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Date:      Fri, 19 Nov 1999 12:39:36 +0100
From:      Phil Regnauld <regnauld@ftf.net>
To:        David Schwartz <davids@webmaster.com>
Cc:        freebsd-chat@freebsd.org
Subject:   Re: Marketing vs. technical superiority (was: Judge: "Gates Was Main Culprit")
Message-ID:  <19991119123936.04884@ns.int.ftf.net>
In-Reply-To: <000001bf327c$3a115090$021d85d1@youwant.to>; from David Schwartz on Fri, Nov 19, 1999 at 02:52:52AM -0800
References:  <19991119113011.62880@ns.int.ftf.net> <000001bf327c$3a115090$021d85d1@youwant.to>

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David Schwartz writes:
> 
> 	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.

	This happened in Holland, and France, and Denmark.  I can dig up the references
	(there's that anti-MS website -- can't remember the name).

> 	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)

	They still sets prices that are higher than what is considered
	reasonable -- they are NOT doing the consumer a favor.

> 	Actually, once you have market domination, it makes more sense to lower the
> prices. This is because:

	Of course not.  When you've locked the door, you raise the prices...

	Man, I don't what kind of monopolies you have in the US, but you should
	try France Telecom, Deutsche Telekom, etc...

> 	1) Due to economies of scale and the fact that you have already recovered
> your development cost, you can afford to, and

	But THEY DON'T.

> 	2) You don't want to give anyone an incentive to develop a competing
> product.

	They CAN'T -- that's why THERE IS A TRIAL.

> 	These are two different products. Not to mention, you aren't comparing
> their prices in constant dollars.

	Argh, even with inflation on steroids you couldn't.  And they are closely
	related -- come on!  _1_ API change since 95 ?

> > 	So where's the, uh, competition ?
> 
> 	That's the point, the prices are low enough that there isn't really much.

	That's not right.  There isn't any competition because it's too damn difficult:

	- technically (WINE)
		"source code contamination"
	- legally (Bristol Software, SUN Wabi)
		"you're getting too good -- give me back that license"

> 	What does "all showed marketing wise" mean? And what difference does that
> mean?

	They didn't favor the customer, when they could have -- they set the price
	to the limit that consumers would (their market analysts say) pay for the
	product.  In both cases they were making clear profit, but decided to pull
	as much as they could on the rope.

> 	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. 

	No one's disagreeing about that.

> 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.

	25% is a lot.


> > 	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.

	They're the SAME PRODUCTS.  With a maple leaf on one, and three colored
	bars on the other.

> It may be that these prices are based upon ability to pay, but again I'm not
> really sure. 

	Yeah, sure, your average Canadian's buying power is certainly higher than
	that of the french citizen (me being one), so why is the price higher in 
	France ?  Population is lower in Canada too:

	Population: 31,006,347 (July 1999 est.) 

	http://www.cia.gov/cia/publications/factbook/ca.html

	So the "size of market" / "buying power" means squat here.  Even with my
	feeble economic notions it doesn't work out.

	Why ?  Canada is home of Corel and it's damn more difficult to root them out.

> 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.

	Cocaine is roughly the same price street wise in Paris and New York
	(Hi, Echelon) -- that's ~ $150 /g.  But then again I'm not a user,
	so my price list is outdated.

	Heroin had three paths of import through Europe:

	- NL (not anymore really)
	- South europe via north africa
	- Serbia (they had to reroute during the conflicts -- read Newsweek)

	The US's major point of entry is Mexico.

	You can't even compare, but the prices are the same.

	So ?

	But I like the comparison between Microsoft and drug dealers :-)

> 	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.

	Oh, that's another ball of wax.  I'm a bit annoyed that things
	have to be settled that way -- takes away the merit and thrill
	of "the Knights of the Free Software" kicking imperialist corporate
	butt, but too bad.

	American companies bitch when the Gvt sticks its nose in the economy (freedom
	of competition, blah, blah), except when they're getting whupped.   
	Then they go crying to the DoJ and ask for Teacher to come and tell
	the mean bully to stop kicking them.

> 	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?)

	Of course it's a revenue maximizing price.  They want money, they've never
	claimed otherwise.

> > unlimited is MORE
> > 	expensive than Solaris unlimited...
> 
> 	This may be part of why MS is having a hard time penetrating the server
> market. 

	They're not having a hard time.

	They're finding it difficult to penetrate the market of high-availability,
	mission critical data processing.  They don't scale. Intel hardware still
	doesn't cut it.  Clustering is not really there yet, and Alpha's walking
	out on them.

	It's a question of reliability, not pricing.

	I mean, Lotus Notes is more expensive than Exchange (notwithstanding the
	fact that the 2 products are parsecs away from each other).

> 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.

	It's not mind control (that's marketing) -- it's "emulation" -- acute lemmingitis.

	Gee, that looks good, what is it. -- Windows NT 3.1, sir --  Ohhh, it looks
	just like Windows 3.11, which is a good product, right ? -- er... Yes, sir
	-- so let's make it a corporate decision and switch everything to this
	Windows NT thing -- if it's good for the users, must be good for the servers.

> > 	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?

	Anyone, help ?  Please ?  I'm feeling alone here.

> 	And even if there was such tipping, it would be a beneficial market result.

	Yeah, for Microsoft.

> 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.

	They're not the SAME word processors! MS's trick is to make sure
	the Office market is split between those who lag behind, and those
	who have the newer version.

	Complete homogeny would ruin they Devious Plan.

> > 	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? 

	YOU JUST SAID IT:

	"That's me actually"

	You buy it, your friends & colleagues will have to (or at least rip off
	a copy from someone else, and give cash to MS another way, like by buying
	"Learning Word for Pirates", by MS Press).

> 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.

	Sigh...

> > 	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.

	Yeah, but with prostitution you get satisfied somewhere.

	And you're confusing SERVICE and PRODUCTS.

	Reminds me of Eric S(hotgun). Raymond saying:

	"Software industry is a service industry that thinks it's a product industry" end-quote.

> 	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!

	Of course, mrginal cost is nilch after you've got your ROI.  It costs money to 
	cut trees, squash them, and fold them into boxes and "bleach free environmental
	friendly recycled paper with-little-bits-of-beavers-in-it" manuals.

> 	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.

	Nothing new there.


> 	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. 

	TECH support and Microsoft ?  arghhh.

	Man, they have a phone support, that's sure.  In fact, it's more efficient
	than most national survey institutes.  They collect data on bugs and
	problems, and do "red line" development:  you've got your bug categories
	on the absciss (sp?) or X, and you've got total reported on the
	ordonate (that's Y for the orthogonally challenged).

	When bug category "Blahs when I open a file" goes above the redline
	for that value, notify development and have them roll out a bugfix --
	redline is "annoying enough that too many people found out".

	That's where there resources go, and that's the way they minimize
	real tech-support.

> The
> more copies you sell, the more telephone calls you will get, the more bug
> reports you will get, and so on. 

	AND the more calls you get, the more efficiently you can shape
	your product and only fix the really annoying stuff -- they never
	really help you on the phone!  Do you know the PRICE of a tech
	support call here in europe ?  1 call = $170!

	Even M. Gates said it in a Times interview: "We don't fix bugs, we add
	features that people want".

> 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.

	Support that.
	This is not a company making cars.

	They're not even obligated to ship a product that fits
	the description on the box, let alone honor damage costs.


	Phil, the angry frenchman.



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