Software Distribution: "How much is Windows worth?"
A very interesting article by Ed Bott has appeared on ZDNet entitled "How much is Windows worth?" It starts with the observation:
"Years ago, Microsoft created a multi-tier pricing structure for Windows that emphasized pre-installing its software on new PCs. The result was, by one measure, an outrageous success. ............ Ultimately, Microsoft's confusing business strategy has led to a problem that threatens the success of its next version, Windows Vista. My instinct says consumers can't value an operating system at more than 10% of the value of the physical hardware. Historically, 9 out of 10 copies of Windows are sold preinstalled on new computers. The business model that Microsoft created has been so successful that the average consumer has no idea what Windows is worth. The notion that different purchasing channels have different Windows license restrictions isThis is equally true here. On the PC World websites Packard Bell Pentiums with 15" TFT monitors are offered for sale at £329.99 including VAT and Windows XP at £244.97 (£259.99 in the shop) including VAT.
completely inscrutable. (How many questions can you get right in this quiz?) In fact, based on prevailing PC prices in the retail channel, I wouldn't be surprised if most consumers think Windows is essentially free. "
Ed sees 3 fundamental implications for this disconnect between what people think Windows is worth and the much higher price tags Microsoft puts on the retail product:
- Artificially high retail prices encourage consumers to unwittingly buy counterfeit software.
- High retail prices discourage upgrades.
- There's no family value. Apple has an excellent idea, with a fixed $129 upgrade price and $199 family packs that can be used to legally upgrade up to five Macs.
Ed suggests that Microsoft should bone up on elasticity of demand.
Comments
In general, there is a lot of force in what you say. Commercial success does tend to indicate quality and Microsoft does spend large amounts of money on R&D - at least some of it here in the UK.
However, that is not quite the point of Ed Bott's article or my comment. Ed says that in the USA the cost of a new desktop upon which the operating system is already installed is not much more than the cost of that operating system on its own at a retailers.
Having just received a borchure for a new desktop for under £200 from a major retailer the same appears to be happening here too.
Returning to your general point, the fact that one product sells well does not mean that it is the best. There are lots of factors that govern demand. Also, I can think of at least one or two Microsoft products that did not stay long on the market and did not seem to be particularly useful. That's no slur on Microsoft. Not even a market leader can get everything right.
WebTV? Well, that one didn't quite go to plan either. Their AOL-killer ISP is a very long way behind AOL - and one part of that strategy involved buying a chunk of Telewest for $2.6 billion; the fact they sold that same stake three years later for $5m probably suggests it wasn't a huge success either.
Then there's their search engine, which quickly defeated Google... or not.