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Microsoft: No Windows Price Cut

by Arie Slob

Hello Windows users,

This week, at the Gartner IT Expo conference, Microsoft CEO Steve Ballmer answered some questions put to him on a range of topics. Also discussed were the Software Assurance (volume licensing) and the cost of the Windows OS. The question was put before Ballmer that today, you can go into Wal-Mart and buy a PC for $199 without Microsoft software (it has the LindowsOS -red.), of course, and without a monitor. His answer: "Well, if you take a look at our price for a home computer, which is what you find actually on Walmart.com, I think, you wouldn't find it in the stores -- it doesn't sell well enough to be in the stores, but on Walmart.com you'll find a $199 computer. Our price for Windows for that machine has been invariant for -- and you can say it hasn't come down, but it's been invariant for eight years, seven years, a long period of time at this stage. And I think we deliver, in fact, a lot more value today than we did then."

"Now, why is that computer $199? The fact of the matter is, it's not our software price. Most analysts would say we get maybe $50 for a copy of Windows. So that's not $250 with Windows and $200 without. Somebody is subsidizing that hardware. Somebody is losing -- I mean, people know what power supplies and disks and processors all cost. Our price list for Windows to OEMs is now published on a Web site. That was required under the consent decree. So that $50 charge, I would argue that a customer who bought a $250 computer from Walmart.com with Windows on it is going to be a heck of a lot happier when they get home than somebody who buys a $199 computer that doesn't run most software."

..."You take $20 off the price of Windows and our ability to do innovative R&D goes out the window and I don't think we'd see a big boom in demand if computers were $20 cheaper"

..."And still take what I said; would $20, would the difference between a $200 -- first of all, that thing is not a $200 computer. Somebody is subsidizing it and losing money on it. So let's really go to the price points that exist in the market. Would there be a material difference in sales between a $475 computer and a $500 computer? There might be but the logistical hassle -- you know, we're working hard. We have a Home Edition and a Professional Edition to try to give some differentiation in price. There are guys who think around and say, what would it like to have an education version of Windows, how would it need to be different, could we get it done and offer it somehow on a lower price, particularly for this country but also for lesser developed countries. So we're not blind to the issues that you're saying, but we're trying to be smart about it because I don't think people's gut reaction is right. I don't think a $475 machine outsells a $500 machine so radically as to be worth our taking the precipitous action you talk about."

I think Steve Ballmer has a point here... No wait! Almost ALL users get Windows when they buy a new PC. As Ballmer states, that copy of Windows cost you around $50. People are always discussing the full retail price when talking about new hardware, but when buying new hardware, you can get an OEM copy of Windows for a lot less...

It is true that the cost of Windows hasn't gone up in the past 7 years... but is hasn't come down either, like the costs of PC's. But that raises another question: can you compare the price of Software with Hardware? When I bought a new PC recently, I paid roughly the same as I did when I bought a PC 3-4 years ago. Sure, its much more powerful, but you can say the same about Windows. Have a look at Windows 95/98... Now try Windows XP... quite a difference!

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