Date: Fri, 19 Nov 1999 02:52:52 -0800 From: "David Schwartz" <davids@webmaster.com> To: "Phil Regnauld" <regnauld@ftf.net> Cc: <freebsd-chat@freebsd.org> Subject: RE: Marketing vs. technical superiority (was: Judge: "Gates Was Main Culprit") Message-ID: <000001bf327c$3a115090$021d85d1@youwant.to> In-Reply-To: <19991119113011.62880@ns.int.ftf.net>
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> > What's actually puzzling is why software prices in markets > dominated by one > > company are as low as they are. One theory is that it's too easy for a > > As _low_ ? > > In Europe, Microsoft's practice has been to: > > - lower prices in the countries where it still had competition > (WordPerfect vs. Office, for example. Or OS/2 here). > - raise the prices again as soon as it had achieved market > domination I can't really comment on these isolated points because I haven't been able to find any rigorized analysis of pricing by country. If you know of any, I'd appreciate references. The allegations that Microsoft raises prices when it achieves market domination are clearly false, at least for the most rigorous studies of the US market to date. (See Liebowitz and Margolis, for example) Actually, once you have market domination, it makes more sense to lower the prices. This is because: 1) Due to economies of scale and the fact that you have already recovered your development cost, you can afford to, and 2) You don't want to give anyone an incentive to develop a competing product. > Win95's price != Win98 price, for example. These are two different products. Not to mention, you aren't comparing their prices in constant dollars. > Price is an illusion in the mass software market. I'm not sure what this comment means. > > As soon as the price rises enough, a new company could develop > a competing product and sell > > massive numbers of copies in very short order. > > So where's the, uh, competition ? That's the point, the prices are low enough that there isn't really much. > MS judged that $89 was the right price for 98, when all > showed, marketing > wise, that $69 would have worked. What does "all showed marketing wise" mean? And what difference does that mean? Microsoft has two angles it has to watch. First, it wants to make as much money of Windows as it can, while it has it. Second, it wants to keep Windows a dominant platform for as long as possible. These two desires pull in vastly different directions. That two groups would agree to the value that best balances these forces within 25% amazes me. Crystal balls are not very reliable. > ... or the fact that the French Canadian edition of MS > Office, which is > MUCH cheaper than the French national edition, is not to be sold OR > imported in France unless you want to get your ass sued. I would imagine that this is due to economies of scale, but I'm not sure. It may be that these prices are based upon ability to pay, but again I'm not really sure. This is pretty common in the drug market, for example. For many drugs, the American and European markets finance the development of the drugs and the third-world market gets them at a much lower prices. This makes 'diverting' big business. I'm really not qualified to comment on the legal or economical ramifications of this. But the relevance to the current Microsoft antitrust action is minimal at best. Do you have any idea why this might be so? I'm reasonably sure Microsoft set what they felt was the revenue-maximizing price over some term, perhaps long perhaps short. (What other possibility is there, really?) > > Keeping software prices low > > maximizes the amount of time market domination can be maintained. > > Prices for MS products are HIGH. NT Server license > unlimited is MORE > expensive than Solaris unlimited... This may be part of why MS is having a hard time penetrating the server market. They will have to provide a product that is at least as good, at least from some sort of price/performance perspective or they will never get anywhere. All the lock in, tying, mind control, or whatnot won't make anyone buy an inferior server operating system unless Microsoft can somehow make it worth our while. > > once. Then I have it and could keep using it forever. They have > to sell me a > > new word processor to maintain sales, and to do that, they'll have to > > convince me not to keep using my old one. That will take some sort of > > innovation. The staple innovation has been new or combined features. > > That's 1/3 of the game. The real reason is COMPATIBILITY! > My mom couldn't read Word 97 documents -- so guess what happened > to her word 6.0 ? Anecdotal evidence is interesting but not convincing. Can you point to one empirical study that has found evidence of such 'tipping' in the software market? And even if there was such tipping, it would be a beneficial market result. Again, if we all benefit from having the same word processors, then that's what we should have. Microsoft wouldn't have to do anything wrong to achieve this outcome if it's what everyone wants. > 10% of the people upgrade cause they can afford it and they want the > bells and whistles, and HOPE for bug fixes. That's me actually. <G> > The rest follow because they HAVE to to maintain the "Fax Machine" > effect (as people like to call it). I don't believe that. Why wouldn't we all just stick with the previous generation? Shouldn't we be just as tied to it? If this was true, wouldn't this be an argument why _no_one_ would upgrade? This argument fails under a reasoned analysis and has no empirical evidence to support it. > > And, of course, if the market leader falls too far behind > what is possible, > > price will become irrelevant. > > Price _is_ irrelevant. Software industry is the only industry where > you can sell the same products N times. Actually, there are numerous similar industries. Licensing of intellectual property, for example, is similar. Endorsements are similar. Heck, even prostitution is similar. It's not entirely true for software either. It used to be largely assumed that incremental cost in the software industry was near-zero, but numerous recent studies show that this is not true. In fact, once you reach high enough volumes, incremental costs swamp development cost! While not rigorous, here's a 'seat of the pants' explanation of why this would be true: Any software product has some fixed cost associated with developing it. To convert this to a 'per-unit' cost, you divide by the number of units. So the more copies you sell, the lower this contribution to per-unit cost is. However, there is always inevitably some 'associated' cost with each unit that experiences a diseconomy of scale. For example, the more software you sell, the more technical support personnel you try to hire, the more you will have to pay them since the increased demand will drive salaries up. The more copies you sell, the more telephone calls you will get, the more bug reports you will get, and so on. The more levels of management you will need, the more it costs to just keep your doors open. The more copies you sell, the more accounting, legal, and other professional services you will need and these will generally eventually increase at a faster than linear rate. Now while these contributions are small, they go up with the number of copies sold. So even though the per-unit value of the development cost starts high, it goes down with the number of copies sold. So at some point, the two lines will cross. Past that point, costs per unit actually go up. Of course, they should still be much less than the selling price. DS To Unsubscribe: send mail to majordomo@FreeBSD.org with "unsubscribe freebsd-chat" in the body of the message
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