Based on conversations with OEMs regarding OS pricing, it looks as if Microsoft has decided to make up for fewer new OS licenses by raising prices sharply higher.
It is Kempin who determines which Microsoft products get preloaded on which systems. He also wields the pricing sword. And he has the final say about how much hardware vendors pay per seat for Windows, NT, Office, individual Back Office applications and Microsoft's handful of hardware products.
As for Microsoft, it insists that it hasn't raised prices. On the eve of the Justice's antitrust suit, Microsoft CEO Bill Gates told Business Week: "Windows 98 is a product that we priced exactly the same as Windows 95." And, while the retail price will be the same, Microsoft doesn't publish a price list for PC makers, so it's hard to detect changes. For this reason, it's doubtful that any PC maker will go public with gripes. Says one: "No one wants to testify in front of a Senate panel for fear that Microsoft would turn around and raise your price."
Microsoft has been making book on the fact that the public has a short collective memory. Since most PC users will be extremely frustrated when the current versions of Windows fail at the Year2000 boundary (as they likely will), they will be ready for a "good cop" to come to their rescue. Microsoft will of course be only too happy to oblige. The problem will then be that Windows NT is not really a good cop at all; it's just a bigger, slower kludge with a lot more compatibility and support problems than the other Microsoft operating systems. Perhaps this will prove to be a case of "bad cop, WORSE cop."
Ostensibly, the license fees Microsoft charges to corporations are holding steady or going down slightly. But the rules are changing in ways that will increase fees for many corporate users. As contracts have come up for renewal, corporations are getting quite a shock. Microsoft has made dramatic changes in the way it counts the number of users and determines the upgrade fees that a corporate user has to pay over the course of a typical two-year contract. For some companies, the hit to the bottom line could be huge.
The practice could also serve to undercut Microsoft's competition by luring customers with low-cost licenses that are later changed so that users end up paying a total fee much closer to what Microsoft's competition charges up front.
As computer-component costs have dropped, the operating system, which previously represented 3 percent of the total computer package's price, now gobbles up as much as 13 percent of the total package as Microsoft tightens its monopoly, according to "The Consumer Case Against Microsoft."
And that's where the Windows industry stands today. Paralyzed by the perception that Microsoft owns all but the most picayune opportunities -- and will crush any company that proves otherwise. In response, venture capital is pouring into every tech sector except the Windows arena. Ooops! Now Microsoft is worried it has succeeded itself into failure.
According to system vendors, industry analysts, internal Microsoft documents, and a report by an independent consumer group, Microsoft's overwhelming domination of the markets for operating systems (over 80 percent) and for productivity software (nearly 80 percent) has translated into higher prices and limited choices for consumers.
PC vendors won't say how much they pay for copies of Windows, and they're understandably nervous about criticizing Microsoft. But ask them off the record, and they'll tell you that Microsoft has more than doubled what it charges computer makers for its OSes -- from $15 to $25 in 1991 to between $40 and $70 in 1998, depending on the size of the vendor.Microsoft won't comment on its pricing policies. But the company's own internal memo entitled "PC Value Analysis," written in 1996, found that the operating system accounted for 0.5 percent of a PC's total cost to consumers in 1990, then jumped to 2.5 percent in 1996. According to Frederick Warren-Boulton, a former Reagan administration economist and a key government witness in the Microsoft case, the percentage has doubled again since then.
"Regardless of other vendors' products used, by (the second year after launch) 90 percent of enterprises with more than 1,000 desktops will have no choice but to purchase Windows 2000 client-access licenses for all their users," the report said.
The greatest harm to consumers by the Microsoft monopoly is price gouging-an issue not even being addressed by the current antitrust trial. Nor do any of the remedies in the Final Judgment directly address this issue.
Microsoft Corp. is ending free 90-day phone support for people who buy the company's Windows and Office software products.Customers calling Microsoft (Nasdaq: MSFT) with support questions will receive two no-charge calls. After that, they will be required to pay $35 per phone call.
What if you own a PC with Windows XP on it, and you decide to wipe the hard drive of that PC so it has no working copy of Windows. Next you build your own PC and want to install that same copy of Windows XP on your new PC. It doesn't look like you're going to be able to do that. Microsoft isn't only mandating one copy of Windows for one PC. It's mandating a specific PC -- the first one you installed the copy of Windows on.
Microsoft has already tinkered with a nonperpetual licensing model, where customers pay a fixed price for periodic upgrades, maintenance, and services. The company also uses a subscription model in at least one type of licensing agreement with academic customers, according to Gartner analysts. While a more aggressive migration toward subscriptions sales has been put on hold in the United States, Gartner still predicts Microsoft will offer such a model to business customers by the year's end.Gartner predicts that Microsoft will latch on to the subscription sales model in the next few years, in effect squeezing more revenue out of its desktop software division. While subscriptions are expected to have a lower initial price point, Gartner analysts said that over a five-year period, customers will spend 20 percent more. Also, corporate customers who have typically not kept up with every product upgrade that is announced could incur penalty fees for not staying current with upgrades, analysts said.
Procomp, a group funded by Microsoft's competitors, charged Microsoft with planning to use its new Windows XP operating system and .Net strategy to extend its monopoly. The group said Microsoft plans to use its dominant Windows operating system and Internet Explorer browser to force consumers to adopt its new .Net Internet platform.
For software vendors, the goal is to ensure a predictable, long-term revenue stream from existing customers - via subscriptions, services and add-on fees - to make up for sluggish revenue growth from new licenses.So users need to be extra vigilant when they negotiate client/server software contracts in the next few years.
Pricing changes, combined with a growing user dependency on distributed software, could lock companies into the same kind of costly situations that mainframe users have complained about for years, users and analysts said.
THE BOTTOM LINE: Consumers can expect to pay a little more for XP than for previous Windows versions, with street price increases ranging up to about 10 percent.Windows XP comes in two flavors, one for home users and the other for business professionals. The Home Edition upgrade carries a manufacturer's authorized price (MAP) of $99, or about $10 more than Windows Me. The full version is $199, or about $20 more than Windows Me.
(MSNBC is a Microsoft-NBC joint venture.)
The Professional Edition will cost around $199 as an upgrade or $299 for the full version, which in both instances is about a $20 increase over Windows 2000. But compared to a special $120 promotional offer for Windows 2000 Professional, the commercial XP version will cost nearly $80 more.
Then we have Microsoft. No choice, no spice, no soul, no pleasure. Ours is not a McDonald's world, because there is Burger King or Wendy's or others. It is a Microsoft world because there is little else, and less all the time.
Many corporate users have bristled at the volume license and upgrade changes, and their uneasiness could have consequences for Microsoft. Several IT managers warned that they may upgrade less often or consider looking more seriously at competitors' products rather than pony up for potentially costly licenses or upgrades."If Microsoft continues to make my choices narrower and life tougher for me, they'll see exactly how little monopoly they really do have over this market, and we'll exercise our choices to go somewhere else," said Jim Prevo, CIO at Green Mountain Coffee Inc. in Waterbury, Vt. Prevo added that he had never even thought about considering alternatives until he was confronted with Microsoft's licensing changes.
Rob Enderle, an analyst at Cambridge, Mass.-based Giga Information Group Inc., said one of his firm's clients, a $2 billion insurance company, is yanking everything but Microsoft's desktop products in response to the changes. Enderle said that among the clients who have contacted Giga, about 30% are "really upset" and only one is happy.
