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Is Windows Worth $45?
bgelb writes "This article from the Wall Street Journal questions whether Microsoft really innovates enough to justify the enormous amount of money (nearly 10% of the cost of every PC!) it takes from consumers each year. Hard drive and chip makers innovate constantly, but what about Microsoft?"
There are choices for consumers and if they refuse to vote with their wallets, I have little pity on them,.
(I'm posting the text because the online access will go away in 7 days for non-subscribers)
Do We Get Enough In Innovation for What We Give to Microsoft?
It's 2004; do you know where your computer dollars are going?
One can learn a lot about the computer industry by looking at the breakdown of manufacturing costs in an average desktop PC, as compiled by iSuppli Corp., a market-research firm. Excluding labor and shipping, and leaving out the costs of a monitor, keyboard or mouse, the typical desktop PC these days costs the Dells or the H-Ps of the world roughly $437 in parts.
The biggest portion of that -- 30%, or $134 -- goes to Intel for a Pentium processor. The disk drives, including whatever CD or DVD is installed, cost around $104; the RAM memory is $54; and the remaining hardware items -- power supply, case, circuit boards -- total $100.
The final 10%, or $45, goes to Microsoft for the Windows operating system.
Because these prices are never disclosed, the figures here represent best guesses. But you can start to see the contours of the computer industry in that bill of fare. Specifically, you begin to understand how Microsoft could amass its $61 billion in cash and other assets. It's easy when you collect nearly 10% of the cost of every PC that's shipped, while having no manufacturing costs of your own.
Most technology companies that do well justify the money they make by saying that is what is required to fund innovation, that were it not for all the profits they were accumulating, the industry would be standing still.
The claim is suspect. The disk-drive industry, for one, manages to release drives with ever-larger capacities while often barely breaking even. And the technical challenges they face are among the most formidable, involving squeezing more and more bits of data onto ever smaller portions of a rapidly spinning magnetically charged platter.
Intel is no stranger to big profits. Analysts estimate the Intel CPU costs more than a comparable product from rival Advanced Micro Devices. What about the added charge? Think of it as an Intel tax on each PC.
Even if you're not an Intel shareholder there's arguably a benefit associated with that tax. Intel is like a research-and-development operation for the entire semiconductor industry. The manufacturing processes it uses for its latest-generation Pentiums are the most advanced in the world and cost billions of dollars. Eventually, though, these processes become widely available to everyone in electronics. This is one case where trickle-down economics seems to work.
That leaves Microsoft, and the question: What does the world get for the 10% Microsoft tax on every PC?
No one could ever say Microsoft is sitting idle. That was clear last week at a Research TechFest the company held at its Redmond, Wash., campus. Microsoft has an advanced research operation that employs about 600 people all over the world. These are some of the smartest people around, and they don't work on specific Microsoft products, but rather on long-range ideas, usually matching their own interests.
The TechFest was like a science fair. Researchers set up booths, and the managers of Microsoft's many products milled around, looking for useful ideas they could deploy in future products. The number of people doing the milling was in the thousands.
But is the innovation from Microsoft commensurate with the awesome resources it has been given? The average Microsoft customer probably wouldn't say so. Indeed, the advances the company lists for its new products all too often involve fixing shortcomings of earlier products, such as security and reliability in the case of its operating systems, and ease of use with its Office suite.
In fact, you can argue that genuine innovation is the last thing monopolists want, since it threatens to upset the very applecart that made them rich in the first place.
When asked which research from its labs has made its way into M
I think their estimates are off a little. $45 for a copy of Windows seems a little bit underpriced. I know an OEM installer, and he says that every copy of Windows they get (and they have to get multiple ones) costs on the order of $99. Granted, he's not a _big_ OEM builder, but he's still an OEM builder.
He also has a monopoly on the area's new PC market, but that's okay.
I've paid a Microsoft tax on two of my 11 PCs. Five of the others are too old to run Microsoft software, two of them are relics that will never leave my house. One is incapable of running any Microslut OS and it would be preferable if it stayed that way. One is a hunk of silicon which I didn't pay microslut taxes on. One other, my Quadra 630CD, runs a Microslut OS, but I didn't pay the taxes on that one, AAPL did way back when. (consequently, that thing runs Windows 3.1 on its 486/66 processor better than my native 486/66 did, with less RAM)
This is not the sig you're looking for.
It's a lot more than that, when Dell is selling it's low-end machiens for around $399. XP Home costs over 25% of the cost of that new PC. Pro is almost half!
You see? You see? Your stupid minds! Stupid! Stupid!
Well, what do you know? A Dell machine with Linux on it, and another with FREE DOS. Just because you are an uninformed consumer who can't be bothered to look for a machine configured with the software you want (from the same vendor no less!), don't waste the time of the FTC.
Buy from the Dell Business site, rather than Dell Home, and you can get machines without an OS. There are some great bargains on the low end Poweredge 400SC servers.
> That has nothing to do with being a monopoly.
I see where you're going with this, but I don't know if its that clear cut. For instance, three weeks ago I was talking to one of our NOC guys at school and essentially they're going to phase out Novell because MS is giving them so much free software (upgrades to XP and server2003) they can finally shift to AD and drop Novell.
Now how is MS able to pay for this generosity?
1. They abused their monopoly and are arguably paying for this kind of thing with their ill gotten gains.
2. They're just a good company. *snicker*
I'm leaning towards 1. Novell has money and doesn't want to lose customers either, but they can't afford to supply an entire 20,000 person campus for 2 or 3 grand.
You actually think OEM's pay Microsoft $1 per machine? And you actually think Microsoft has $61 billion in cash by collecting $1 per machine?
The WSJ numbers are OEM quantity numbers. MSRP for Windows is a lot higher (same for all the other components as well). It is true that Microsoft will massively discount for their friends; but $45 is the DISCOUNTED price.
I am on smaller OEM and typicaly buy XP home OEM for $50-54 and XP Pro for $65 or so. I purchase 10 packs to get a price like this and go through 2 or 3 packs of home a month and a pack of Pro every six weeks or so. Dell buys direst from M$ while I go through a middle-man. I am pretty sure that since the big OEMs are buying 10000 the volume I do they get a better price.
This violates the Fair Use and First Sale doctrines. Corps make it common practice to toss legal language into contracts knowing that it can't/won't be enforced. This is one way those with a clue like to abuse those without one.
Don't take is the next gospel just because it's in a contract or license.
A Pirate and a Puritan look the same on a balance sheet.
I remember reading in an interview with Billy G, and he said Microsoft would not go after people that used the same license on two computers, as it would give them too much bad PR(not that it really matters, they are a monopoly, and I don't think there would be a mass switchout of Microsoft products if it did happen, people are too lazy to change). Even though they aren't getting paid for that fourth computer, they are atleast benifiting from it running Windows and expanding their dominance. It would probably cost too much in legal fees to go sue each and every user RIAA style, and there is really no way to tell who is an isn't, people who pirate software usually aren't dumb when it comes to covering their tracks by stopping the computer from phoning One Microsoft Way. More importantly it might just invalidate click-through EULAs if they took them to court, which ofcourse they couldn't afford to loose, it's what gives them leverage above the user.
I have just finished a six-month consultancy with a substantial beige-box OEM in Taiwan. They pay US$52 for XP Pro licenses bought in bulk lots.
A dream is good. A plan is better.
I worked for a major OEM for several years. I don't know where you got your figure (but I can guess...), but it's wrong. OEMs pay about $45 per license. The price hasn't changed for years. It used to be $45 for WfWG, about $50 for NT 4 and the same for 98 and up. And that was back when MS was strong-arming exclusive contracts.
We had to consider the cost of every component that went into a PC, down to the screws. So even back when a hot computer was Pentium 166, that $45 was a chunk of change. You can bet that it's virtually intolerable today.
What really made us grit our teeth, though, was that we paid $45 to $50 for a copy of Windows, but we were responsible for all of the manufacturing costs, from the media to the packaging. We had to contract our own mastering, printing and packaging services. So, while we paid Microsoft their money, we also had to pay Phoenix another few bucks for the actual media. And when a new version of Windows came out, we had to pray that Microsoft would actually get us a master soon enough so that we could ship systems with their OS on the announced release date.
At the time, we were the second largest build to order PC company (behind Dell). I'd hate to think of how things would have been if it was a tiny outfit.
Not a dollar. Not even close.
-h-
CP/M ran on the Zilog Z-80, Motorola m68k, and Intel 8080 and 8086 architectures -- on microcomputers not manufactured by CP/M's publisher, Digital Research. MS-DOS copied many features from CP/M, and several early MS-DOS programs such as dBase and WordStar were ports from CP/M.
Neither Microsoft nor IBM invented the idea of a microcomputer operating system separable from a particular manufacturer's hardware. Indeed, several of the first IBM-clones (by which many would ironically include the IBM PCjr) were notoriously buggy, and many MS-DOS programs would not run on them. (CP/M programs were generally compatible on the same processor.)
As usual, the Microsoft-based copy of someone else's idea was much poorer. However, the Microsoft marketing machine -- and, more importantly, the willingness of the computing world to forget or deny the better options not taken -- have come into play.
Your reasoning is correct but one niggly fact was wrong. You talk about OSs only being sold by the hardware manufacturer and you say "Microsoft changed that". But CP/M predates MS-DOS by a very long time and it was available on many personal computers from many vendors. You could even get CP/M for the Commodore 128.
While I agree with you that divorcing hardware from the software was important for the growth of the IT industry, Microsoft wasn't the first company to do it. Even UNIX could be properly seen as divorcing hardware from software; you could run UNIX on dozens of different minis (not PCs) well before Microsoft even existed.