Higher Prices for Investment

 
 
By David Coursey  |  Posted 2004-08-12 Email Print this article Print
 
 
 
 
 
 
 


Is Microsoft supposed to sacrifice its bottom line so U.S. customers can pay a little less for Windows? Not before the marketplace requires it, they arent. And that, I believe, is in the customers ultimate best interest. I need more than cheap software; I need software that improves from one version to the next. The lowest price may not provide the investment necessary to accomplish that. Again, the marketplace decides. Maybe Linux will win, but I am not betting on it. Microsofts Longhorn is an attempt to gore Linux, Vaughan-Nichols writes. Click here to read more. Vaughan-Nichols does raise a valid question about whether companies should be allowed to charge one price in one country and a different price in another. This is a philosophical question that, among other things, asks whether rich countries should subsidize development of technology that poor countries get to use at a lower cost.
There are aberrations, such as why prescription drugs cost more in Canada than in the United States. But if we accept that someone has to pay product development costs and that inventing new things is beneficial to the countries where the invention take place, then were probably OK paying more for our copies of Windows than the residents of Zambia do.
I think the world is a better place when new technologies—whether AIDS drugs or operating systems—are widely available. And that means the rich will generally pay more, but also receive more benefit. As for Linux, that operating system is making significant advances in countries where intellectual property isnt respected. By that I mean in places where poor people like to steal things invented by rich people. If you want to compete with this, then you have to price accordingly, as Microsoft seems to be doing in some overseas markets. Read more here about Microsofts efforts to stave off Linux overseas.
As these economies develop, they will start creating intellectual property and will want to protect it, and the problem will resolve itself. But Linux is changing the value equation. Microsoft has traditionally made its money selling operating systems and application suites. Linux takes the money out of the operating system and requires it to be made someplace else in the technology food chain, like in support, middleware and the applications that run atop the OS. The vendors who are big Linux supporters seem driven as much by the goal of not putting money into Microsofts pocket as they are by any love of the Linux. I am expecting that, over time, various Linux releases will diverge as completely as Unix has in the past, leaving us with essentially proprietary, vendor-specific versions. So much for "open" operating systems. Microsoft, meanwhile, has greatly benefited from having the cost of Windows hidden in hardware costs. It is not significantly borne by upgraders, as Vaughan-Nichols asserts, unless were talking Apple, where the annual OS update costs more than $100. This annuity from OS sales that has funded Microsoft may be going away. That will require huge changes in how Microsoft does business. Like everyone else, Microsoft will have to compete on what it provides on top of the OS—the pieces that arent free—and convince customers that its a better solution than what the Linux companies offer. Customers will buy or they wont. My bet is that Microsoft will find a way to add value and customers will buy, though responding to a changing value equation (and revenue distribution) may be the toughest challenge Redmond has ever faced. To my mind, the jury is still out on whether Linux really is a significantly less expensive (in the TCO sense) enterprise environment than Microsoft. To the extent perception is reality, Linux is winning that battle right now, but things could change as companies figure out what Linux really costs and Microsoft makes some adjustments. To read about a Yankee Group study pitting Microsoft against Linux on total cost of ownership, click here. People who dont like what Microsoft charges—here or overseas—have several options. My preference would be a slide toward Macintosh, but most will select some version of Linux and will get what they pay for. If enough of them think its a good deal, Linux will gain and Microsoft will have to make adjustments or lose, potentially big time. The great thing about the free marketplace is, despite some aberrations and regulatory interference (sometimes necessary), the customers spend in their best interest and make the right choices. This forces vendors to do the right thing over the long haul, even if it sometimes irks us that, say, Windows costs less in Beijing than in San Francisco. Check out eWEEK.coms Windows Center at http://windows.eweek.com for Microsoft and Windows news, views and analysis.

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One of technology's most recognized bylines, David Coursey is Special Correspondent for eWeek.com, where he writes a daily Blog (blog.ziffdavis.com/coursey) and twice-weekly column. He is also Editor/Publisher of the Technology Insights newsletter and President of DCC, Inc., a professional services and consulting firm.

Former Executive Editor of ZDNet AnchorDesk, Coursey has also been Executive Producer of a number of industry conferences, including DEMO, Showcase, and Digital Living Room. Coursey's columns have been quoted by both Bill Gates and Steve Jobs and he has appeared on ABC News Nightline, CNN, CBS News, and other broadcasts as an expert on computing and the Internet. He has also written for InfoWorld, USA Today, PC World, Computerworld, and a number of other publications. His Web site is www.coursey.com.
 
 
 
 
 
 
 

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