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Office XP – when is a price cut not a price cut?

When nobody buys full retail?

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When is a price cut not a price cut? Microsoft has garnered a certain amount of positive publicity thanks to yesterday's estimated 15 per cent cut on Office XP, and alongside this cut it announced it would be bundling some support services with its volume Software Assurance licensing scheme.

Or should we perhaps call it the hated Software Assurance scheme? Noteworthy, but not noted specifically by Microsoft in its announcements, is the fact that it hasn't changed its volume pricing, has actually stated it has no plans to cut prices this year.

So rewind a tad. Microsoft's new model licensing programmes have caused considerable pain and grumbling in business and government, to the extent that some organisations have even stopped mouthing off about open source and started genuinely looking at it. Microsoft has reacted with a slush fund (which won't work long term because if prices are too high, they're too high, and special discounts offered every upgrade round aren't special discounts, they're price cuts), but underneath the camouflage is hanging tough on the licensing.

The support concessions for Software Assurance include some live tech support on server software, training vouchers and basic first level support. Not, you might observe, a hot deal - and the precise nature of what you get will "vary by licensing program." Wackily, MS group VP for sales, marketing and services Kevin Johnson claims to CRN that customers are saying that "the set of service and tools and training and enhancements... [are] far more valuable to them than reducing price."

Which is an impressive and interesting perspective. Customers are not in pain over the cost of Microsoft volume licensing, they are happy paying up (Next: Microsoft customers demand more price hikes), and simply want support and training.

One change that will have some value to businesses, however, is "home-use rights," allowing employees to legally install MS Office software for use at home. This is something that Microsoft used to allow, but pulled the plugs on some years back when it figured it would rather try to squeeze more money out of customers whose employees work at home. Presumably this has not worked, and few if any businesses have felt impelled to license extra copies of Microsoft software for their employees to use at home.

The reintroduction of home rights is probably more significant in terms of legitimising a de facto situation than in giving businesses something for free, but you could see it as a kind of (temporary?) surrender. Microsoft, at least according to the price lists, has had a strangely optimistic view of what people are prepared to pay for Office in the home (e.g. the scheme that offers a whole 15 per cent discount on a king's ransom for an additional licence), but it surely can't have been killed in the rush of home users (or indeed small businesses) prepared to pay full retail for the software.

Which casts a different light on yesterday's cuts. People who use Office at work will also use it at home, but not buy it, while home users will look at the (still vast) price tag on the full retail product and carry on using whatever came free with their computer anyway. Alternatively, they will take steps to qualify themselves for a deep educational discount, which is not hard, even for the educationally challenged, and which is barely policed. Doing a Register price check at Best Buy ($549.99 for Office XP Professional, since you ask) today we couldn't help noticing the student licence edition of Office XP Standard being pushed on the front page of the software section for $129.99. One of Best Buy's volume lines, one might hazard?

The bottom line, if you think about it, is that at retail Microsoft has always, effectively, had lower prices; here, there is little if any market for the product's largely imaginary full price. In business, meanwhile, it won't lower prices because it doesn't think it needs to. This works because high prices at retail are unsustainable and can't be effectively policed in the home or in small businesses. Piracy and/or general licensing irregularities are not however something larger businesses can afford, and Microsoft has anti-piracy SWAT teams to remind them of this. They have no choice, therefore prices for them go up, not down.

This is however, as we intimated earlier, an unsustainable model. People who pay because they have no choice, not because they're fairly happy and regard the price as fair, will progressively become sufficiently unhappy to begin to arrange choices for themselves. And Microsoft should perhaps note that a customer who thinks you're a bunch of vampires, but is offered a one-off special discount in order to stop him defecting, probably still thinks you're a bunch of vampires afterwards. Because actually, you are... ®

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