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 is
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. “
This 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.
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.