Two words and a link: Price Discrimination. Wikipedia doesn't do a terribly great job of explaining what exactly price discrimination is, so I'm going to give you my own brief version.
The Demand Curve
For typical markets with elastic demand* curves, consumers as a whole will determine that at price P they will, as a whole, purchase quantity Q of product. If we map that out we get the following graph:
*Elastic in this context means that consumers have a choice. Insulin to a diabetic is a very inelastic good since they'll be willing to pay almost anything for it.
The total revenue by this firm is P*Q, or the cost of each good times the number of items sold. It should be noted that the entire area under the curve is the total possible revenue. Companies notice this when their customers say, "Boy your product is cheap!" or, "I really wish I could justify spending X because then I would buy 10 of them!" The companies account then go back to their excel spreadsheets and figure out how they can make both happy and make more money. They end up with this:
Again, their profit is dictated by the area underneath the demand curve that they're covering. Notice that the area when selling at two different price points is greater than when they are selling at a single price point! This is what's called Price Discrimination: appealing to multiple segments of the demand curve based on perceived wants and how much they'll pay to achieve those wants in order to maximize revenue.
For the Calculus Loving Folks
People who did well in Calculus will immediately notice that an integral "solves" this problem. These people will say, "Hey, why don't we just chop up that demand curve into infinitesimally small chunks and we'll maximize revenue!" They're right of course, but practically it's either too confusing for the consumer, the producer or both.
In software, there have been a few ideas to integrate the integrals* by using ideas such as subscriptions and pay-for-features. Subscriptions have kind-of, sort-of worked, while the pay-for-feature model has never really taken off.
*I apologize.
Applications to Windows 7
So now it should be clear why Microsoft has six different versions of Windows 7. I'll attempt to break them down to make it clear which aspect of the demand curve that Microsoft is applying too:
- Starter Edition – Super cheap, emerging markets
- Home Basic – Cheap, emerging markets
- Home Premium – Alright, worldwide. This is the brunt of first world consumers.
- Professional – A tad expensive, worldwide. Aspiring geeks and companies who don't have contracts with Microsoft.
- Ultimate – Expensive, worldwide. True geeks, professionals who need everything.
- Enterprise - $Bling$, worldwide. Geeks who do geek things for a living. Companies who have 1,000+ computers.
If Microsoft were to simply sell a single version of Windows 7 for, say, $150 then it would be missing out on a lot of area under the curve. That's a lot of money to throw away when Windows is currently selling 15 billion dollars worth of product every year.
The Solution and Way Forward
The biggest complaint about Microsoft price discrimination practices is that it's confusing. Clearly Microsoft isn't going to consolidate to a single version so what is the fix? It's simple and something Microsoft has trouble with: clear, honest, open communication. Consumers hate to be surprised when they discover that they don't have XYZ feature that they need. Partly we fail because we depend on our OEMs to help us. Dell, HP, Lenovo and so forth have to do a good job allowing for this great communication to happen when consumers are purchasing their new laptops. Furthermore, we need to make distinctions that are meaningful and relevant to the average consumer. I do believe that Windows 7 is doing a bunch better job with their SKUs than they did in Windows Vista. It's quite simple:
If you're buying a new computer, get Windows 7 Home Premium unless your IT department tells you to get Windows 7 Professional.