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Microsoft's pricing

Any opinion on the article found on this website's main page?

http://www.softwaremarketsolution.com

Binh
Monday, March 24, 2003

I've noticed a shift in Microsoft's strategy. They seem to have moved from "dominate every market" to "get lots of cash".
"Dominate every market" was led by the "cater to developers" and "suck in companies to our products." MSDN was like a get out of jail free card for developers and companies - if you had the wherewithal to put a copy of MSDN at every desktop you were pretty much covered for MS licenses (kinda, sorta, but not really, but nobody was looking). And MS pricing was generally attractive and competitive.

About 2-3 years ago this changed. Microsoft started the product activation thing. They made noises about policing MSDN users to make sure they weren't using MSDN "inappropriately". Prices started climbing. The Open License structure changed drastically. Big attacks on OEM pricing.

What I find most notable is that this all seemed to change right about the time Bill Gates stepped down and Ballmer took the helm.

Purely speculation, mind you...

Philo

Philo
Monday, March 24, 2003

I think there is some truth that the cost of ms-office is now quite high.

However, the cost of windows xp is a absolute bargain here. That article quotes a price of $25 to $75 dollars. Comparing that to ms-dos, it would mean that windows xp in 1981 dollars is only 12, to 35 dollars.

However, I have to agree at the retail level, windows XP pro is WAY too high.

However, the computer manufactures ARE ACTUALLY BENEFITING from this current pricing!

By purchasing a dell, you are essentially getting well over a $100 discount on windows xp (in fact, even more according to that article). That is a great windfall for companies like Dell, since then you have GREAT incentive to purchase new hardware.  Keeping win XP high at the retail level means that most people will purchase windows XP at OEM, and that means a new PC.

Much of the reason to purchase a new PC is to run the newer software. Why purchase a white box pc built down the street, when for the same price you get a whole dell with windows xp installed?

I can’t really figure out why MS is pricing windows this way, but I suspect there is some reason. Anyone?  If MS would give the retail version the same price as the OEM’s, I think they would sell truckloads, but then the value of product would be reduced in the markets mind.

Certainly, no one can actually believe that Dell is threatening to not sell windows xp! There has got to be some intelligent reasoning here beyond the obvious “clout” that companies like Dell have. There is has got to be larger issue here. I can see Dell getting windows xp for a VERY good deal, but not the incredible cheap deal that they get now. This does not make sense.

There is NO reason for Dell to get such a good deal. I am guessing, but perhaps it is that they also bundle other ms products with each dell? They also sell WordPerfect bundles on the cheaper PC’s, so, again I am at a complete loss as why such a large discount.

The other thing to remember here is that MS never did get into a big price slashing war with the other office suite vendors. In fact, when WordPerfect started discounting its price, Microsoft viewed that a victory. They realized that the competitor had to now slash the price to sell in the same market! That was the beginning of the end!

This slashing is one of the worst things you can do to a product. WordPerfect overnight became viewed as the cheap alternative to ms-word. It is amazing, that overnight the established law firm , well bread top dog WordPerfect became the cheap kid on the block. Further, WordPerfect to this day actually is preferred by professional writers. WordPerfect has legendary status in the legal world, and still widely used. Considering the market share, and the kind of people that purchase WordPerfect, they actually should have INCREASED the price. Writers, and law firms would have not dumped WordPerfect (in fact, those two large groups are still the largest users of WordPerfect). People who have money, and want to move beyond ms-word would have viewed WordPerfect as a step up. It would have been viewed the top dog professional product.  It is a first rate product, and for serious writing, it is second to none. In that group, it is considered a better product then MS.

Of course, if you don’t have  a good product, you can’t do that. Look at the car market for General Motors Vs Honda. The Honda cars across the board for the same product category  as GM get more then $2000 for the same product category (and manufacturing costs are similar for both). It would be stupid for Honda to discount that product to gain the market at the expense of GM. Why discount a quality product?

This is also what has happened to AMD. They are viewed as  cheaper alternate to Intel. In fact, they are selling their processors way too cheap. While Intel makes TONS OF MONEY on crappy processors like the Willamette chip, AMD slashes prices. In fact AMD is loosing money with very good sales!!!. They stated their goal is to keep market share. What a insane policy!

AMD would again have been better off not slash their prices so much, and give up some market share. They MUST SELL their product at a profit. So, while they could discount, they should not be fire selling their product. They are certainly viewed as a less professional company then Intel, despite having a first rate chip.

I urge all of you to resist fire selling your software. Software has value, and because it scales so well from a sales point of view, one must resist the temptation to “fire” sell the product.

Albert D. Kallal
Edmonton, Alberta Canada
Kallal@msn.com

Albert D. Kallal
Tuesday, March 25, 2003

The idea that outrageous retail pricing vs. reasonable with-PC pricing is an incentive to buy a new PC reminds me of my favorite mantra:


If they're selling elephants two for a dollar, it's a bargain.

But only if you have a dollar.

And only if you need two elephants.


Remembering this has helped me avoid many expensive and foolish "bargains."

Kyralessa
Tuesday, March 25, 2003

Just as a note: the "$25-$75" figure was referring to Win98 SE, NOT win xp.

I believe the lowest price quoted for win xp was $100 for the home version upgrade.

Steven C.
Tuesday, March 25, 2003

One place price slashing worked was the Windows Database wars of '93 - when Paradox was competing with Access 1.0 and both were $99 retail. Stores couldn't keep them on the shelves. I remember Babbage's had Access and Paradox lined up with the latest games...

Also of note is the phenomenon which was prevalent in the 90's, seemed to die away, but now seems to be back - the idea of buying your software anywhere but retail. Between educational discounts (with loose enforcement), open licensing, OEM, etc, etc... It reminds me of Oracle pricing - you can look at the prices on the website, but nobody actually pays that...

Philo

Philo
Tuesday, March 25, 2003

I worked for a company that was selling software to be bundled with PCs. Believe me when I say that prices PC manufacturers pay is NOTHING like what you pay in retail. Our product was a $45 software package, and most of the package deals we were looking at were like $1-2 per PC.

All the software buyers for PCs had a small budget, depending on model, that might've been $50-$100 per PC. They would count Windows as being $25 of that, and Office being another $50. I'd be really surprised if these days any large volume OEM is paying more than $25 for XP Home.

Brad (dotnetguy.techieswithcats.com)
Tuesday, March 25, 2003

This is very interesting.
Any other links to how companies derive their prices for software?

sedwo
Tuesday, March 25, 2003


http://www.recroom-products.com/jimcds/arcric700.html

Philo
Tuesday, March 25, 2003

Albert, to take your Honda, GM pricing a little further.

If the Honda's are worth a $2000 dollar price premium (my experience says they are) what is a "fair" or "rational" premium for Office vs.  Star Office.  Is office worth $400 more.  Remember the $2000 dollar premium is on products with an average price of say $25,000.  Maybe 8 percent.

This margin will be in relation to the fitness of the substitute product.  IF MS can keep rolling in features they can make us need or want, they can maintain their margin.  I don't think they can do that with Office with the type of features we've seen added in the last 5 years.  They need some big guns, like DRM, X-docs (whatever they call it these days.  Documents.net for all I know).  If they can move the target that the competitors must shoot at they stand a chance of maintainining the prices. 

Mike
Wednesday, March 26, 2003

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