Why Cheap Windows is Wrong for the U.S.

By David Coursey  |  Posted 2004-08-12

Why Cheap Windows is Wrong for the U.S.

Microsoft is pushing ahead with its plan to sell a cut-rate version of Windows XP, but whos going to get it and what its going to cost are not necessarily for Bill Gates and crew to decide.

My eWEEK.com colleague Steven J. Vaughan-Nichols asks in a recent column, Why cant we get a slimmer Windows XP here in the United States? He grumbles that in order to combat Linux, Microsoft is offering a dumbed-down, less-expensive version of Windows XP overseas that isnt available here.

He says: "I dont know about you, but this kind of high-handedness from Microsoft ticks me off. Its not just that Microsoft is lowballing Linux; its that the Redmond crew is delivering a cheaper Windows product that many enterprises would be happy to use right here in the States.

"To me, this shows that Microsofts first concern isnt the good of its customers, nor knocking off Linux; its all about preserving its bottom line. Linux just happens to be the latest threat. Microsoft loyalists should keep that in mind as theyre shelling out money for their next Windows update."

Click here to read the full column by Vaughan-Nichols.

Now, I am not really a supporter of selling a dumbed-down Windows XP. I think Microsoft should sell the same Windows XP at whatever price the global markets will bear. Not a dumbed-down version, but the very same Windows the overseas markets are pirating already.

My own feeling is that Microsoft should charge for the operating system as a percentage of the final selling price of the machine, a sort of progressive taxation for those who want to buy performance and can afford it.

But thats neither here nor there. I dont get to decide those things, and heck, Bill Gates doesnt really get to decide them. Its the marketplace that decides—the same marketplace that is establishing a lower selling price for Windows in some markets than in the United States.

Read more here about Microsoft readying its latest "XP Starter Edition" releases to be sold in Thailand, Malaysia and Indonesia.

As an American, I will happily pay an extra $150 for Windows if it means I dont have to move to Thailand. Not that there is anything wrong with Thailand, but my standard of living is much better here, and I like the weather more.

Vaughan-Nichols reaction is natural enough, of course. Nobody likes paying more than they absolutely have to. But as long as were being ticked off, what ticks me off is the notion that there is something wrong with Microsofts first concern being its own survival and protecting its bottom line.

Isnt that everyones first concern? I ask people to pay me as much as I possibly can get from them and dont feel badly about it. People buy or they dont, and the marketplace decides the price I can charge.

Next Page: Higher prices mean investment for improvements.

Higher Prices for Investment

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.

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