Not really. The whole topic is somewhat misnamed. As far as I understand, AOL did not hack into the computers using a vulnerability, but using the standard AOL Update (whatever that is, I never used AOL). So, when the customer updates his AOL software (or has it set so it updates itself), the updated software would then disable the messenger. That's how I understand how it works.
I think this is not a good analogy. Maybe better: You asked some contractors to "update" the lighting in your house. These contractors heard a lot of complaints about burglaries occuring because people don't lock their back doors. They see that you didn't lock the back door (which you never use anyway) and lock it.
That is not a very safe way to communicate your message. If one of your users is writing something at the moment the message arrives and presses space before looking at the screen (or just types fast), he won't see the message, but only realise that a few letters are missing.
It seems strange to me that US providers do not offer differential pricing.
Let me give you an example from Germany:
If you want to have ADSL, you have to pay a fee of ~EUR 20 to the phone company, Deutsche Telekom (That's for DSLAM & bandwidth, 768/128, etc).
In addition to that, you choose an ISP for your traffic. And there is a lot of choice. One of many providers, 1&1, offers no less than 7 home user tariffs:
20h time tariff, EUR7
40h time tariff, EUR10
100h time tariff, EUR15
1GB volume tariff, EUR7
2GB volume tariff, EUR10
5GB volume tariff, EUR15
"Flat Rate", EUR40 for unlimited use, but in every month you use less than 20GB, you only pay EUR27, and if you are also less than 100h online, you only pay EUR17
(minutes or MB above your limit cost 1.2 Cent each)
Or an example from Belgium: ADSL is EUR40 here for 3300/128 and 10 GB per month with the largest provider (there are many others). If you want more than 10GB, you can always buy one or more extra 5GB for EUR5 each. Interestingly, if you go above your limit (and you don't purchase extra 5GB packages), you are not charged more but your bandwidth is capped to 64kbps. You can also increase your upstream somewhat if you pay a bit more
I don't understand why the providers in the US don't offer pricing like this. I believe they could achieve much higher profits by such price discrimination as well as making more consumers take up broadband - after all, they are monopolists as it seems to me!
I fear that there could be far worse consequences to e-mail than to web browsing.
Imagine I want to send a confidential e-mail to starlawyer@lawfirm.com. However, I mistype it as starlawyer@lwafirm.com. Right now, unless someone has registered lwafirm.com, the message will bounce immediately. However, under Verisigns proposed system it will be delivered by default to anyone who wants to pay for this. This is scary.
And now don't tell me that you shouldn't send confidential e-mails unencrypted. It happens. All the time. IMHO, it is a big difference whether someone malicious intercepts the message or if the message is delivered to the wrong recipient by default.
Oh boy, I think you did not study economics. If you have first-degree (perfect) price-discrimination, the market is perfectly efficient. Even for a monopoly. Why? Everybody that is willing to pay at least the marginal cost for the product will be served.
The problem are monopolies that cannot price-discriminate. Doh!
I'm sure that economists and capitalists will disagree with me, and perhaps I am naive, but what's wrong with selling your widgets at a fair market price to all customers?
If you have large fixed costs (say $10,000,000 for the machine) and low variable costs (say $0.01 for the inputs for each unit), it would be most efficient for the economy if you sell at $0.01. However, then you won't recoup your fixed costs. So you will charge a higher price than $0.01. If you have to charge the same to each customer, you could charge maybe $10. At this price, everybody that values your product with at least $10 will buy.
However, if you can manage to sell the product at $5 to those that value it at $5-$10, but still charge $10 to those that value it at more than $10, you have a higher profit and nobody is worse off. In fact, those that can now afford to buy, are better off.
This is an example where price discrimination is definitely good.
In fact it has been attempted on a consumer-by-consumer (3rd degree) basis by Amazon not too long ago.
That would be 1st degree price discrimnation. 3rd degree price discrimination is if you have different groups with different agregate demand functions, ie sales to customers in different countries or sales to students.
It is not at all similar to price fixing. Price fixing occurs if competitors get together and agree on a price for their product. Therefore, competition is eliminated. This is a cartel and illegal under all antitrust laws know to me. Price fixing also occurs in other circumstances, when, for example a producer sets a minimum (or maximum) price at which a retailer is allowed to sell its product.
On the other hand, a company is price discriminating if it sells the same product at different prices. In many circumstances, this is entirely legal.
Why price discriminate?
Imagine a company selling product X. There are three different consumers, A, B and C. A values X at EUR50, B at EUR100 and C at EUR200.
In a market where the company is unable to distinguish these customers, it can only sell the item to each customer at the same price. If it sells at EUR50, all three customers will buy, if it sells at EUR150, only customer C will buy.
Therefore, the company has every incentive to price differentially, optimally EUR50 to A, EUR100 to B and EUR200 to C.
Two problems: (1) The company will have to find out about the valuations. (2) The possibility of trading amongst the customers limits price discrimnation (A buys at EUR50 and sells on to C at a higher price).
(1) is usually not solved perfectly. Price discrimination is usually applied across different groups that can be identified (ie customers in country A vs customers in country B or students vs non-students). However, the article describes how technology can be used to achieve perfect price discrimination.
(2) Either the characteristics of the product are such that trading is impossible (ie personalised products) or difficult (high transaction costs). Alternatively, the company could prevent trading by using contracts or other competitive threats. This could be illegal under some circumstances.
A scramjet seperates the hydrogen and oxygen molecules in the atmosphere and uses the hydrogen molecules as fuel for the engine.
In doing this you have an engine that can go significantly faster, an engine that uses up a fraction of the fuel load of traditional aircraft and an aircraft that expels significantly less harmful waste in the atmosphere then a traditional jet engine.
Are you sure? If yes, could you point me to a website where this is described, please?
I've read quite a bit on the scramjet and never did I see a description that it uses hydrogen molecules from the athmosphere. Does that mean it uses water vapor?
I thought that it takes its own fuel and uses oxygen from the atmosphere (as opposed to rockets, which have to take both the fuel and the oxygen with them).
What makes the scramjet special is that air inside the engine flows at supersonic speeds. Ramjets, while similar in principle, slow down the air so that it flows at a subsonic speed within the engine. However, this limits their speed to a maximum of around Mach 4 (5, 6?) Scramjets can go much, much faster (in theory).
This is the total program cost starting from 1965 (or was it 1964?) to 1972. Let's assume that the year 1969 was the year with the highest spending, say one quarter of the total sum, ie $4.9b.
The nominal GDP of the USA in the year 1969 was 3928.7b.
Therefore, at its peak, Apollo consumed approximately 0.12% of the GDP of the US.
I think you might be referring to the nuclear program during and after that World War II. That was expensive! (I've got no numbers though)
Many players, including Winamp, have built-in Ogg Vorbis support.
Nobody is asking you to change the music format of your MP3s - in fact you should definitely not do this because it would result in a much poorer sound quality. On my system, MP3 files and Ogg files coexist happily. Most users of Windows have switched off file extensions - they would not even realise that it is an Ogg file and not an MP3. If given both options, I would definitely download the Ogg file.
And, as pointed out by Dredd2Kad, one of his concerns is the bandwidth cost. Ogg files are some 20% smaller than MP3 files at the same quality. If 20% of the customers choose to download Ogg rather than MP3, this would slash his bandwidth bill by 4%. If this is one of your major business expenses, this is a reason on its own. Additionally, it is a service to customers.
I agree that not every file format known to men should be offered, but it seems that Ogg Vorbis is the future.
A big plus would be if you offered the files both in MP3 and Ogg Vorbis.
Ogg Vorbis would also save you some bandwidth cost as files with the same quality are smaller than MP3 files.
Ideally, you would want to encode at quality setting 5, which results in pretty-close-to-CD-quality. This is about 160kbps at the moment and the quality is, IMHO, a tick better than a 192kbps MP3.
If you think the trade barriers in the US are anything compared to those of say, Japan, you're delusional. But we're expected to be selfless.
You think we spread "venom" over the world? Look how other world powers have acted over the centuries--what we do is pretty damn tame.
And which of the countries Japan and the USA has been in a recession for most of the last decade?
I guess the USA must be doing something right then...
I agree with your point that one should look at discounted cash flows.
However, the money quoted is not going to be spent today. It is an overall cost study that includes all kinds of cost that would occur now and in the future. (I don't know whether the consultants discounted these costs or not.)
On the other hand, the study does not include the benefits of either solution in monetary terms - they were merely summarised in a (somewhat arbitrary) scoring system that, amongst others, included strategic objectives.
The legislation on public tender procedures, which I don't know in detail, requires you to choose the most economical offer. This includes issues of quality and other benefits or costs that are inherent to each offering.
Think about it - it would not be very sensible to write a law that required you to only look at the price tag.
I think the legislation was made to prevent public contracts being given to, say, the cousin of the decision maker even if there were better offers around.
Sorry to have to correct you. Noone has a contract yet. The only decision that has been taken in Munich in May is to go for an open source solution. Hell, even Microsoft could become the supplier of choice after all, but only with an open source solution.
I don't work for Microsoft's finance department (NEVER, EVER!) and given that margins are usually one of the most tightly kept business secrets, I don't know whether anyone here on/. would know and be allowed to post it.
Anyway, given the high overall profits of Microsoft in the last decade(s), I do not think that an 80% net profit margin is completely unrealistic for some of Microsoft's products. Possibly, MS Office is their most profitable product and therefore a candidate for the 80%.
So I think that the article is wrong in the sense that they wrote gross margins while possibly referring to net margins.
This type of product (close to 0 variable costs) results in very interesting economics: Microsoft will be able to drop prices incredibly low (probably much much lower than the $24m in the Munich case) for any given sale and still make a profit on this particular sale. However, if they give such low prices to everyone, they will be making a huge overall loss! Therefore, I don't think MS will be very happy to see the $24m figure disclosed to the public, because now everyone will expect deep discounting - after all, if they offered it to Munich, why not to XYZ Inc?
The article mentions an 80% *gross* margin. You are thinking about net margins, which include all fixed costs like Research and Development, overheads etc.
80% gross margin seems very low for a software product. The variable cost of producing software is negligible (mainly some CDs with holograms).
Assuming the variable cost of a copy of MS Office is $5 and they sell it at an average of $100, the gross margin would be 1900%.
Of course, there are some accounting issues, but 80% gross margins are not unheard of even in industries that sell actual physical products.
Slashdot Mirror
Not really. The whole topic is somewhat misnamed. As far as I understand, AOL did not hack into the computers using a vulnerability, but using the standard AOL Update (whatever that is, I never used AOL). So, when the customer updates his AOL software (or has it set so it updates itself), the updated software would then disable the messenger. That's how I understand how it works.
I think this is not a good analogy. Maybe better: You asked some contractors to "update" the lighting in your house. These contractors heard a lot of complaints about burglaries occuring because people don't lock their back doors. They see that you didn't lock the back door (which you never use anyway) and lock it.
Better use an e-mail.
George Orwell called that "doublethink" in 1984.
Nit pick, it's European Economic Area, EEA.
It seems strange to me that US providers do not offer differential pricing.
Let me give you an example from Germany:
If you want to have ADSL, you have to pay a fee of ~EUR 20 to the phone company, Deutsche Telekom (That's for DSLAM & bandwidth, 768/128, etc).
In addition to that, you choose an ISP for your traffic. And there is a lot of choice. One of many providers, 1&1, offers no less than 7 home user tariffs:
20h time tariff, EUR7
40h time tariff, EUR10
100h time tariff, EUR15
1GB volume tariff, EUR7
2GB volume tariff, EUR10
5GB volume tariff, EUR15
"Flat Rate", EUR40 for unlimited use, but in every month you use less than 20GB, you only pay EUR27, and if you are also less than 100h online, you only pay EUR17
(minutes or MB above your limit cost 1.2 Cent each)
Or an example from Belgium: ADSL is EUR40 here for 3300/128 and 10 GB per month with the largest provider (there are many others). If you want more than 10GB, you can always buy one or more extra 5GB for EUR5 each. Interestingly, if you go above your limit (and you don't purchase extra 5GB packages), you are not charged more but your bandwidth is capped to 64kbps. You can also increase your upstream somewhat if you pay a bit more
I don't understand why the providers in the US don't offer pricing like this. I believe they could achieve much higher profits by such price discrimination as well as making more consumers take up broadband - after all, they are monopolists as it seems to me!
Imagine I want to send a confidential e-mail to starlawyer@lawfirm.com. However, I mistype it as starlawyer@lwafirm.com. Right now, unless someone has registered lwafirm.com, the message will bounce immediately. However, under Verisigns proposed system it will be delivered by default to anyone who wants to pay for this. This is scary.
And now don't tell me that you shouldn't send confidential e-mails unencrypted. It happens. All the time. IMHO, it is a big difference whether someone malicious intercepts the message or if the message is delivered to the wrong recipient by default.
Can someone tell me why the family in question should have paid $29.95 for their Kazaa?
The problem are monopolies that cannot price-discriminate. Doh!
However, if you can manage to sell the product at $5 to those that value it at $5-$10, but still charge $10 to those that value it at more than $10, you have a higher profit and nobody is worse off. In fact, those that can now afford to buy, are better off.
This is an example where price discrimination is definitely good.
It is not at all similar to price fixing. Price fixing occurs if competitors get together and agree on a price for their product. Therefore, competition is eliminated. This is a cartel and illegal under all antitrust laws know to me. Price fixing also occurs in other circumstances, when, for example a producer sets a minimum (or maximum) price at which a retailer is allowed to sell its product.
On the other hand, a company is price discriminating if it sells the same product at different prices. In many circumstances, this is entirely legal.
Why price discriminate?
Imagine a company selling product X. There are three different consumers, A, B and C. A values X at EUR50, B at EUR100 and C at EUR200.
In a market where the company is unable to distinguish these customers, it can only sell the item to each customer at the same price. If it sells at EUR50, all three customers will buy, if it sells at EUR150, only customer C will buy.
Therefore, the company has every incentive to price differentially, optimally EUR50 to A, EUR100 to B and EUR200 to C.
Two problems: (1) The company will have to find out about the valuations. (2) The possibility of trading amongst the customers limits price discrimnation (A buys at EUR50 and sells on to C at a higher price).
(1) is usually not solved perfectly. Price discrimination is usually applied across different groups that can be identified (ie customers in country A vs customers in country B or students vs non-students). However, the article describes how technology can be used to achieve perfect price discrimination.
(2) Either the characteristics of the product are such that trading is impossible (ie personalised products) or difficult (high transaction costs). Alternatively, the company could prevent trading by using contracts or other competitive threats. This could be illegal under some circumstances.
I've read quite a bit on the scramjet and never did I see a description that it uses hydrogen molecules from the athmosphere. Does that mean it uses water vapor?
I thought that it takes its own fuel and uses oxygen from the atmosphere (as opposed to rockets, which have to take both the fuel and the oxygen with them).
What makes the scramjet special is that air inside the engine flows at supersonic speeds. Ramjets, while similar in principle, slow down the air so that it flows at a subsonic speed within the engine. However, this limits their speed to a maximum of around Mach 4 (5, 6?) Scramjets can go much, much faster (in theory).
Please correct me if I am wrong.
The total cost of the Apollo program was $19.4b.
This is the total program cost starting from 1965 (or was it 1964?) to 1972. Let's assume that the year 1969 was the year with the highest spending, say one quarter of the total sum, ie $4.9b.
The nominal GDP of the USA in the year 1969 was 3928.7b.
Therefore, at its peak, Apollo consumed approximately 0.12% of the GDP of the US.
I think you might be referring to the nuclear program during and after that World War II. That was expensive! (I've got no numbers though)
Nobody is asking you to change the music format of your MP3s - in fact you should definitely not do this because it would result in a much poorer sound quality. On my system, MP3 files and Ogg files coexist happily. Most users of Windows have switched off file extensions - they would not even realise that it is an Ogg file and not an MP3. If given both options, I would definitely download the Ogg file.
And, as pointed out by Dredd2Kad, one of his concerns is the bandwidth cost. Ogg files are some 20% smaller than MP3 files at the same quality. If 20% of the customers choose to download Ogg rather than MP3, this would slash his bandwidth bill by 4%. If this is one of your major business expenses, this is a reason on its own. Additionally, it is a service to customers.
I agree that not every file format known to men should be offered, but it seems that Ogg Vorbis is the future.
Ogg Vorbis would also save you some bandwidth cost as files with the same quality are smaller than MP3 files.
Ideally, you would want to encode at quality setting 5, which results in pretty-close-to-CD-quality. This is about 160kbps at the moment and the quality is, IMHO, a tick better than a 192kbps MP3.
I guess the USA must be doing something right then...
However, the money quoted is not going to be spent today. It is an overall cost study that includes all kinds of cost that would occur now and in the future. (I don't know whether the consultants discounted these costs or not.)
On the other hand, the study does not include the benefits of either solution in monetary terms - they were merely summarised in a (somewhat arbitrary) scoring system that, amongst others, included strategic objectives.
The legislation on public tender procedures, which I don't know in detail, requires you to choose the most economical offer. This includes issues of quality and other benefits or costs that are inherent to each offering.
Think about it - it would not be very sensible to write a law that required you to only look at the price tag.
I think the legislation was made to prevent public contracts being given to, say, the cousin of the decision maker even if there were better offers around.
Amongst others, this is one of the reasons why the study commissioned proposed a solution that comprises Linux, OOo and VMWare.
One moment, they already have that: MS Linux
Anyway, given the high overall profits of Microsoft in the last decade(s), I do not think that an 80% net profit margin is completely unrealistic for some of Microsoft's products. Possibly, MS Office is their most profitable product and therefore a candidate for the 80%.
So I think that the article is wrong in the sense that they wrote gross margins while possibly referring to net margins.
This type of product (close to 0 variable costs) results in very interesting economics: Microsoft will be able to drop prices incredibly low (probably much much lower than the $24m in the Munich case) for any given sale and still make a profit on this particular sale. However, if they give such low prices to everyone, they will be making a huge overall loss! Therefore, I don't think MS will be very happy to see the $24m figure disclosed to the public, because now everyone will expect deep discounting - after all, if they offered it to Munich, why not to XYZ Inc?
80% gross margin seems very low for a software product. The variable cost of producing software is negligible (mainly some CDs with holograms).
Assuming the variable cost of a copy of MS Office is $5 and they sell it at an average of $100, the gross margin would be 1900%.
Of course, there are some accounting issues, but 80% gross margins are not unheard of even in industries that sell actual physical products.