Feeds

MS pricing strategy exposed – cheap when there's competition, but…

Prices can go up as well as down, depending on competition...

  • alert
  • submit to reddit

SANS - Survey on application security programs

We thought we would take a trip along memory lane to show that the truth is somewhat different, and that Microsoft uses price competition to freeze out competitors to its monopoly. In 1981-1982, MS-DOS was priced at about $2-$5, to establish market share. By 1988, the price had become $25-$28, in contrast to price trends for similar products such as ROM BIOS which remained less than $5 and decreased in price, because there were several suppliers. When Digital Research's DR-DOS entered the market, MS-DOS prices dropped to $3-$18 where Microsoft was competing with DR-DOS. In the case of operating system software, competition does not keep prices at reasonable levels. Microsoft's pricing policy is directed at eliminating competitors by predatory pricing, and then subsequently to abuse its dominant position by increasing prices. Microsoft is prepared to reduce its prices to a level that is below cost, in order to compete with any software developer. One example was seen in Microsoft's un-hooking practices, to persuade OEMs to stop selling PCs with DR-DOS. Price was not an obstacle when it came to unhooking an OEM who had contracted to use DR-DOS. Rich Kalgard quoted Gates in Forbes on 28 February 1994: "We have such good alert systems that if there is an OEM design that we're going to lose, even a hint we're going to lose it. . . Say it's some PC guy in Mexico or Indonesia. Joachim Kempin [senior vice President, OEM sales] will have emailed an alert to me like that! His guys are trained. There's only one deep fatal sin, and that's not to say that you're losing an account. It's OK to lose it, as long as you spotted that you're going to lose it. [Pause] Actually it's not OK to lose it." In 1991, Microsoft offered DR-DOS customers in the Asian market MS-DOS and Windows (as boxed products) for $6. This price included import tax, delivery, the manufacturing cost of the discs, documentation, and the sales costs. The US suggested retail price at the time was $199. DR-DOS customers wishing to take advantage of these prices had to make a public announcement that they had switched to MS-DOS in response to an "industry trend", as did the Taiwanese OEM Unitron: "Unitron Inc, a company actively involved in designing and manufacturing PCs, has signed a contract with Microsoft Taiwan to bundle MS-DOS and MS Windows software in their PCs shipped to the Euro/American market. The contract ceremony was held by General Manager Yang of Microsoft Taiwan and Vice General Manager Chang of Unitron Inc. According to Mr Chang, Unitron used to be a customer of DR-DOS. Now, in order to go with the industry trend, Unitron has decided to use MS-DOS and Windows on an enterprise-wide basis." [PC Week Taiwan, 3 August 1992, translated from Mandarin]. In late 1992, Microsoft was offering OEMs an MS-DOS 5.0/Windows 3.1/Windows for Workgroups bundle for as little as $8 per unit [Infoworld, 30 November 1992], providing the OEM agreed to CPU licensing terms for all three products, which at the time was seen as an anti-competitive pricing action against a DR-DOS + NetWare Lite bundle from Novell. Microsoft also says "it did not seek any additional royalty in connection with its release of Windows 98" but again the truth is different. Professor Fisher has seen Microsoft's secret prices and David Boies was able to sneak through some interesting responses in his redirect examination. Fisher said: "The [OEM] price of Windows 95 in the third quarter of 1998 rose, and it rose to be essentially the same as the price for Windows 98. . . . If this were a competitive market, and Microsoft didn't have some power over price, then when the better product came out, you would expect to see the price of the older product at least stay the same and, quite possibly, go down, but it didn't. It went up." Fisher did not twig as to why this happened: Microsoft of course wanted OEMs to move to Windows 98 as quickly as possible so that users would have the welded-in IE and not the Windows 95 loosely-attached version of IE. Microsoft's claims using, presumably, averages, do not tell the real story: the truth is that Microsoft uses pricing as a predatory weapon. Microsoft's pricing document claims that the DoJ is comparing apples and oranges when it says that Microsoft has been raising prices, but Microsoft's own claims are a lemon. ® Complete Register trial coverage

Combat fraud and increase customer satisfaction

More from The Register

next story
Audio fans, prepare yourself for the Second Coming ... of Blu-ray
High Fidelity Pure Audio – is this what your ears have been waiting for?
Record labels sue Pandora over vintage song royalties
Companies want payout on recordings made before 1972
Zucker punched: Google gobbles Facebook-wooed Titan Aerospace
Up, up and away in my beautiful balloon flying broadband-bot
Apple DOMINATES the Valley, rakes in more profit than Google, HP, Intel, Cisco COMBINED
Cook & Co. also pay more taxes than those four worthies PLUS eBay and Oracle
Intel sees 'signs of improvement in the PC business' but earnings remain 'Meh...'
Prospects for the future, however, please Wall Street money men
What's a right pain in the ASCII for IBM? Its own leech-like hardware biz
Keep your eyes on our cloud while we remove this pesky thing, say execs
Oracle's Larry Ellison has the MOST MASSIVE PACKAGE IN PUBLIC
Billionaire IT baron earns twice as much as the next in line, Disney chief Bob Iger
prev story

Whitepapers

Mainstay ROI - Does application security pay?
In this whitepaper learn how you and your enterprise might benefit from better software security.
Combat fraud and increase customer satisfaction
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Top three mobile application threats
Learn about three of the top mobile application security threats facing businesses today and recommendations on how to mitigate the risk.
3 Big data security analytics techniques
Applying these Big Data security analytics techniques can help you make your business safer by detecting attacks early, before significant damage is done.