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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?"
(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.
"Buy a Mac," while it is a good solution for some people, doesn't work as well for those on a budget. Pirating windows is not a legally friendly option, and it wouldn't save Joe Sixpack any money if he's buying a new Dell anyway. As much as I think Linux should become more widespread, I'm not sure if the masses are quite ready for it yet.
The issue is not that Windows costs money, but that there is no choice in the matter for the average user when they buy a new PC.
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.