Microsoft, trying to revive its flagship product in the middle of a recession, is pricing the primary edition of Windows 7 for home users 17 percent below the retail price of its predecessor.

The unusual move is one of a series of Windows 7 pricing announcements being made by the company today as it gears up for a scheduled Oct. 22 launch. Under the plan, Windows 7 Home Premium will be available for $199.99 in stores, $40 less than Windows Vista Home Premium. Even before adjusting for inflation, that matches the original price of Windows XP Home, released in 2001.

Microsoft also will offer current Windows XP and Windows Vista users an upgrade to Windows 7 Home Premium for $119.99, or $10 less than the comparable Windows Vista upgrade price.

In addition, the company is rolling out a promotion designed to spur early Windows 7 sales, saying it will offer Windows 7 Home Premium upgrades for $49.99 and Windows 7 Professional upgrades for $99.99 to people who place pre-orders during the next two weeks in the U.S. and Canada, with different offers and time frames in several other countries around the world.

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WINDOWS 7 RETAIL PRICES

Home Premium: $119.99 upgrade; $199.99 retail; $49.99 pre-sale promotion. Microsoft is positioning this Windows 7 edition as the primary one for home PC users. Includes Media Center PC functionality and new features such as Home Group, which simplifies the process of networking computers and devices.

Professional: $199.99 upgrade; $299.99 retail; $99.99 pre-sale promotion. This version is targeted to small businesses, with all the features of Home Premium plus others designed for people who work remotely from home.

Windows 7 Ultimate: $219.99 upgrade; $319.99 retail. The big enchilada -- with corporate-oriented features from Windows 7 Enterprise edition, such as BitLocker file encryption, as well as features from Home Premium and Professional.

The maneuvers reflect the extraordinary circumstances surrounding the Windows 7 release. In addition to the turmoil affecting companies around the world, Microsoft is trying to overcome the troubled tenure of Windows Vista -- which never regained its luster after hardware and software compatibility problems plagued its 2007 release.

Windows chief Steven Sinofsky, who took over after Windows Vista's development, is looking to make the Windows 7 release more smooth. Among other things, the company is being more deliberate in its communications with PC makers and other key industry players, making sure that Microsoft is confident in its timing and plans before going public.

Preliminary versions of Windows 7 have been greeted favorably. Reviewers cite new features such as simpler home networking and a "snap" functionality that lets users quickly adjust open windows to half the size of the screen by dragging them against the side. Software and hardware vendors are looking to take advantage of Windows 7's touch-screen technologies and other new features.

Now, with the Home Premium price reductions, Windows 7 appears to be "off to a good start," said Richard Shim, an industry analyst with the IDC research firm. "There's a lot of doom and gloom in the market right now, but there are signs that it could pick up toward the end of the year, and I think these pricing cuts will definitely be a good influence, to help spur that along," Shim said.

However, Microsoft isn't going as low as Apple is with its OS pricing. The Mac maker has said it will offer users of its existing Mac OS X Leopard the ability to upgrade to its upcoming Snow Leopard update for $29. Users of the older Mac OS X Tiger operating system will be able to move Snow Leopard through a $169 package that includes the operating system and the latest versions of Apple's iLife and iWork suites. Snow Leopard is due out in September,

Prior to Windows 7's launch, starting on Friday of this week, Microsoft will offer a "technology guarantee" program to people who buy new Windows Vista-based PCs from participating retailers or PC makers. That program, running through January, will give those PC buyers free upgrades to Windows 7 when it comes out. The offer applies to PCs wih Vista Home Premium, Business or Ultimate.

The majority of Microsoft's Windows sales come through copies of the operating system pre-installed on PCs, not sold separately at retail, but the company doesn't publicly disclose the prices it charges computer makers.

Many computer users stayed away from Windows Vista and will therefore be deciding whether or not to shift to Windows 7 from the older Windows XP, either by upgrading an existing machine or buying a new computer.

The large remaining user base for the 8-year-old operating system puts Microsoft in "something of an unprecedented position" as it approaches the Windows 7 launch, said industry analyst Charles King of the Hayward, Calif.-based Pund-IT research firm. 

"I think Microsoft needs to be very careful in the way that it positions Windows 7 for the many many dedicated users of windows who decided to stick with Windows XP," King said. "The issues around how those customers decide to upgrade will be of paramount importance (to the company) over the next few weeks."

Overall, he said, the pricing announced today "looks pretty fair."

Upgrade pricing for Windows 7 is available to current users of Windows XP and Vista, although people on the older operating system will need to conduct a "clean install," which doesn't preserve existing data or programs as a standard upgrade process does.

Apart from the lower Windows 7 Home Premium prices, and the pre-sale promotion for it and Windows 7 Professional, the upgrade and retail prices for Windows 7 are the same as they were for Windows Vista -- continuing Microsoft's practice of essentially holding the line on Windows pricing for consumers. By comparison, the full version of Windows 95 sold for $209, and an upgrade cost $109.