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Microsoft: The Next Investigations
Runt-Abu writes: "Some of the UK's top companies (and some of the not-so-top as well but hey...) are questioning Microsoft's policy on pricing. In an open letter to the Secretary of State for Trade and Industry several of the top companies voiced concern at the cost of an extra £880m over a typical four-year investment cycle.
No one from Microsoft has commented at this time, given the current state of affairs it's highly likely many companies will not upgrade or seek alternative cheaper solutions." Basically, a large trade group is asking the British Office of Fair Trading (akin to the FTC in the U.S.) to investigate Microsoft's price increases. And Gogl writes: "It appears the attorneys general of 6 more states have voiced concern over Microsoft, particularly regarding the upcoming release of Windows XP. Microsoft and their allies claim that AOL-Time Warner was behind this, which AOL of course denies," pointing also to this piece on Microsoft's changing licensing costs.
I've been running Windows XP RC2, and must admit I kind of like it. Since my needs these days (as a working pastor-in-training) run more towards word processing than development and web servers, it does what I need pretty well. However, I looked today at the license costs for it and I'm choking a bit. A single-user home *upgrade* is $99. Home full version is $199, and professional full is $299. None of these are designed for server use, but for individual users.
More interestingly, they appear to be actually planning to enforce licensing through an enforced registration (i.e. if you don't register in 14 days, it won't work.) I've often said that few people would put up with Windows if they had to pay for it. The truth of the matter is that many people do not bother with legal licenses for their home software, so don't get too excited when told the product sucks. I wonder if the high costs and no-pirating-allowed will cost Microsoft the market?
-- Slashdot sucks.
It's a new product. They can set whatever price (and price policy) they want.
It's up to Microsoft's costumers to decide if it's more cost efficient to upgrade to Windows XP or take any other path (including not-upgrading and stop having support in some years time or start a migration process of some or all systems to other operating systems with different cost structures)
As i see it a more expensive Windows just increases the number of situations in which it's cheaper to migrate/implement to/in another operating system and contract a System Administrator for that OS instead of a Windows System Admin.
People have been complaining about Microsoft for the past fifteen years or so. Unfortunately, Microsoft products have been of a reasonably good quality, and people like them, so pirating their software has gone on for just about that long as well.
Piracy means that not only the original owner gets to use it, but also a few of his friends. Microsoft may think that's a bad thing, but all it has done is secure their place as *the* operating system, the office suite, the web server, etc., because so many people use it, even if they're not all paying customers. MS would not have its current market share if it were not for piracy.
With these new tactics to extract money from citizens, the only thing they're going to accomplish is that Microsoft will no longer be in the hands of Joe Sixpack, who will then contemplate Linux, BSD, AtheOS, BeOS, or other operating systems that cost less than a few limbs.
In addition, the percentage of the workforce with Microsoft experience will decline; It's easy enough to learn ASP or whatever when you can install it at home, but not so easy when you can't touch it.
They're shooting themselves in the foot, and that's probably a good thing.
Got Rhinos?
Irony: Remember when institutions bought into this myth, that with Microsoft they could standardize on one stable platform? The last laugh is thinking of all these institutions dropping huge $$$ (or £££) on upgrades (not just license fees, but the overhead to "upgrade" all workstations.
I've seen some graphical representations of Windows penetration and W95 still holds a significant chunk. Expect XP to have slow penetration, particularly as institutions are doing a lot of belt tightening. If W95 or W98 works, leave it at that. We just upgraded our workstations from W95 to W98 (btw, I've got a bone to pick with anyone who says W98 is more stable than W95, it BSOD's as often at work as it does on my 2 year old laptop) and it'll be probably a decade before anyone around here sees XP.
IMHO I wouldn't be buying MS stock based upon high anticipated sales of XP. Maybe base it on the acceptance of their XBox or something else.
A feeling of having made the same mistake before: Deja Foobar
I'm not a big MS fan, but frankly, they're operating in a free market, and it's their right to charge whatever they like. If you think it's too much, don't buy it.
To any business that's become reliant on MS technology, and thinks these price hikes might cost them dearly, I'd say this: This is what Richard Stallman warned you about 20 years ago. If you rely on proprietary software, belonging to a third party, you're putting yourself in a position where that third party has you by the nuts.
In future, leave yourself an escape route: at the very least make sure your business' IT is based on open protocols, and aim to use software which allows you to flit from support suppier to support supplier at will (at present OSS is the only kind of software I can think of which allows this).
Opting out is not a realistic option. While we could remain on Office 97 & NT4/2000 internally forever, our business (as with most businesses) constantly interacts with hundreds of other businesses: partners, clients, and vendors. Unless we can get all of them to stand still on Office, sooner or later, we're going to hit compatibility problems when exchanging documents (and viruses, but that's a different feature). It's a hassle for the business, and it makes us look bad to partners and clients.
Yes, I know that Office XP and Excel XP use file formats that are compatible with Office 97. I don't know that Office 2003 (or whatever it will be called) maintains this compatibility. The way the new MS pricing works, unless you can postpone upgrades for at least four years, it's cheaper to pay up today.
For the same reason, Linux desktops and open source office software are not a realistic option. The business can't afford compatibility problems with third parties. It just isn't worth the risk.
I wonder how expensive MS software has to be, and how onerous their terms have to become, before the MS apologists will acknowledge that MS is, in fact, a monopoly.
I hope they keep raising prices. The more they try to squeeze revenue growth out of a mature market, the greater the opportunity for alternative operating systems.
Think if the ketchup analogy that business types talk about. Heinz is the default ketchup brand. Why? Well they stick bunch of well known ingredients into a bottle, put a well known label on it, and sell it for a reasonable price. Sure other brands might be a little cheaper, but not by a whole lot, and Heinz gets to keep their market share even though they aren't doing anything particularly special. It works as long as they don't raise the price too high. If Heinz were, say, double the price of their nearest competitor then people would start to take notice and try the alternatives. Once they got to know some other brands Heinz would have a really hard time winning those customers back.
Likewise with operating systems. For a lot of people nowadays an OS is an OS. You can argue that Linux or MacOS don't have the application base that Windows does, and you'd be right, but they both have enough for a good many people. Most people are just buying the brand and they'll keep doing that as long as MS doesn't screw them too badly.
Unfortunately for MS, their shareholders expect them to magically produce growth rates in the double digits year after year. Employees expect it too, since that's how they make money from stock options. How do you make more money when your product is basically the same and the market is maturing? That's right, you squeeze your existing customer base. (Or you expand into video games and Online services, but that's tough when your competitors are Sony and AOL/Time Warner)
It is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail. - Abraham Maslow
I'm not the one in charge of purchasing the Enterprise License Agreements at MyCorporation, but I've read some articles in the Register and elsewhere that indicate that MS has a pricing policy that makes XP cheaper if it is purchased before a specific cut-off date that is looming rapidly. If you upgrade to XP later, subsequent Agreements will be more expensive.
I get the impression, too, that most corporations have been trying all they can to standardize on Win2K and are not interested in hearing about this carrot and stick ploy on XP pricing.
Of course, as time proceeds and our new users buy laptops with XPSP4 and Outlook 2004 that "works best with" XP and clunky with Win2K, our corporate IT support people will be coerced into a position where their wallets will have to crack open a bit wider to do that upgrade or suffer the wrath of users wondering why "we're behind the times".
If it didn't hurt so much financially, it would be pretty funny. Now that MS has dominated the market, the only revenue growth opportunity left to them is to force their customer's to upgrade more frequently!
"Provided by the management for your protection."
I find it interesting that these companies even care. Windows XP offers a few bells and whistles--but it doesn't offer a lot more than Windows 2000. Sure--it offers support for joysticks and heavy-duty gaming. But that doesn't strike me as a compelling new feature causing a corporation to upgrade ("And, uh, this slide shows how we'll be able to use this new version to install Dirk Blasto Space Invader joysticks in all of our CSR workstations to handle irate callers...").
It seems to me that Microsoft isn't just trying to shift the business model from a "purchase" to a "pay-for-use" model, as many have suggested. I think they're also trying to--or will end up being forced into--a business model similar to Intel's. When the next round of microprocessors appears the chips are sold at a premium price--and the product clears the market at that price. As Intel rachets up production it can profitably lower the price, clearing the market of demand at that lower level. The cycle keeps repeating--Intel (and other semiconductor manufacturers) have this down pat.
Microsoft has done similar things in the past. Their Visual Studio 6.0 toolset is, by now, quite long in the tooth. They sold tons in the early days of the product, but sales are considerably lower--so Microsoft offers bundled books and tools, and offers lower prices to resellers, to sell product. In effect they're lowering the price to entice buyers into the market who aren't willing to pay the higher price.
I think we're going to see the same thing with XP. Corporations are simply going to stand pat: why upgrade? All XP gives you is some easily-ignored bells and whistles, and the ability to use joysticks. In order to get corporations to upgrade Microsoft is going to have to make it worth the corporations while--which will almost certainly mean price decreases and less draconian license restrictions.
My largest customer is number 2xx on the Fortune 500. They're just now rolling out Windows 2000 to desktops around the world--and they have shelved plans for even piloting XP. Microsoft wants them to upgrade--but can't make a compelling case for a whopping upgrade expense (plus the cost of actually installing the OS, labor, etc.) in a time of tightly-trimmed budgets and some layoffs. "Hey," said a friend and senior manager, "we just announced we're whacking 200 people. If we spend three million bucks installing XP we're going to have to whack another 40. Is the ability to use a joystick worth those peoples' jobs?"
Last week I attended a seminar that included an impromptu lecture by a highly-regarded economist. One of the key changes in the economy over the past 20 years, as he sees it, is that manufacturers by and large have lost control of their pricing. You don't ship shirts to a department store and tell them what to charge--instead you get a purchase order from Wal-Mart telling you what they're willing to pay. And you deal. The major exception that this economist mentioned was pharmaceutical companies, because they're protected by patents on their products. If your doctor prescribes ButaGlutaMax, you can only get it from one place. An exception he did not mention was software--and I think Microsoft is about to learn this lesson. In a booming economy with a bazillion dot-coms buying PCs, Microsoft sold a lot of OSs. The boom is over, budgets are drying up all over the world, and Microsoft is trying to force through a price increase. I don't think they're going to be able to control their prices this time around.
As an economist, it is pretty clear what is going on here. If a monopolist wants to maximize current profits, he will always price on an "elastic" portion of the demand curve. In looser language, you maximize profit by raising price until the point where you really are driving some substantial percentage of consumers away. (Why? Because at lower prices, price increases don't cost you much in terms of lost demand and they also reduce your costs.) You can prove a formal version of this mathematically.
However, in the past MS was worried not just about current sales, but also about future sales. This is called "dynamic pricing". MS's attitude toward dynamic pricing is changing because: [i] they have close to 100% share already, [ii] the number of PCs in not increasing as fast (and so future market share is no longer much more attractive relative to current market share) and [iii] the threat of anti-trust regulation makes the future less certain.
Thus, MS is turning to the question of how to squeeze out current profits. This involves driving some customers away in order to raise revenue and lower costs for existing customers.
The opportunity for competitors (including Linux) is obvious. MS may be moving away from dynamic pricing too soon, if there really is a threat to its future market share.
There is now someone I can write to, with reasonable expectations of a good reading. I'm now in the loop instead of an interested mostly-spectator.
Microsoft's situation is interesting, and perhaps a little sad. Their business model appears to have two cornerstones: Aggressive compound growth and fast, frequent shipment of incremental improvements focused on user perception. Besides that, they've until recently been a 'gentle monopoly' to the end user, not taking advantage their power to control prices.
This model has served them well, up until recently. But they've effectively reached the limits of desktop revenue, owning monopolies on the OS and the office applications. They're trying to break into imbedded, server, and game console markets. So far their fast/incremental business model has not helped them get as far into the imbedded or server markets as they'd like, where 'next release' and eye candy simply don't cut it when base functionality is unreliable or insecure.
With Win2k they've made great strides in reliability, but really they're only getting to the base function point. Prior to this, anyone but Microsoft would have been laughed out of the datacenter with most of what they sold.
In imbedded, they've stuck by WinCE in their usual fashion, but I can't see Microsoft playing in any arena where there isn't enough of a display to show the Windows logo.
In penetrating new markets to expand their revenue base, the XBox is probably the most important product they have. But Sony and Nintendo won't give up without a fight, and the timing of the recession is just plain bad for having the most expensive console on the market, no matter how capable.
So with the desktop OS and office market saturated, server and imbedded markets stalled or slow, and not quite ready for console games, in order to continue the revenue curve that is so essential to their invincible appearance, Microsoft had little choice but to ramp up the license terms.
They're between a rock and a hard place.
The living have better things to do than to continue hating the dead.