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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?"
Ever since Microsoft entered the desktop OS market, Linux felt so threatened that it's been giving away free source codes!
Rock that crushes, Paper & Scissors that don't matter.
No, they don't.
Are they the cause of cheaper software? Yes, they are.
this relationship looks correlational rather than causal. as the market for a certain type of home software expands, the price goes down. the same market force also attracts microsoft. both are the result of a common cause: the market.
2 1337 4 u!
"I'd really like to see some on-line evidence of this. Has Microsoft competition in office suites really cut prices there?"
;)
Oddly enough... the price dropped 100% in the office suites arena.
That green slime had it coming.
Because after MS runs the competition out of business (or out of that market), the only software in that segment is MS's overpriced Office suite (though the student edition of office isnt too bad).
The Doormat
If you're not outraged, then you're not paying attention.
From one perspective, yes, Microsoft does indeed cause lower software prices. Competition in a given market area (Office Suites etc) will reduce prices among different vendors. However, once a particular vendor has asserted dominance over a particular product area, they are free to raise their prices again. Thus, competitors in the Office Suite area (Staroffice, Wordperfect Office) are much less expensive, while Microsoft's product (especially full "Professional" versions) is much more expensive. Net effect: More expensive software for the consumer, because everyone "needs" the de facto standard.
Well this is ignoring other factors.
When you look at it you will see MS enters markets that already exist. They pick and choose and go in when things are getting popular
The thing this article misses is that also when things get popular open source people come in too and write their own versions for free. And they do it better than propriterary software usually.
Which is the real thing that drives prices down.
High margins and high profits only exist in really tiny niche markets that dont have many competitors.
Microsoft is just entering markets that also other competitors such as open source teams are entering and thus it is not just microsoft who is making prices lower. Somebody has not thought this through properly.
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That's not the point. The point is whether Microsoft has used its monopoly position in the market to stifle competition. The same argument is always used by companies accused of dumping in a market, and it doesn't hold up in court.
___
Cogito cogito, ergo cogito sum.
A monopoly produces and prices according to it's production possiblities curve (I think that's what it's called) whereby it produces the most for the least cost and charges to maximize profits. But because there is little competition, they are able to charge less and make more money. Thus, any company trying to compete with the monopoly would have to lower its own prices, reducing its profits, just to keep up. Correct me if I'm wrong; it's been a while since I took economics.
Esoteric reference.
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!
Or even a free one.
As to the pricing thing, well. Where I lived in England (really England, not meaning "any part of Britain"), Stagecoach (a bus company) rolled into town and set their prices at zero until all the other bus companies went out of business. Then they stuck their prices up to something slightly less than the old prices.
Sure, prices were lower but in getting there all competition had been destroyed and Stagecoach is no longer (especially since they got control of the trains too) under any pressure to ensure quality. So they don't.
It's the same with Microsoft: after they crap all over a market to kill all the competition they simply sit around and look for new ways to screw the trapped clients. Sure, the prices are lower, but quality is non-existant and customer service is some sort of joke.
IE is a good example: until Firefox came along it had basically been left to rot. It still doesn't actually manage CSS level 1 or 2 to anything like a decent level, or display PNGs correctly. Sure, browers are bloody cheap (free) but if you'd been waiting for MS to innovate you'd have been dead and buried before it happened.
TWW
"Encyclopedia" is to "Wikipedia" what "Library" is to "Some people at a bus stop"
BUT... price isn't everything. Instead of having 3, 4, 5, or more products all competing against themselves and one-upping eachother for $60 each, you now have 2 products, at $50 each. Which is better?
Now certanly $50 is easier on your wallet. But what about the OTHER effects? MS products tend to rapidly get better untill they are better than everyone else and therefor "good enough". Then then stagnate. They stagnate like time stopped. So you have one product that's good enough, and another that will try to get better. But once that other product gets better, it will reach a point where it's better than MS's. Then what? Well since by now they probably have a much smaller market share, MS can sit by comfortably. Thus the second company doesn't have to work too hard because their product is already the superior. They can keep trying to make it MORE superior, but it probably won't change things. Firefox changed IE (a little), but that took HOW LONG? Things stagnated since IE 4 or 5 (and IE still has serious problems). And other than adding a popup blocker (which does work) and more warning dialogs (which never work), IE is the same. Consumers lost. Hopefully Firefox will get accepted enough for the cycle to repeat.
What about other products. How 'bout financial software. You have Quicken and Money for the home. That's it. Money works but I find a large number of annoyances in it (it's what I use). Quicken works, but I don't like it's interface at all (Money's is nicer IMHO). So I'm stuck choosing between the two. There is no third party to force them to improve against eachother, they are are usually considdered about the same quality (from ratings I remember seeing). No one will enter this market because it already has 2 juggernauts and they'll never get in (open source excepted). This isn't very good for the consumer.
Unless you use a Mac. If you use a Mac, MS doesn't MAKE Money for Mac. So you can choose between Quicken and... Quicken. What a buffet of options. Fantastic. The situation on the Mac is even worse (from what I know, there may be some other piece of software out there, but from my perspective (a rather highly educated consumer when it comes to computers) there are two options). And the Mac is considdered a small market with a monopoly product (Quicken) so no one will enter that market and provide competition. You just have to hope improves from Windows move over. And even if someone DOES enter the market, MS can always walk in and sell Money if they see you doing good, and you're gone. Quicken can survive, you little product probably won't.
I'll take $10 to $20 more and a better selection and more improvements from healthy competition over the cheaper stagnate price.
If that's all it takes to make things "better" for the consumer, lets have the Government make everything and sell one brand and price it 5% less than the old commercial products were. There will never be improvements, and quality will probably suffer without competition, but IT COSTS LESS!
Prices are better, quality isn't. And I contend that prices are better only through last ditch efforts to stay alive. If they little guys go out of business after MS enters a market and MS is left the only game in town with over 5% market share, they are free to never cut prices again or even raise them. Do you think Windows would cost $200-$300 per PC if MS had competition?
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
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.
The existance of MSPaint doesn't seam to be making Photoshop more affordable.
UK Laptops
Actually, if I recall right (and I may not, so .. whatever), the notion of selling the 'base' product at a loss is called a loss leader. You find this in many things, such as razors and razorblades, printers and print cartridges, and game consoles and games. Any place where you can sell some consumable that you need to operate a device, you can generally get away with selling something as a loss leader. The only problem is that you are counting on people to buy the secondary items. If someone comes up with another use for the base device that doesn't use those secondary items (say using an XBox as a multimedia PC, not for games), your plan could backfire.
Price gouging is more like what the RIAA did. Collaboration between the members kept prices high dispite market demand (or lack thereof). You priced it at this pay scale so everyone would assume that the price you see for new CD's (say, $18.99) is just common, even if after all costs are paid for and fair profit margin applied, it remains excessively high. You either bought it at the price they set or you didn't buy it, and you couldn't find alternatives.
And why expect the prices to go up?
If the prices go up, then it becomes reasonable for another competitor to enter the market again, restoring competition. Microsoft isn't the only company with a war chest.
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.
Prices will go up not because competition got eliminated, but because you can't maintain those prices forever. The consumer benefits as long as manufacturers try though.
paintball
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.
MS is a monopoly. When they enter a new market, they sell their products at a loss, with the express purpose of driving their competition out of business.
But what large organization doesn't? You just explained Walmart's strategy too.
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"
.. its computers. anywhere you start to computerize, things get cheaper and more efficient.
to say its 'microsofts fault, specifically', is to say that "computers are as good as they are because IBM made computers".
; -- the corruption of government starts with its secrets. a truly free people keep no secrets. --
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.
Zoid.com
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.
After the small companies close down, because of the lower prices from the big company, the prices are increased to higher than the small companies had before the big company went into the area!!
The profit from the high prices is used to undercut small businesses in the next area the big company takes over...
Now, replace a geographic area with a type of application (spreadsheet, writing, etc).
When Microsoft goes into a new area, they move their investments there. The speed of development in the old area goes down. (But while Msoft takes over an application area -- the speed and development is faster!)
The development speed for new revolutionary features of Internet Explorer or Office isn't high...
When there is competition in an area taken over earlier, lots of developers (paid by the monopoly profits from some other controlled area) are moved back into that place -- until the threat is gone.
So now, with Firefox, there will be development on Internet Explorer.
At any given time, it's better to use the monopolist product -- but in total it's never good for anyone, except for the monopolist.
Karma: Excellent (My Karma? I wish...:-( )
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.
No-one can or will re-enter the market because at that point you can just lower your prices again. As it actually takes investment to enter a market, the immediate undercutting by you will blow them out of the water.
How we know is more important than what we know.
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.
Show me an American consumer with a sense of discipline and self-reliance, and I'll show you a much freer market.
1) A company comes up with a novel computer idea.
2) Microsoft ignores it while it is a 'fad', so the original company can more or less charge what they want.
3) The 'fad' becomes a trend, and Microsoft gets interested.
4) Using their overwhelming resources, Microsoft develops a competing product, at a much lower price. (This is in lieu of getting the technology by 'other' methods).
5) The original company laughs it off, since any Microsoft product version 1.x or 2.x is not really competitive, and sometimes horrible.
6) Over time, the Microsoft product gains technological and marketing credibility.
7) The original company tries to hold on, but the lower prices of the Microsoft product (plus the creeping featuritis of the Microsoft product) eventually lead to the companies demise.
8) The original company gives up, and releases all of their people. Naturally, Microsoft swoops in to skim off the cream of that crop.
9) Microsoft now owns 100% of the market.
10) Microsoft freezes development on the product and starts looking for another victim company to screw.
11) Rinse, lather, repeat.
This article seems like one of the worse excuses for journalism I've seen in some time. The author writes:
Competitors will always whine and cry about how the price-cutting, product-improving, and customer-satisfying practices of their more successful rivals are "unfair." This in fact is the modus operandi of antitrust: The antitrust laws provide a means by which sour-grapes competitors can achieve through politics what they fail to achieve in the marketplace.
This is a dreadfully dishonest characterization of anti-trust laws. Microsoft wasn't accused of success through fair competition. They were accused of a series of dirty tricks that have nothing to do with competing on a level playing field. These tricks include giving their customers discounts if those customers would design their own web sites so that non-MS browsers wouldn't work with them, and pushing PC makers into deals where they had to pay for MS licences, even for machines that were to be loaded with non-MS operating systems.
Neither economists nor politicians nor policy wonks are capable of deciding the most "efficient" size or configuration of any business enterprise. As Ludwig von Mises once explained, "The question to be decided is: Who should determine the size of the enterprises, the consumers by their striving to buy what suits them best or the politicians who know only how to tax away and to spend?"
This is a strawman argument. Anti-trust laws aren't designed to limit the size or market share of companies; The are designed to limit companies from using monopolies or near-monopolies unfairly to exclude competition. As such, they are only targetted at companies that actually have monopolies or near monopolies. But I supposed it's easier for the unscrupulous to simply make up non-sense positions for their adversaries and to claim that their adversaries hold those non-sense positions than it is to argue against the positions their adversaries actually take.
By adhering to this false "maxim" antitrust regulators are attempting to supersede the informed judgment of millions of consumers
Even if we assume, for the sake of argument, that most consumers are informed enough to exercise informed judgement, those consumers can only use there judgement to decide among the choices they actually have. If I offer an OS at the same price as MS's and if customers can choose which one to purchase, customers can make a simple judgement about the qualities of the OSs. But if MS has strong-armed vendors into making my customers pay for MS-Windows in addition to my OS for any machine they buy, even if my OS is the only one loaded, then the consumer's choice isn't just about OS qualities, anymore.
Third, the government is clearly unconcerned about consumer welfare in its prosecution of Microsoft: In Judge Thomas Penfield Jackson's November 1999 "Statement of Fact" he devoted a mere five out of 412 paragraphs to the issue of consumer welfare.
This is just plain stupid. The point of Judge Jackson's "Findings of Fact" document was to describe the facts of the case, and not to concentrate on the social consequences of the facts. And in any case, the proper focus of a Judge is on the law and on the facts of a case. The author of this article is either showing his ignorance or his dishonesty.
He rests his case on the lame notion that, in his opinion, the company's management had "anticompetitive motives." Economic analysis may not be Mr. Litan's strong point, but mind-reading apparently is. He claims that such a malevolent "intent" has harmed Microsoft's competitor Netscape by keeping it from competing in the Web browser market. In fact, Netscape has distributed more than 150 million copies of its browser since 1995.
The author completely misses the point, and we are left to wonder if he did more than skim the "Findings of Fact" document. MS used the browse
I wish MS would enter the fields of GIS / Mining / and CAD software.
If the trend is true, then the days of spending anywhere from 4 to 80 THOUSAND dollars for a ONE seat license on these specialty softwares would end.
You think the MS monopoly is bad? you pay nothing compared to what Autodesk, ESRI, and others charge.
George Bush + Linux = "I will not let information get in the way of the fight against Windows"
prices aren't the only barrier to entry in a market. .doc format.
The word-processor market should be competition-friendly given the price of word, but it's not, given the lock-in achieved by the
Once you have a monopoly you can keep competition out using 'dirty tricks'. That's why monopolies are bad for consumers (after all, competition is suppsoed to be the cure-all for consumer satisfaction in capitalism), and that's why there are laws to curb monopolies.
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
The monopoly also undermines the quality and the variety of the baking ecosystem, and killing off the local bakeries also kills of the local suppliers to those bakeries, diverting the demand to only distant bulk suppliers so it hits the whole economic ecosystem from keel to crowsnest.
Got time? Spend some of it coding or testing
I think that Microsoft *has* caused prices to go down dramatically to the point where the *only* viable competition can be open source. Here is my reasoning (I am a businessman, not an economist but the two have some overlap sometimes).
When you develop proprietary software, you absorb the entire cost of R&D as well as marketing in advance, and then you sell licenses in order to make that money back, along with a profit margin. The actual boxed sets only cost a few dollars to produce, but the research and development is where the major costs are, and these dwarf the production costs pretty heavily.
So, if you can sell twice as many of something than your competitor, you can actually sell the product at a lower cost than your competitor's break even point. I believe economists call this "economy of scale." You can even do this at the same that you use some of the profits to subsidize research and development of other projects. Whether this is predatory or not I will leave to lawyers and the courts (I suspect the answer is "it depends").
Now, if you are a company which is smaller than MS, you cannot compete with Microsoft on the basis of volume. So Microsoft is able to develop (often better) software faster because they already have achieved scale in these markets. The other companies cannot compete and they slowly sink into obscurity (re: Corel, etc). Some of this may be predatory, and the rest is the fact of the market. So, the result is that you cannot beat Microsoft at their game if you play by their rules. They are bigger and they will *always* win because they can make money on a more marketable product at a lower price than you can.
So, what about competition? Is there no hope? Actually there is. Open source actually is more efficient at spreading the development effort around so that needed features get added with less general expense. Therefore the pace of popular open source projects easily dwarfs Microsoft's, the total cost of ownership is lower, etc. Linux, OpenOffice, Mozilla, etc. actually beat Microsoft at their own game by reinventing the rules (which is what all successful businesses and projects do anyway). So open source will reduce costs even further to the point where Microsoft cannot be profitable and compete.
LedgerSMB: Open source Accounting/ERP
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.
Sure, Microsoft's entry into those markets caused prices to tumble: Microsoft knows how to undercut competitors. But those markets were ripe for the picking: some company would have entered them quickly.
The problem is that with Microsoft's entry, prices have stopped falling. Microsofts undercuts competitors to drive them out of business, but once they have a monopoly, they hold prices constant or even raise them. It's standard monopoly behavior: first, you give up profit for acquiring the monopoly, then you reap your rewards many times over. Internationally, it's known as "dumping". While in the short term, it may cause prices to fall, it is not something that's good for customers.