Purchase The Windows Vista “Upgrade” Version, Never Pay For The Full Version
By Brian Livingston, Author of “Windows Vista Secrets”

Many people are upset by the fact that the economical "upgrade" version of Vista won't accept a Windows XP or Windows 2000 CD-ROM as proof of ownership. Vista Upgrade is said to install only to a hard disk that already has XP or 2000 already on it.
But I've tested a method that allows you to clean-install the Vista upgrade version on any hard drive, with no prior XP or W2K installation — or even a CD — required.
Windows Vista, in my opinion, is a big improvement over Windows XP in many ways. But the new operating system is distinctly overpriced.
The list price of the "full" (not "upgrade") version of the most expensive edition, Vista Ultimate, is $399.95 USD, with a street price around $380. That gold-plated retail figure is only possible because Microsoft long ago achieved monopoly pricing power in the PC operating system market.
Most computer users would prefer to keep using an older version of Windows, such as XP, rather than paying the inflated prices for the "full" version of Vista. To encourage switching to a new OS, Microsoft has historically offered a lower, "upgrade" price to people who can prove that they've previously purchased an older copy of Windows. The difference between Vista's full and upgrade prices can be substantial. Based on the asking prices shown at Shopping.com on Jan. 31 — the day after the consumer version of Vista became available — the four most popular Vista versions will set you back approximately as follows:
      Version Upgrade Pricing
      Vista Home Basic $192  $100  ($92 less)
      Vista Home Premium $228  $156  ($72 less)
      Vista Business $285  $192  ($93 less)
      Vista Ultimate $380  $225  ($155 less)
The upgrade versions of Vista have street prices that are 32% to 48% cheaper than the full versions. If you're truly installing Vista over an old instance of XP or W2K, the upgrade version of Vista will find the older OS on your hard drive and install without question. The problem is that Vista, unlike every version of Windows in the past, doesn't let you insert a physical disc from an older operating system as evidence of your previous purchase. Vista has an undocumented feature, however, that actually allows you to "clean install" Vista to a hard disk that has no prior copy of XP or W2K.
Use Vista's 'upgrade' version to clean-install
The secret is that the setup program in Vista's upgrade version will accept an installed copy of XP, W2K, or an unactivated copy of Vista itself as evidence of a previous installation.
This enables you to "clean install" an upgrade version of Vista to any formatted or unformatted hard drive, which is usually the preferred method when installing any new operating system. You must, in essence, install Vista twice to take advantage of this trick. But Vista installs much faster than XP, so it's quicker than installing XP followed by Vista to get the upgrade price.
Before you install Vista on a machine that you don't know is 100% compatible, you should run Microsoft's free Upgrade Advisor. This program — which operates only on 32-bit versions of XP and Vista (plus Vista Enterprise) — reports to you on any hardware or software it finds that may be incompatible with Vista. See Microsoft's Upgrade Advisor page.
Also, to see which flavors of XP Home, XP Pro, and 2000 officially support in-place installs and clean installs of the different Vista editions, see Microsoft's upgrade paths page. Here's a simplified overview of the steps that are required to clean-install the upgrade version of Vista:
Step 1. Boot the PC from the Vista DVD.
Step 2. Select "Install Now," but do not enter the Product Key from the Vista packaging. Leave the input box blank. Also, turn off the option Automatically activate Windows when I'm online. In the next dialog box that appears, confirm that you really do want to install Vista without entering a Product Key.
Step 3. Correctly indicate the version of Vista that you're installing: Home Basic, Home Premium, Business, or Ultimate.
Step 4. Select the "Custom (Advanced)" install, not the "Upgrade" install.
Step 5. Vista copies files at length and reboots itself one or more times. Wait for the install to complete. At this point, you might think that you could "activate" Vista, but you can't. That's because you haven't installed the Vista upgrade yet. To do that, run the DVD's setup.exe program again, but
this time from the Vista desktop. The easiest way to start setup again is to eject and then reinsert the DVD.
Step 6. Click "Install Now." Select Do not get the latest updates for installation. (You can check for these updates later.)
Step 7. This time, do enter the Product Key from the Vista  packaging. Once again, turn off the option Automatically  activate Windows when I'm online.
Step 8. On this second install, make sure to select "Upgrade," not "Custom (Advanced)." You're not doing a clean install now, you're upgrading to Vista.
Step 9. Wait while Vista copies files and reboots itself. No user interaction is required. Do not boot from the DVD when asked if you'd like to do so. Instead, wait a few seconds and the setup process will continue on its way. Some DOS-like, character-mode menus will appear, but don't interact with them. After a few seconds, the correct choice will run for you automatically.
Step 10. After you click a button labeled Start in the Thank You dialog box, Vista's login screen will eventually appear. Enter the username and password that you selected during the first install. You're done upgrading to Vista.
Step 11. Within 30 days, you must "activate" your copy of Vista or it'll lose functionality. To activate Vista, click Show more details in the Welcome Center that automatically displays upon each boot-up, then click Activate Windows now. If you've dismissed the Welcome Center, access the correct dialog box by clicking Start, Control Panel, System & Maintenance, System. If you purchased a legitimate copy of Vista, it should quickly activate over the Internet. (You can instead activate by calling Microsoft on the phone, which avoids your PC exchanging information with Microsoft's server.)
I'm not going into detail today on the merits of buying Vista at retail instead of buying a cheaper OEM copy. (The OEM offerings don't entitle you to call Microsoft for support, while the retail packages do.) Also, I'm not touching here on the least-expensive way to buy Vista, which is to take advantage of Microsoft's "educational" rate. I'll describe both of these topics in next week's newsletter.
Why does Vista's secret setup exist?
It's reasonable for us to ask ourselves whether buying an upgrade version of Vista, and then installing it to an empty hard disk that contains no previous version of Windows, is ethical. I believe it is. Microsoft itself created the upgrade process. The company designed Vista to support upgrading it over a previously installed copy of XP, W2K Pro, or Vista itself. This isn't a black-hat hacker exploit. It's something that's been deliberately programmed into the approved setup routine.
Microsoft spent years developing and testing Vista. This upgrade trick must have been known to many, many people within the development team. Either Microsoft planned this upgrade path all along, knowing that computer magazines and newsletters (like this one) would widely publicize a way to "save money buying Vista." Or else some highly placed coders within the Vista development team decided that Vista's "full" price was too high and that no one should ever have to pay it. In either case, Vista's setup.exe is Microsoft's official install routine, and I see no problem with using it exactly as it was designed.
We should also think about whether instances of Vista that were installed using the clean-install method will continue to operate. I believe that this method will continue to be present in Vista DVDs at least until Microsoft begins distributing the Service Pack 1 edition of Vista around fall 2007. Changing the routine in the millions of DVDs that are now in circulation would simply be too wrenching. And trying to remotely disable instances of Vista that were clean-installed — even if it were technically possible to distinguish them — would generate too many tech-support calls and too much ill will to make it worthwhile.
Installing the upgrade version of Vista, but not installing over an existing instance of XP or W2K, probably violates the Vista EULA (end-user license agreement). If you're a business executive, I wouldn't recommend that you flout any Windows license provisions just to save money.
If you're strictly a home user, contributing editor Susan Bradley points out that Microsoft's so-called Vista Family Discount (VFD) is an economical package that avoids any license issues. If you buy a retail copy of Vista Ultimate, MS lets you upgrade up to two additional PCs to Vista Home Premium for $50 each. For example, if you buy the upgrade version of Ultimate for $225, the grand total after you add two Home Premiums is $335. That's about $133 less than buying three upgrade versions of Home Premium. Details are at Microsoft's VFD page.
Microsoft did revise a Knowledge Base article, number 930985, on Jan. 31 that obliquely refers to the upgrade situation. It simply states that an upgrade version of Vista can't perform a clean install when a PC is booted from the Vista DVD. A clean install will only work, the document says, when the Vista setup is run from within an older version of Windows (or if a full version of Vista is being used).
This article doesn't at all deal with the fact that the Vista upgrade version will in fact clean-install using the steps described above. It'll be interesting to see whether MS ever explains why these steps were programmed in. Personally, I consider Vista's ability to upgrade over itself to be Digital Rights Management that actually benefits consumers. It's almost cosmic justice.
I invite my readers to test Vista's undocumented clean-install method for themselves. There certainly must be aspects of this setup routine that I haven't yet discovered. I'll print the best findings from those sent in via our contact page. You'll receive a gift certificate for a book, CD, or DVD of your choice if you're the first to send in a tip that I print.
 I'd like to thank my co-author of Windows Vista Secrets, Paul Thurrott, for his research help in bringing the clean-install method to light.