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Does Microsoft Cause Lower Software Prices?
AngusSF writes "OK, slashdotters, , so is this FEE article Antitrust Benefits Consumers? It Just Ain't So! true?" AngusSF quotes from the article: "... as Stan Leibowitz and Steve Margolis have shown in their book, Winners, Losers and Microsoft, in virtually any market that Microsoft has entered (financial software, spreadsheets, etc.), the effect has been a dramatic reduction in prices and an expansion of output and innovation. Software products that do not compete with Microsoft's products fell in price by 12 percent from 1988 to 1995, but by 60 percent where there was competition from Microsoft.", and writes "I'd really like to see some on-line evidence of this. Has Microsoft competition in office suites really cut prices there?"
The classic behavior is that a company drives down prices to get rid of the competition (if its internal costs allow that), then raise prices after the competition is gone.
While MS has competition within a market (Word Processing comes to mind) their prices are very low. I recall Word selling for $99 back when it was competing with WordPerfect. Today, with essentially zero competition, it's $299.
Of course the counter-argument is Excel vs Borland's Quattro Pro: Excel was at $495 and QPro at $295, but despite great QPro reviews vs Excel purchasers thought QPro was not in Excel's league because it was too cheap!
Explanation: Microsoft discovered the popular application markets. So did a lot of other companies, quite independantly. There would have been price competition between everyone else, even had MS not entered those markets. The markets in which MS did not invest money aren't as lucrative (being more niche markets). There are fewer players in side markets, and as a result there hasn't been as much competition in those areas of software development.
Lesson: correlation != causation. If you're claiming causation, you better have damn good evidence. Would there not have been drastic price reductions in the spreadsheet market without Excel? Put it another way, what would the market look like without MS ever being involved? I have no reason to believe it would look any different than it does now.
Mark the article (-1, Troll).
This post expresses my opinion, not that of my employer. And yes, IAAL.
BTW. Wordstar was $295, Word is $217. The 10% rule would put it at $30 (which would be reasonable), tripleing that would put it at $90 (Word is powerfull). Microsoft prices it at $217.
A computer that is THOUSANDS of times more powerful costs 1/20th what it did then. The leading wordprocessor costs 2/3rds. Yeah, software prices have declined.
PS: I know, buy Office and things are cheaper than buying individually, but the point is MS did not push down prices quite like you think.
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
The traditional logic is that once Microsoft has attained enough market share prices will go up. Well, nope that is not what I seem to see happen. What I see happening is even more devious.
Microsoft enters a market and calculates a sweet price, a price where people will buy the product. Then it keeps that price and increases to cover inflation. Is there anything wrong with this? Absolutely! The problem is that Microsoft does not lower their prices after that.
In a normal market prices drop once new versions enter the market, etc, etc. Take a look at computers, cars, houses (not the properties, but building materials) and prices do drop.
Where prices do not drop is in controlled markets, like what Microsoft has, and what the music or film industry has. Also want to see another thing about these markets? There are some who make damm big bucks and tons of people who are just eecking out a living.
How do you change this? Consumers have the power to choose and they should use Open Source, buy "B rated" DVD's, and buy directly from unknown artists.
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
I've been using Linux for the last 11 years but I have also kept Microsoft on the family system because it has been more user friendly and familiar than Linux and cheaper than Mac. However.... this weekend after getting so frustrated at XP and the way it thinks it knows better than I do about what I want to do, and the fact it's o bug/virus/scumware/spyware/leachware etc.. I decided I would finally go completely M$ free. Wiped the hard drive on y laptop and installed Mepis Linux. Ordered a Mac Mini for the family. As soon as it gets here I'm going to install MythTV on the old XP box (ATI AIW 9600). It feels almost like I quit smoking.
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Are they the cause of cheaper software? Yes, they are.
Indeed, "software sucks because users demand it to."
In a market that Microsoft doesn't 0wn, it is a fearsome competitor on price by pumping out crappy software.
However, in a market in which they are the monopoly, they don't stop pumping out the crappy software, but they charge monopoly rents to help fund their entry into the next market. The government is supposed to prevent this, but it seems to be out of antivirus.
The usual pattern is:
1) Software companies drop their prices on products competing with MS products.
2) MS then drops its prices to a point where the company cannot compete. They don't care if they take a loss because other business sustains them while they're strangling the competition. (In the case of Internet Explorer when competing with Netscape they dropped their price to zero)
3) The competing company typically diversifies as it needs other sources of income. It's often difficult to do this successfully, but if the company does it may even pull out of the competition all together
4) Microsoft either buys out the competitor, or continues to sell at a low price until the competitor is no longer in the market.
5) Once Microsoft has dominated the market, prices go up. Have a look at the price of MS Office since it has dominated.
It's a proven business strategy. Unfortunately it kills competition and therefore innovation. It makes no sense to keep prices low if you've effectively cornered the market either.
These posts express my own personal views, not those of my employer
A good example of how Microsoft is effecting prices is in the consumer media formats.
Microsoft undercut MPEG-4 consortium's prices by offering licensing charges of 10 cents per encoder for its codec.
The MPEG-4 gropup charges 25 cents.
This led to protests from the MPEG-4 group including attempts to belittle Microsoft's codec in the press.
The price may be lower in real terms, but the same is true of nearly everything in computers and electronics -- in fact, I can't think of a single example where a product (hardware, software, etc.) is more expensive or even the same price in real dollars as it was 20 years ago. Hell, now you can buy a computer with more processing power than a 1985 mainframe for less than you paid (in 1985 dollars) for a Commodore 64.
The question is not whether prices have dropped, but whether they are artificially high. In other words, has Microsoft's monopoly position kept prices from dropping compared to what they would be if those prices were determined solely by supply and demand? There is no way of knowing for certain, but I would be willing to bet the answer is yes.
As an aside, Corel et al. aren't competing with a $499 product; they're competing with a product that is sold at its list price, sold at vast discounts, and widely pirated (e.g., free). It would make an interesting study, but my guess is that the prices of Microsoft's competitors are probably somewhere near the true market price given the wide range of the actual cost for Microsoft products.
The bigotry of the nonbeliever is for me nearly as funny as the bigotry of the believer. - Albert Einstein
Microsoft products are "good enough" and "cheap". When MS enters a given market, their products are never as good as what is out there, but they are cheap. Some example:
- DOS 1.0 was both significnatly worse and cheaper then CP/M
- Word v. Wordperfect, AmiPro, Wordstar... just about everything
- Excell v. 123, Quatro
- Windows 3.11 (for workgroups), NT 3.5, Windows 95 v. Netware, Banyan
- IIS v. *NIX w/Apache, BIND, etc
- Exchange v. Groupwise
- MS-SQL v DB2, Oracle, (flat text files)
- IE v Netscape
- Hyperterminal v everything else
This is not to say that these MS products have not since passed the quality of their competition, some have. Of course, in many of these cases it is because MS has driven the competition out of business compleatly.A recent review of OOo, the author made the comment "OOo will out Microsoft Microsoft". Compared to MS-Office, OOo isnt very good. But its good enough. And its a hell of a lot cheaper. Thus OOo will out Microsoft, Microsoft. The same is true to some degree with other projects like Samba.
So in response to the articles question: Duh. Thats what Microsoft does. They sell good enough crap for less, forcing companies who produce good stuff to reduce their prices, reduce their marketshare, or die.
Driving your competition out of the marketplace isn't a PERMANENT condition - if it took below-cost prices to take over the market, it'll take below-market prices to keep control of the market.
You're forgetting lock-in. Once a company has a monopoly, it can set it's own standards and doesn't have to worry about interoperability with other people's software, and can use it's own position to make interoperability with itself as hard as possible.
Take microsoft office for example; competitors not only have to be free (or at least much cheaper) to even get into the market at all, they have to work with non-standard undocumented office files.
IE is another; look at how many sites only render properly in IE because people have coded to it's broken implementation of CSS and java, rather than go the extra mile to code to standards AND IE's cackhanded version of them.
Hell, look how microsoft is using it's desktop monopoly to push windows media player and it's DRM codecs. Only a couple of a days I had a student who lost all his recorded wma files because he didn't realise DRM was on by default, and now his backups are worthless because he didn't backup the licence files too. By making windows media codecs the default for all windows users, they're starting to push out the competition.
Assuming they succeed, there's nothing to stop them sticking to form and making longhorn only able to work with Windows Media drm formats, thus forcing you to stick to windows (and its media player) if you want to access your own music or home videos, or listen to internet radio, or watch internet films.
Lock-in lets monopolies keep their position without lowering prices, or innovating, or improving quality.
And before someone says it, no, IE and WMP are not free. You just pay it as part of the tax when you buy a new PC that's very hard to get without windows (and it's only the courts that have made even that possible, given microsoft used to use OEM agreements to make every computer ship with windows.)
I also disagree that microsoft has lowered prices. Last I heard, microsoft made 80%+ profit on windows. Windows 95 cost £39. Windows XP Pro costs £151. And the CAL costs... wow, they've gone up a lot. 5 years ago, I paid £5 a seat for NT licences. Now, at a school, we're expected to pay £30 a seat. I don't think inflation is that bad.
Remember kids, it's all fun and games until someone commits wholesale galactic genocide.
The only reason MS can't (appear to) charge for IE is because their competition is also free.
In any case, of course, just because you don't pay separately for IE, doesn't mean that it is free. They just add the cost of it into the price of MS Windows. That is their monopoly advantage - they can appear to have 'free' s/w because they can 'tie' it to the 'OS', the price of which they can manipulate to account for the cost of development/etc.
Even if they do decide to give something away for free, there are many reasons it will still end up costing the customer in the end.
This is probably true enough, however, you are leaving out an essential fifth step:
5. Keep prices high enough for long enough to cover the cost of steps #2 and #3.
Because, you see, once you've done step #4, you give competitors a reason to enter the market. Then you have to go back to steps #2 and #3 again, further pushing into the future the completion of step #5, which is the only one which can justify all the other steps.
Show me an example of all five steps happening, and I'll believe your assertion that this is actually a problem.
-russ
Don't piss off The Angry Economist
Until the population notices that the bread is of very poor quality like the rest of their mass produced cheap food after which they can only conclude that paying less made them fat.
cheap food = cheap nutrition = expensive & serious health consequences.
Uh, you do realize that most of the railroad baron's fortunes were built on government contracts and government subsidies, don't you? If the government had "done nothing" there wouldn't have been any railroad barons.
Besides, what venture capitalist will fund a startup going up against Microsoft? Every linux start up has in one way or another has gone up against Microsoft. Whether or not they are successful or not is not really at issue, but most of those companies got some of their start up cash from VCs. WRT to VCs, if you go and tell them that your new start up will be the new microsoft, then you will be laughed out of their office. The key is that you want to be able to show that you can take some reasonable portion of on of the many markets that MS operates in. If you can show your solution is better then microsoft, then you have a good chance at getting a hunk of cash. A good example is the number of Embedded Linux companies out there. The goal is not to take MS on head on, just to take on their embedded CE market.
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Some boss will buy a new portable that is preloaded with a new version of Windows and Office. Documents won't work that well between the new and earlier versions of Office...
(And, typically, the new portable can't run earlier versions of Windows... or something.)
Karma: Excellent (My Karma? I wish...:-( )
It takes half an hour to do an install of Mandrake Linux on modern hardware. Updates are set to happen on automatic, so zero time there. Presume you spend an hour every two years doing a distro upgrade. Mandrake Linux therefore costs you $100 up front and $100 a year.
There is no virus scanner. We just saved 15 minutes downloading and installing it. Installing XP takes at least half an hour as well, so we're up to $100 plus the cost of XP plus $50 for the initial virus scanner download, plus anything we pay for the scanner.
Additional software packages for Mandrake (or SuSE or Debian or Xandros or Ubuntu or... well, you get the idea) are a few clicks away rather than a major grovel around in cyberspace followed by DLL roulette. Presuming that you install either OpenOffice or MS-Office from CD and nothing else (unlikely), that's at least another 15 minutes ($50) down.
The Mandrake Linux machine does not get compromised, mail out your documents all over the ether, or instill in the operator a terror of clicking on new mail or links. I don't know how to cost that. Maybe a major intrusion every two years, at one hour for a careful reinstall plus three hours to clean up and migrate stuff? Kiss another $800 goodbye, but how do you cost out fear and hesitancy? How do you cost out embarrassment over revealed secrets? Lost goodwill? Random crashes? Shrug. Too hard for me, let's ignore it.
Anyway, we're up to $1000 plus the sticker price of software plus some difficult-to-quantify losses vs $300. The $1000+ install has access to a far wider range of software but it's harder to install and you have to pay for most of it. The $300 install has instant access to four thousand packages at no extra cost.
And the harder you look at it, the worse it gets.
For example, factor a Mac into the table, and even with higher hardware costs it might beat both other contenders in the long run (or maybe it'll only pound Microsoft into the financial sand), depending on how much use you make of Fink vs pay-for/black-box software.
Got time? Spend some of it coding or testing
I'm not an economist, but I think this is a classic monopolist example.
Consider an area with many small bakeries. A big company goes in and opens bread shops with lower prices so the small shops have to close.
Good for the consumers? No.
If this were true, that would suggest that Walmart is bad for consumers. From many economists' points of view, this is simply not true; Walmart brings and maintains low prices.
The negative effect of Walmart, Microsoft, and other monopolists is that while the prices of goods often go down, the diversity of local vendors dimishes, and the remaining local businesses are mostly no longer owned by local businessmen. Locally owned businesses are driven out of the economy, so the money the local people bring into their local economy goes right back out of the economy through the almost always non-local monopolist.
People who view monopolies as positive don't view the annihilation of successful local economies as negative. This is the common approach in US economics, where the significant measures of an economy are considered to be average wealth, and average global quality of life, rather than median wealth and quality of life.
ldap, zeroconf, the bsd tcpip stack, tex, apache, zope+plone...
look harder.
Imagine if MSPaint didn't exist. Photoshop would cost even more!
A free graphics editor (think the GIMP rather than MSPaint) allows/causes the professional quality software to have higher prices. When Photoshop is the only software available, Adobe has to choose between high prices or market penetration, and market penetration usually wins. Do you want 10 sales at $10,000, or 1,000,000 sales at $100? With some of the functionality available for free, Adobe has already lost most of the low end of the market, but potential customers needing more will pay more, resulting in higher prices.
When Microsoft enters a market, they compete on price, because (until recently) they had little interest in profits from products other than MSWindows and MSOffice, but they had great interest in destroying competitors. They could not compete on functionality because their software is barely functional. The downside of MS entering a market is:
1. A very poorly designed application from MS.
2. Removal of competitors means there are fewer good applications.
3. The quality of all software suffers.
The other downside of their monopoly was many good ideas were discarded because they either:
- competed with a MS product, or
- MS could easily enter the market,
so there was no chance of funding. MS proved this the only sane choice by destroying the existing software companies (Lotus, Ashton-Tate, WordPerfect, every other PC software company existing in the 1980s) and the few that tried anyway (Netscape, Real). Yes, I know those companies made mistakes, but who owns each of their markets today? Why isn't there any commercial competition? The only method to compete with MS is to give software away, and even then MS will do its best to conquer.
I dislike the lack of alternatives. I dislike poorly designed software. MS's lowering prices is the cause of this, and should not be celebrated.
I spend my life entertaining my brain.
You do realise the GUI wasn't groundbreaking? Apple took two attempts before they got a winner. They'd based several of their ideas on research papers written by Raskin, pioneering work by Engelbart in the 60s, ideas taken from Smalltalk, etc. It was all incremental improvement.
Xerox PARC is often credited as the "source" that inspired Apple (though Raskin denies even that much) but PARC didn't innovate either. They integrated a bunch of existing ideas into a technology demo. Windows, viewports, scrollbars, icons, menus; those ideas all predated PARC.
The Internet took more than 2 decades to become an overnight success. Once again, very slow incremental improvements were the key.
It will never "hit". That's a sensationalist point of view that Cringely likes to play upon because it makes for a more exciting story. The reality is that the revolutionary technology is probably already out there. You just don't know about it yet. Eventually it will reach a critical mass of users and "tip", at which point it takes over the industry and becomes the "revolution". But it's not really a revolution. It's just the slow incremental improvement of existing software.
I don't see the commercial software firms as being a good source of innovation. The innovative GUI came from university funded research centres. The innovative Internet came from government sponsored research centres working in cooperation with universities. UNIX might have been sparked from Bell, but the vast majority of the work that turned UNIX into something useful came from... say it with me... a university funded research centre.
Commercial software firms are famous for taking proven ideas and making money. Not for innovation.
The problem with software is that it can be copied for very little cost, so there is no incentive to pay for a cheaper alternative to the software you want, since you can almost always obtain an unlicensed copy for virtually free.
Thus there is very little competition in the software market in the conventional sense.
How many people do you know who run illegitimiate copies of Windows and Office? I've seen it happen countless times, when despite my offers of assistence people would rather just use unlicensed copies of commercial software.
I've even seen people pay good money for pirate software, when I'd previously offered to give them Free software, set it up for them and show them how to use it.
Next time I see someone "pirating" commercial software, I'm reporting them to the police and FAST. I've run out of patience and good will. Time for some REVENGE!
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