Microsoft will sell the full Home Premium version of Windows 7 for $199.99, 17 percent less than the comparable Vista version. Full versions of the more advanced Professional and Ultimate editions will be unchanged at $299.99 and $319.99, respectively.

To further tempt buyers, Microsoft said it was making a free upgrade option available to computer makers, meaning that customers who buy a PC or laptop with all but the most basic Vista versions from Friday should be able to get a free upgrade to the equivalent Windows 7 version.

How that offer is made available to customers is up to the individual PC makers. Both Microsoft and the manufacturers are hoping such an offer will avoid a sudden drop-off in already falling PC sales by persuading customers not to hold off on purchases until Windows 7 is launched.

Because the upgrade option means Microsoft is essentially selling two operating systems for the price of one, the company is deferring half the revenue from Vista sales over the next several months.

As a result, it said it would defer about $200 million to $300 million revenue from its fiscal fourth quarter, ending June 30, to later quarters, recognizing it either when a customer takes advantage of the upgrade, or at the end of the program on January 31, 2010. The move has no effect on cash flow.

In contrast to the Vista operating system, which was released in different language versions over several months, Microsoft said Windows 7 would be available in 14 languages on October 22 and a further 21 on October 31.

Versions for sale in Europe will not have Microsoft's Internet Explorer 8 web browser included, due to the company's recent decision to detach it in the face of a pending European Commission antitrust ruling on charges that Microsoft does not allow fair competition among browsers by including its own on its operating systems.

However, Microsoft said it will make IE8 available as a separate package for no extra charge. Customers can also install a competing browser.

Microsoft said on Thursday it will only offer full versions of Windows 7 in Europe rather than both full and upgrade versions. For a short time it is offering the Home Premium version for 49 euros ($68) and the Professional version for 99 euros ($138).

Microsoft also said the packaging of discs for the operating system was being reduced and would use recyclable plastic.

The company's shares were up 1.3 percent at $23.75 in midday trading on Nasdaq.

(1 euro = $1.39)

(Reporting by Bill Rigby; editing by Carol Bishopric and Andre Grenon)