Microsoft's forgotten Windows 7 netbook version: Home Premium

Since Microsoft announced its planned Windows 7 SKU line-up in February, almost all the focus on what the company will do in the netbook arena has focused on Windows 7 Starter Edition.

Few seem to remember that Microsoft is planning to offer PC makers a choice of not just Starter Edition, but also Home Premium, as the low-end version of Windows 7 best suited for netbooks. In fact, I'd bet Microsoft's plan is to steer more OEMs toward Home Premium than Starter Edition.

As Microsoft has acknowledged from the start, Windows 7 Starter Edition will be crippled intentionally so that it only will allow users to run three apps concurrently. Windows 7 Home Premium won't include that limitation. Home Premium also is set to include the Windows 7 mobility center and advanced networking features that won't be part of Starter.

(There are plenty of Windows 7 features that both Home Premium and Starter won't include, including Aero Glass, remote-desktop and domain-join support, and BitLocker/BitLocker To Go encryption.) Note: My mistake: I misread the chart. Aero Glass is in Home Premium, as a few readers have noted.

What we don't know is how much Microsoft is planning to charge PC makers for each Windows 7 SKU. In the good old pre-netbook days, Microsoft typically charged PC makers a flat fee for a new version of Windows -- and one that was $10 to $20+ more per copy than it charged for the previous Windows release.

But now there are a lot of different PC tiers. Microsoft (according to BusinessWeek and now the Wall Street Journal) is charging $15 per copy for XP -- an eight-year-old operating system -- on netbooks. The company won't say how much it plans to charge PC makers for Windows 7 Starter or Windows 7 Home Premium -- or how and if it will differentiate between a copy of Windows running on a netbook vs. a laptop vs. a desktop.

Microsoft officials did say back in February that the company's hope is to get consumers who buy a new PC running a low-end Windows 7 SKU (like Starter or Home Premium) to upgrade by giving Microsoft a credit card number so as to unlock the higher-priced Professional or Ultimate SKUs. And it seems most, if not all, versions of Windows 7 will be capable of running on netbooks, based on demos Microsoft officials have shown publicly of Windows 7 test builds.

While Microsoft isn't ignoring the netbook market -- like it did with Vista, seemingly believing that the company and its PC partners could make a convincing case for pricey, fully-loaded PCs  -- Microsoft has some fancy SKU footwork to do before Windows 7 launches. If it prices Windows 7 Starter and Premium too high, it will leave the market wide-open for Android, Linux, etc. If it prices them too low, it will put a further damper on Windows Client. And remember, Windows Client is one of Microsoft's main cash cows, which has fueled the company's expansion plans into other (so far, less profitable) arenas, like online services.

I wonder to what extent Microsoft is figuring somewhat higher Home Premium prices (compared to Starter Edition) will help save its bacon in the netbook world. I wonder, too, how many users will buy low-end Windows 7 SKUs on netbooks only to realize that they need a quick power boost (and be willing to pay for it).

Is Microsoft backed into a corner in the netbookspace? Or will its tiered pricing plus instant upgrades keep Windows revenues from eroding?