Over at Cnet, Ina Fried is reporting that Microsoft is contemplating the possibility of shipping a version of Windows 7 on a thumb drive. It makes perfect sense if the company hopes to sell upgrades for a meaningful percentage of all those netbooks out there running Windows XP. (Windows 7 will presumably be available as a download–that’s the primary means of distribution for the Release Candidate–but not everyone is going to want to download an entire operating system. And if you spend $100 or more on a piece of software, it’s comforting to have it in physical form.)

USB drives may have gotten remarkably cheap, but they’re still costlier than a DVD disc–even bought in the volume that Microsoft would need them. But Corel sells its new Home Office–a $70 office suite aimed at netbook users–on a thumb drive, so it appears to be economically feasible. (Years ago, Corel was also one of the first companies to distribute software on CD-ROM rather than ludicrously tall stacks of floppy disks–maybe it’s once again figured out the future of software distribution before most of the rest of the world.)

I’m convinced that within two or three years, optical drives of any sort will be the exception, not the rule–even on the nicest notebooks. We’ll do our watching of movies and backing up of data using wireless connectivity and the Internet. We’ll also get our software the same way. (Prediction: At some point stores like Best Buy and Staples will simply do away with their software sections, and it’ll probably happen sooner than you might think.)

For now, though, people still buy plenty of software in stores. I’m betting that there will indeed be a version of Windows 7 delivered on a thumb drive, and that there’s a good chance most software that’s available in physical form at all will be sold on flash devices before too long.

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The largest and most interesting price cut is for folks who preorder Windows 7 right away: In the U.S,  you’ll be able to reserve a copy from Best Buy, Amazon, or the Microsoft Store at a discount of more than 50 percent. This preorder price for the upgrade version of Windows 7 Home Premium, for instance, will be $49.99, versus a list price of $119.99.

Many people very sensibly wait to install new versions of Windows until a few months have passed, Microsoft has identified and fixed the worst bugs, and major issues with application and driver compatibility have been resolved. But $50 for Windows 7 is so cheap that I could see preordering a copy and salting it away for a bit after the OS ships on October 22nd.

Microsoft is saying that the preorder price break is good from tomorrow until July 11th (in the U.S.)  or “while supplies last,” as if there’s’ a chance that the world will run out of  copies of Windows 7.

The preorder offer is the closest Microsoft is coming to a “We’re sorry about Windows Vista–please give us another chance” deal. But the company is also instituting a permanent price cut for Windows 7 Home Premium compared to Vista: It’ll be $119.99 as an upgrade (Vista Home Premium was $129.99, and originally listed for $159.99 when Vista shipped in 2007) and $199.99 foor the full version (versus $239.99 for Vista Home Premium). Other Win 7 prices are the same as the current ones for equivalent Vista versions.

And as usual, most anyone who buys a Windows PC from here on out will qualify for a cheap upgrade to Windows 7 or a free one (not counting shipping costs).

Are reduced prices for Windows 7 a reflection of a lousy economy in which people are willing to forego pricey upgrades? An acknowledgment that the Vista debacle has left a lot of folks skeptical about Windows upgrades in general? A reaction to increased competition from Macs and Linux? Microsoft isn’t going to share the behind-the-scenes details of its rationale. But it’s probably a bit of all of the above, heavily skewed to the first two factors.

I feel a poll coming on:

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This translates to at least a $50 increase in price if netbook makers want to offer Windows 7 as opposed to Windows XP. That typically isn’t a big deal, but for netbooks, $50 is a very big difference, so it’s no wonder OEMs are still trying to negotiate with Microsoft. Most laptops currently offer Windows Vista, which should have a much smoother price change going to Windows 7.

Regardless of Windows 7 Starter’s pricetag, the whole boom in under $400 netbooks presents Microsoft with one of its biggest challenges ever. There simply isn’t enough profit built into netbook prices for it to charge PC manufacturers what it’s used to getting for a copy of Windows. So far, it’s managed to keep Linux from getting much of a toehold by selling Windows XP for cheap. But the situation presents the best opportunity for alternative operating systems that’s come along in a long time, and as contenders from Android to Jolicloud jump into the netbook market, it’ll be fascinating to see if they catch on…and how Microsoft responds.

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Windows 7 Starter Edition: overpriced?

Dell, please don’t buy Palm.

Sprint: Don’t tether your Pre.

No free iPhone for Microsofties.

Next Firefox will profile you.

Slower SATA for new MacBooks?

Is Google readying Twitter search?

New iPhones start to ship.

Hillcrest’s cool remote finally ships.

Kindle DX apparently selling well.

An excessively thin NEC notebook.

Documents to Go for iPhone.

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I like Jason’s proposal that customization of Windows 7 for different types of users be done through feature packs rather than different versions of the OS. But I suspect that Microsoft is now deeply invested in the philosophy of offering different versions of its OS that it can sell at different price points to PC manufacturers who sell everything from $300 netbooks to $3000 luxury PCs. (Apple can sell OS X in just one version in part because it’s its own customer for OSes and doesn’t have to try and make everybody happy.)

The main problem with all those versions of Windows 7 isn’t that multiple versions of a product is inherently problematic. (Choice is good, no?) It’s that the differences between the Windows variants are subtle and hard to remember. At least it’s not yet as nightmarishly complicated as trying to decide which version of Crest toothpaste to buy.

Microsoft got this right with Windows XP, which came in two reasonably easy-to-distinguish variants: Home and Pro. And in the era of the really cheap PC, I think the company does need a really cheap version of Windows, so Windows 7 Starter Edition makes sense, too. If Microsoft were to offer three versions of Windows–plus an enterprise pack for corporate users–it would offer both choice and clarity. But I suspect we’ll have to wait until Windows 8 before there’s any chance of the Windows lineup getting simpler. And even then, it seems equally likely that it’ll get more complex.

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The Europe-only versions of Windows 7 will have an “E” appended to their names (such as “Windows 7 Home Premium E), and their existence apparently eliminates concerns that Microsoft is competing unfairly with Mozilla, Opera, and other browser makers by bundling IE with the world’s dominant operating system. European consumers and businesses will be free to download IE or any other browser, of course. And Microsoft says that PC manufacturers will be able to bundle IE if they so choose, in which case the end result will still be a computer with Windows 7 and IE 8 installed.

Other options for placating Europe that had been discussed included possibilities such as allowing users to choose their browser as part of the Windows setup process. Microsoft says that other options remain open for the future, but that its decision to strip out IE will allow it to ship IE on schedule in October.

I’m having a hard time getting too worked up about this news, either pro or con. On one hand, I think the Web’s a better place when multiple browsers are widely used. The existence of an IE-free version of Windows will presumably spur some European PC manufacturers to bundle other browsers, and some consumers to try Chrome, Firefox, Flock, Opera, or Safari. Which is good.

But the whole issue of Microsoft’s bundling of IE is like a blast from the past, when Netscape was the dominant browser and Microsoft effectively hobbled it by bundling IE for free with Windows. That was an unfortunate development for the Web and people who used it, since it led to the era in which nearly everybody used IE–and IE was an aging, unreliable, insecure behemoth of a browser that fairly screamed “I have no viable competition!”

But sorry, Europe–it’s too late to go back in time and give Netscape another shot at success. And you know what? It took awhile, but the browser situation resolved itself adequately enough largely through private-sector developments. Firefox came along, and it was so good–and IE 6 so crummy–that it was an instant success. The resurgence of the Mac platform helped to make Safari viable. Chrome is a strong browser from a company (Google) that’s far more powerful on the Web than today’s Microsoft is. The Opera folks just keep plugging away. Microsoft has reacted by breathing life back into IE.

All of which has led to an era in which Internet Explorer’s market share has shrunk dramatically. And that of its rivals has grown. And there are multiple successful browsers engaged in fierce and innovative competition to come up with cool new stuff. Microsoft may have tried to abuse its OS monopoly to crush other browsers. But we can now definitiely say that it failed.

It’s conceivable that the Web might have ended up a better place if governments had reacted swiftly to Microsoft’s anti-Netscape tactics in the mid-1990s. (Although maybe not: As usual with companies that fail to compete with Microsoft, Netscape made some ill-advised moves on its own which didn’t help its cause.) But governments simply moved too slowly: Microsoft’s deal with the EU is a solution to a problem that no longer exists.

That’s my take, at least. What’s yours?

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Further, Best Buy will begin taking pre-orders on Jun. 26 for paid upgrades, according to the memo. Windows 7 Home Premium Upgrade copies will cost $49.95, and Windows 7 Professional Upgrade copies will sell for $99.99. No details have been released about what full installs will cost.

“This new operating system isn’t just a “Vista that works” program–it’s a new operating system with improved productivity, functionality and creativity that uses less computer resources,” the memo read.

Windows 7 will be generally available on October 22 if European anti trust regulators do not find something objectionable in the final release. However, as first reported by Technologizer, Microsoft has a contingency plan to ship in January should it face legal scrutiny.

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It’s also a positive development for consumers, since there’s plenty of evidence that a Windows 7 machine will be more pleasing than the same hardware loaded with Windows Vista (or for that matter, Windows XP).

Of course, it would be silly to assume that the fact that Microsoft has announced a ship date means that the chance of it blowing its deadline is zero. But the fact it’s already announcing a date when Windows 7 will show up in stores is a strong sign that it’s really, really confident about its timetable–in the past, it’s usually played games by first announcing the date when it would release a new version of Windows to manufacturing, not when people could actually buy it.

As usual, PC manufacturers will offer some form of discounted or free upgrades for folks who buy Windows PCs in the period just before the upgrade ships. In the Cnet story I link to above, Ina Fried says that Microsoft left open the possibility of some sort of blanket discount for Windows Vista users; me, I think that would be both a smart PR move and a good way to goose sales, even if the discount was far from gigantic.

I like Windows 7  myself–the release candidate is already the version of Windows I use when I have  a choice–but am going to remain a tad uneasy about the launch until we know more about whether the typical Windows 7 machine that’s sold to a consumer is so larded up with demoware, adware, and pointlessware that you can’t appreciate Win 7’s subdued, less annoying personality.

I suspect that the days of anyone lining up at midnight at CompUSA  Best Buy to purchase an OS upgrade are behind us. But do you intend to get your hands on the shipping version of Windows 7 within, say, the first two weeks of its release?

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The company announced the change in plans at the Windows 7 Team Blog, in a post that also detailed remaining limitations of Starter Edition, among them its lack of Aero effects, custom wallpaper (!),  Taskbar previews, Fast User Switching, Media Center features, and DVD playback. It also tries to dissuade folks from associating Starter Edition and netbooks too closely:

As we continue to say since we announced the Windows 7 editions in February, all editions of Windows 7 have been optimized to run on the broadest range of hardware ranging from small notebook PCs all the way up to high end gaming machines. Windows 7 Starter should not be considered “the netbook SKU” as most machines in this category can run any edition of Windows 7. Many of our beta users have installed Windows 7 Ultimate on their small notebook PCs and have given us very positive feedback on their experience.

The post’s right that netbooks can run beefier versions of Windows 7–actually, I’m typing these very words on an Asus Eee PC 1000HE that’s working just fine with Windows 7 Ultimate. But  it remains to be seen just  how many netbooks will ship with anything other other than Starter given the price competition in the category (which is fierce) and the additional cost to bundle higher-end versions of Windows (which will be substantial). Starter Edition exists only because Microsoft would otherwise have to cede the low-end netbook market to Linux; it’s a version of Windows that Microsoft is releasing only because it doesn’t have much choice.

So if you’re thinking about buying a Windows 7 netbook, would you opt for Starter, or would you be willing to pay extra bucks for Windows 7 Home Premium or another more full-featured edition?

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Promising scuttlebutt: Paul Thurrott is reporting–very briefly–that Microsoft has decided to lift the three-applications-at-a-time restriction from Windows 7 Starter Edition, the version of the OS that it expects to be popular on netbooks. While there were numerous exceptions to the limit, it’ll still be good news if it’s gone–as long as Microsoft doesn’t compensate by hobbling Starter Edition in some other way.

Discouraging scuttlebutt: A site called Tech ARM has what it says is a list of limitations that Microsoft will apply to machines that qualify to come with Windows 7 Starter Edition preinstalled. They’re tighter in some places than the similar restrictions for Windows XP, and laxer in others–but the one that sticks in my craw is the continuing requirement that netbooks ship with a maximum of 1GB of RAM. RAM’s cheap enough these days that there would surely be 2GB netbooks if Microsoft didn’t try to prevent them from shipping. And I know from my experience with my own Asus EeePC 1000HE that it’s a markedly more pleasing computer with the 2GB upgrade that I installed than it would have been with half the RAM.

There’s something basically unsettling about a software provider putting rules in place to discourage PC manufacturers from selling well-equipped PCs–especially when said software provider has a big ad campaign going that’s centered around specsmanship. I hope that the rumors are wrong–or if they’re right, that Microsoft takes yet another pass at figuring out how to put Windows on netbooks in a way that makes sense.

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