held [pricing] close to the vest," said Allan Krans, an analyst with Technology Business Research, in a Wednesday interview. "They've always been insistent on maintaining that pricing, but a discount makes sense, given the holiday season, the back-and-forth with the OEMs and the slow start to the Surface."

Windows 8, which launched in October, has struggled to gain traction, and failed to trigger a boost in PC sales, as new editions have done in the past.

Earlier this week, for instance, research firm IDC said global PC sales would contract 1.3% this year, a drop atop 2012's even-larger slump of 3.7%. IDC cited an "underwhelming reception" to Windows 8 as one of several factors that will lead to a second-consecutive year of declining PC sales.

A Windows price cut would also mollify long-time OEM partners, who have been increasingly at odds with Microsoft since the Redmond, Wash. developer announced its own hardware -- the Surface line of tablets -- last summer.

The Wall Street Journal, citing unnamed sources, said Microsoft was slashing the price of a combo deal for Windows 8 and Office 2013 to $30 from around $120. The discount applies to OEMs for PCs and other devices with touch screens smaller than 10.8 inches, said the publication.

DigiTimes had a different tale, saying the Windows 8 discount was just $20 off the usual $80 to $90 per PC, and that the cheaper price was applicable to PCs, tablets and hybrids -- hardware that mixes elements of traditional laptops with tablets -- equipped with screens 11.6-in. or smaller.

Discounts on Windows 8 could result in lower-priced touchscreen PC and tablets, perhaps as early as this summer when back-to-school sales kick off.

"If you think about the components in a PC, almost every one has dropped off a [price] cliff," said Krans. "Except for the OS. Microsoft's pricing is their one lever left, the last where it can have a big impact on PC prices."

While touch-enabled hardware has been among the few bright spots for Windows 8, many buyers, used to shopping for cut-rate computers, have balked at their higher prices.

The targeted device sizes, whether 11.6-in. or 10.8-in., suggest that Microsoft is hoping to spark sales at the smaller end of the form factor spectrum, such as tablets bundled with keyboards -- like the company's own Surface Pro -- or ultralight touch-enabled laptops similar to Apple's 11.6-in. MacBook Air, a flash RAM-based notebook sans touch that starts at $999.

Taiwanese PC maker Asus yesterday acknowledged that Windows 8 has not helped overall PC sales, but that touch screen notebooks have been selling faster. Last year, Asus introduced the Taichi, an unusual laptop that features dual 11.6-in. touch-enabled displays. The Taichi retails for $1,299 and up.

Microsoft and its OEMs have been hit from several sides, including weak economies -- especially in Europe -- and dollars being diverted to tablets, most notably Apple's iPads. Now, the Windows industry also faces ultra-cheap Chromebooks, laptops powered by Google's browser-based Chrome OS, which have hit the price point of "netbooks," the inexpensive Windows hardware that years ago pushed companies like Asus and Acer into the top OEM ranks.

The bestselling notebook on Amazon.com, for example, has long been Samsung's 11.6-in. Chromebook, which goes for $249.

"It's notable that Microsoft has been able to sustain its OEM prices this long," said Krans. "But this is a reflection of the state of the computer market, which has been difficult for both OEMs and Microsoft. They have to get out in front of this shift."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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