Microsoft Planning Sweeping Price Changes

Microsoft Corp., reacting swiftly to a recent appeals court ruling on its antitrust case, is considering sweeping changes to its pricing models for hardware vendors and its largest corporate customers.

Microsoft Corp., reacting swiftly to a recent appeals court ruling on its antitrust case, is considering sweeping changes to its pricing models for hardware vendors and its largest corporate customers.

Sources who requested anonymity said it appears the company is set to make OEM partners pay more for the Windows operating systems they ship with their new hardware, while lowering the cost for large "named accounts" who buy licenses directly from Microsoft.

The moves come on the heels of licensing concessions Microsoft made this week, giving computer makers greater flexibility regarding end-user access to its Internet Explorer browser and the placement of icons on the desktop.

Those concessions followed the recent findings of a federal appeals court that a number of its past licensing policies were "restrictive, anti-competitive and violated Section 2 of the Sherman Act."

A source at one PC maker told eWEEK that Microsoft was currently working on adjusting additional areas of its pricing and licensing model.

"The latest figures we have show that named accounts will see prices fall from $76.50 to $70 a license," the source said. "But operating system prices for the major PC makers will be raised to varying levels depending on their MDA [market development agreement]"

MDAs are the licensing contracts Microsoft requires of OEM Windows licensees. According to OEMs, MDAs have in the past rewarded vendors that most heavily market and promote Windows, Internet Explorer, and other Microsoft products and technologies. The more MDA provisions to which an OEM agrees, the better per-copy price that OEM receives when licensing Windows.

Another source, who likewise declined to be named, said Microsoft was "looking to reduce the wide gap between what OEMs pay and what named accounts pay."

Microsoft could not be reached immediately for comment.

Hardware vendors have complained privately in the past about the rising cost of every new version of Windows, and its increasing proportion of the total PC cost.

One large corporate user said he has also heard that Microsoft is preparing to further adjust its licensing and pricing conditions. "Ive been trying to reach my Microsoft representative for two weeks without any luck," the user said. "The reps in Redmond are probably just as confused as the rest of us about what changes will be made over the coming weeks as a result of the courts ruling."

Concessions fall far short

And the changes dont stop there. Microsofts competitors and legal opponents are baying for blood now that it has amended its licensing conditions.

Iowa Attorney General Tom Miller, one of the more vocal critics of Microsofts behavior, made it quite clear that the concessions announced this week are not enough, saying "this proposal falls far short of the remedies or relief we think are necessary."

Miller added that Microsofts latest concessions "do make clear one thing we have argued for some time now -- that XP issues are a significant element to be considered in our case."

AOL Time Warner, which competes aggressively with Microsoft on the instant messaging front, was equally dismissive of the licensing concessions. A spokeswoman said Microsoft still had a long way to go to address its anti-competitive actions, particularly with regard to "all the things like Windows Messenger that it is bolting to the operating system." But she declined to say if AOL was preparing any legal action against Microsoft.

However, legal experts say the comments of Iowas Miller indicate the 18 attorneys general involved in the current antitrust case may be preparing to play hardball and hold out for stringent concessions from Microsoft in settlement negotiations. (Microsoft on Thursday did score a victory by independently settling its antitrust case with the state of New Mexico.)

Dana Hayter, a lawyer with Fenwick & West LLP in San Francisco, and a former attorney in the Justice Departments Antitrust Division, said it was unlikely that the concessions announced so far would satisfy the DOJ or the state attorneys general. "The battle is far from over," he said.

If a settlement is not reached, the matter could be appealed to the Supreme Court or heard by a new District Court judge. The District Court was mandated to undo not just past harm but to prevent future conduct of the same sort. As such, Microsoft would still have to face and agree to the far more stringent settlement demands anticipated from the government and attorneys general if it wanted to settle.

"This is just the tip of the iceberg and the start of possible concessions in the matter," Hayter said.

Windows XP Group Product Manager Shawn Sanford said the licensing concessions were just a response to a "first reading of the appeal court opinion."

OEMs wary

While computer makers were pleased with Microsofts announcement this week, they are wary about whether they will gain much freedom and appear not to expect these concessions to eliminate past issues they had in this area.

For example, AOL is a major investor in Gateway Inc., yet even now Gateway is hesitant to say whether the latest Microsoft moves will enable it to boost AOLs presence on its PCs.

Gateway spokesman Brad Williams said the company had previously been in discussion with AOL and Microsoft about AOLs placement.

"That has been an ongoing discussion for us," he said. "But at this point, we havent finalized any decisions. As far as the new freedoms with Internet Explorer, we are still examining our options."

Hewlett-Packard Co. spokeswoman Diane Roncal said HP was pleased that Microsoft "is taking these steps with regards to Internet Explorer, and we look forward to the implementation of the courts ruling across additional areas to allow OEMs more flexibility to provide solutions for our customers."