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Comments

• • I understand where you are coming from here and I also commend BG for his philanthropy but on the flip side take the example of the UK national health service I’d guess it has IT spending in the billions of pounds I wonder how much of that ended up in facilitating patient care as opposed purchasing overpriced software resulting from an illegally maintained monopoly.

  • Posted by: Dave Holden at December 25, 2005 11:55 AM

• • Thanks for taking the time to comment Dave. I can see your point, especially coming from that perspective. However, I’m not so sure I agree with the overpriced comment. Take for example the fact that I purchased my copy of Windows XP Professional in 2001 for somewhere around $99 for the upgrade (I believe the price would have been $199 USD for the full version.) [UPDATE: In thinking about this, $99 may have been the price for XP Home edition. In fact I almost certain this is the case, although I think you can now get it for a bit less than this at Costco and other discount stores both online and off. I need to check the upgrade price of XP Pro, but it’s a bit more than that $99 price tag I originally stated. Even still, the comparison is still valid as there’s no direct product comparison between the differences between Windows XP Home/Pro and OSX, at least that I am aware of. Windows XP Home still would have provided me with the same upgrades and services via Windows Update, but some of the features necessary for a developer (i.e. IIS 5.1) are not a part of the XP Home product given that a majority of consumers are not also developers, nor do they have the same extended business capabilities that are part of XP Pro. (although to be honest I’m not all that sure what they are as the last time I worked on a Home box was… no clue :)] In five years since that time I’ve had free upgrades via service packs and who knows how many updates via Windows Update, which now is done completely automatic. Setting aside opinions that other OS’s are better than Windows XP Pro (something I would strongly disagree with at many levels, this coming from gaining quite a bit of experience in several varities of Linux distro’s as well as OSX Tiger) for $99 I have been able to quite happily (in most regards anyway) run a full-featured modern OS without any expectation for additional payment.

    Take this same time period and compare it Apple’s OSX. The Tiger release is marked as OS X version 4 [UPDATE: actually, this should be version 5, I believe, given that the original OS X release would have been 10.0 and between 10.0 and 10.4 there are 10.1, .2, and .3, in total coming to five(5) total version releases], or Macintosh OS 10.4. So in this same period of time if I had owned a piece of Mac hardware and kept it up to date with each release, at a price of $129 per upgrade and (I’m guessing) $129 for the original OS X upgrade release, I would have been required to spend 6 1/2 times my $99 price tag to stay current with OSX.

    Now some might argue you get a lot more OS for that 6.5 times price tag. Fair enough. I have my doubts that it could be viewed as 6.5 times more OS, but I will accept the notion that in a lot of ways if all I want to do is purchase and run offical Apple hardware or the potential of third-party hardware add-ons then I can gain the “luxury” of a better Operating System in OSX. Keep in mind, however, that to get the Mac hardware in the first place is going to cost me or my organization quite a bit more to start off with than it would for its equivalent in high quality PC hardware. To upgrade that hardware, again, is going to cost more than it would to upgrade its PC equivalent. Of course, this is in addition to keeping the OS up-to-date.

    So my question to you would then be: Are you sure that Microsoft software is as overpriced as you’re suggesting?

    You might come back with an argument that using the same PC hardware as this example suggests you could use Linux and a variety of possibilities in supporting software applications. My counter argument would be that whether or not you believe the reports that the Total Cost of Ownership for a Windows-based PC is lower than for its Linux counterpart, even the reports that suggest Linux has a better TCO, its not by a fantastic margin. Furthermore, when you factor in the notion that with a Windows-based PC I have a greater variety of choice in hardware manufacturers for add-on peripherals such as network cards (speaking in terms of Wi-Fi, something I have struggled with using Linux. I think its safe to say you’d be hard-pressed to find a wired LAN card that Linux doesn’t now support), handheld devices of various types, etc… and the supporting drivers and user-interace software, and that in many ways that variety comes in by several scales of greater magnitude, you would be hard pressed to find a way to suggest that with Linux your cost’s are not equal, if not more, when you factor the extended TCO into the picture.

    With all of this said, again, are you sure that Microsoft software is as overpriced as you’re suggesting?

    I don’t think it is, but I’m willing to listen to your extended viewpoint with an open mind.

  • Posted by: M. David Peterson at December 25, 2005 03:47 PM

• • Hi there, Firstly I suspect that the bulk purchasing power of the NHS would allow them to get an even better deal than your calculations :) That said

    here’s a link to an article

    http://www.theinquirer.net/?article=12694 (its about 2 years old but I’m talking about a time scale of 5 to 10 years here)

    Could MS software support these sorts of margins without their illegally maintain monopoly. Even if you ignore the precise numbers you only have to compare the profits from parts of the business they do and don’t have a monopoly. I’m glad to see however that some of those profits are going to a good cause rather than funding lawyers and marketing folk.

    With regard to which OS is better; I think given the chance the market will decide.

  • Posted by: Dave Holden at December 25, 2005 04:43 PM

• • Thanks for your follow-up Dave. I will take a look at the link you provided now.

    With regard to which OS is better; I think given the chance the market will decide.

    Excellent point. Although I’m unsure if there’s anything behind the ‘given the chance’ comment? Are you suggesting that with a Windows monopoly firmly in place that competing operating systems don’t have a chance, or am I putting too much emphasis on this point?

    Either way, I appreciate you taking the time to follow-up, and especially for the link. We can argue points and counter-points til’ the cows come home, but extending ones education is rarely a bad thing.

    Merry Christmas to you and yours. :)

  • Posted by: M. David Peterson at December 25, 2005 06:49 PM

• • Dave > Follow-up comments to the link you provided.

    These are definitely interesting numbers. The one piece of this that I think this article has put too much emphasis on is the companies in which it chose to compare the margins to. Yes, the profit is significant for the divisions housing Windows and Office, but the comparison is against hardware companies who have to deal with a cost per unit in which is basically fixed to only allow for so much profit per unit, no matter how many units you sell. No matter how hard you try, the more units you sell, the more cost you incur. Of course standard laws of hardware manufacturing suggest that as your volume increases your cost per unit SHOULD decrease, but not by such significant amount as to allow for such staggering profit margins. On the other hand, the fixed cost-per-unit (the box cost - the media, inserts, etc…) for software is already pretty low, and as your sales number increase these fixed cost’s obviously don’t increase in similar proportion to what you see on the hardware side of things. I’ll admit that one could easily argue that while profits have increased, what comes inside of the box has generally decreased - that’s definitely an issue if you consider what used to come inside the box — extended user manuals, etc… — something the consumer had interest in. If they did’nt even arguing the “there should be more inside the box, not less” point is somewhat of a shallow argument — whether the already staggering profit increases, as a business you have to justify every expenditure, and if you can’t, staggering profit or no staggering profit, you can’t expect the money to be spent “just because.”

    Extending this point a bit further, Microsoft is in Washington State which for those unfamiliar with the geographic regions of the US in terms of natural resources, is in ‘logging country.’ One might think that this would mean that a tendency to be less concerned with how many trees are being cut down to serve their needs. But in reality, with logs come lobbyists from both sides of the treated cedar fence. When your a company the size of Microsoft who could very easily account for several thousands of acres of trees being cut down with every new release of software, the environmental lobbyists are going to be breathing down your neck looking for every possible entry point in which they can come after you for overuse (or abuse, as some will term it) of natural resources. This may sound like a total cop-out, but growing up and living a major portion of my life in the Pacific Northwest (for those unfamiliar, the term Pacific Northwest refers to Washington, Oregon, and parts of Idaho state) I can assure that this is a VERY real situation that everyone in this region has to deal with in one regard or another.

    There’s also a comparison to IBM in this piece. IBM is a whole separate beast in that it has its hand in a variety of different pots, some hardware, some software, but mostly in consulting. Unfortunately I must admit I don’t know what the numbers are for their software divisions, but I do know that overall they generate about 50 billion a year in revenue and most of this comes from consulting fees. Of course high priced consulting for the most part requires high-priced consultants. Even still, 50 billion dollars is a big chunk of change no matter if percentage wise the profit is not as high as what you find in software. So while the percentage of profit might be low, the amount of money being shelled out in IBM’s general direction is even higher than that being shelled out in Microsoft’s direction.

    Going back to Microsoft specifically, if you were in a situation where your cost-per-unit was quite low in comparison to the price-per-unit, and because of this and the fact that you owned 90-95% of the market your profit was in a constant state of “extreme”, would you lower the price because of this and run risk of devaluing your product. If yes, at what point of profitability do you make that determination?

    If it was me, when the cost to the consumer in comparison to the return value is already pretty low (e.g. $99 dollars for five(5) years so far of solid service and extended services such as Windows Update) instead of looking for ways to lower the already low cost, I would probably do exactly what Bill (and Melinda) seem to be doing — making the world a better place with what was over 3 billion dollars this year alone, and 30 billion overall.

    But you already brought this point out — if the money is there either way, then its good to see that its going to a REALLY good cause like world health (as well as the ongoing Library project) rather than to lawyers, lobbyists, and other areas where in many ways its just throwing money at the problems and hoping that this in and of itself fixes them. It rarely does, and in most cases makes the problem worse (e.g. companies continue to sue Microsoft for whatever they feel like knowing that doing so will in most cases mean a settlement so that MS doesnt have to deal with the extended troubles and bad publicity because of it)

    It’s a tough situation to be in (regarding how to properly handle staggering profit margins) but again, its good to see that its going to the right places and furthermore showcases that the so-called “Evil” side of Microsoft is not really all that evil, and in fact is just the opposite.

    Thanks again for taking the time to comment Dave! It is very much appreciated and I will look forward to any continued comments you might have to add to this. If nothing else, its interesting conversation :)

  • Posted by: M. David Peterson at December 25, 2005 07:47 PM

• • Hi there. Yes I forgot merry christmas (shouldn’t we have better things to do :))

    With regards to margins I think its more informative to compare the separate divisions of microsoft i.e. those where they have a monopoly and those they don’t.

    So what I mean by ‘given the chance’ is that where MS have a monopoly their (now judged illegal, e.g. http://news.bbc.co.uk/1/hi/business/4360577.stm) behavior has limited competition and so allowed them to maintain these high margins. This article http://www.groklaw.net/article.php?story=20051213151348108 provides a useful context for one instance of the MS approach e.g. their position on the massachusetts ODF decision see for example this analysis http://www.groklaw.net/article.php?story=20051029212458555.

    Although don’t get me wrong MS are not special in this any company in their position would do the same.

  • Posted by: Dave Holden at December 26, 2005 11:37 AM

• • Hey Dave,

    Yes I forgot merry christmas (shouldn’t we have better things to do :))

    Yeah, probably :D

    Although don’t get me wrong MS are not special in this any company in their position would do the same.

    Yeah, I feel the same way. I think thats the area that a lot of people are not willing to admit so its refreshing to see when people do.

    Extending from this standpoint, it has always seemed to me that large masses of people have a tendency to congregate around one general standard interface for no other real reason than simple interoperability. For example, while its obviously different for each country, the outlets we use for electricity all build around the same format/form-factor. I don’t want to push this example too far and suggest that an OS and a power outlet are exactly the same, metaphorically speaking. Obviously they’re not. But its peoples tendency to build around one standard (even when that standard isn’t necessarily the best e.g. USB 1.x != Firewire, but USB 1.x became the standard and would later catch-up to Firewire in version 2.0) that I’m comparing, not necessarily the actual “atomic structures” themselves. The hairdryer’s and alarm clocks and vaccuum cleaner’s (using these, metaphorically, as the software applications that run on the OS) may all be different brands, some of better quality, some of worse. But overall the simple fact that they can all be plugged into the same power source is a fundamental part of each countries economy.

    So coming back to other companies. Had we all standardized on OS/2 Warp, which could have happened if IBM was successful in their campaign that, as we all know (or those of us at least that were working professionals at that time anyway) began before the release of Windows 95, then it could quite easily be stated that OS/2 Warp (or whatever the current marketing name happened to be) and IBM would be the monopoly shareholder of the OS market and would be acting in much the same way MS has/is.

    Now obviously the fact that Windows 3.1/3.11 (Windows for Workgroups) was at the time the dominant desktop GUI-based OS had a lot to do with why the OS/2 Warp campaign was unsuccessful. However, if the world was unaware of the fact that Windows 95 was well on its way, or even further if MS had not focused their desktop development efforts on a new approach to the desktop GUI, I think it could have been a different story. But we can speculate as much as we want and it will never be anything more than good clean nostalgic fun… so I guess we can just leave it that (although I’d definitely be interested to hear your take on this particular situation, especially the fact that before OS/2 Warp, Windows NT and OS/2 were for all intents and purposes, the same thing. Obviously an interesting dynamic that has created some interesting “block watch parties” without a doubt. :)

    Thanks again for you comments Dave :) Your time is much appreciated!

  • Posted by: M. David Peterson at December 26, 2005 05:31 PM

• • With regards to margins I think its more informative to compare the separate divisions of microsoft i.e. those where they have a monopoly and those they don’t.

    Just a quick note: If the staggering profits in the divisions housing the Windows desktop and Office products didn’t allow for greater risk, I doubt much any of the non-profitable divisions would even exist. If they did, they obviously wouldn’t have the ability to continue forward in any capacity without finding a way to be profitable.

    Now before anybody try’s to jump all over this comment and use it as a way to suggest that its because of this that they are less innovative/market dampering instead of more innovative/market feuling, think about it. If as a PM I am given resources in which I can use to extend new ideas and not have to immediatelly (or within a specific period of time) provide a profitable business for this product, is my imagination and the imagination of my team members then dampered or fueled?

    Imagination sparks Innovation. Innovation sparks Marketability. Marketability allows chance for Profitability.

    Isn’t that a good thing?

  • Posted by: M. David Peterson at December 26, 2005 07:02 PM

• • I don’t see how the Gates Foundation’s charitable work excuses Microsoft’s “less than ethical” business practices. You seem a bit oversensitive on this issue.

    Personally, I don’t consider Microsoft “evil”, just irrelevant.

  • Posted by: mfk at January 6, 2006 05:01 AM

• • Irrelevant? To who/what?

    Please clarify. Irrelevent covers a BROAD surface area.

    In regards to Microsoft’s less than ethical business practices… please do share… It’s interesting to me what people define these to be, and how they differ from the rest of the industry.

    For example, take a look at http://jkrowling.com, access the “The Daily News”, look for the “Ebay Latest” entry, and listen to her complaints that showcase quite well that ebay works both sides of the story to ensure that the blame for false memorabilia is pointed in directions other than their own, while they continue to profit from the sales. Now that’s unethical.

    Until you can showcase what you mean, providing examples instead of opinions, then unfortunately I can’t comment further.

    Thanks for your time however. I’m not suggesting your thoughts are unfounded. Just a bit vague.

  • Posted by: M. David Peterson at January 6, 2006 02:11 PM

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