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Microsoft Profit and Loss by Business Area 970

Posted by michael
from the learn-economics-in-an-hour dept.
An anonymous submitter writes "The Register is reporting in this article striking new evidence of what in my opinion can only be described as abuse of their monopoly position. A recent SEC filing shows that they lose money in every business area except Windows (86% profit) and Office (79% profit)." Another notes that the Financial Times has a story on the same subject - Dr. No writes "According to the Financial Times, Microsoft's Windows division has a profit margin of 85%. This is the first time this figure has been made public." The full version of Windows XP costs about $300.00. Microsoft could sell it for $45 and still make a profit. The difference between the $45 price and the $300 price is what economists call "monopoly rents".
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Microsoft Profit and Loss by Business Area

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  • Monopoly! (Score:5, Insightful)

    by Cbs228 (596164) on Sunday November 17, 2002 @09:29PM (#4693490)
    Microsoft could sell it for $45 and still make a profit. Sure they could. Just like the RIAA could sell CDs for $5.95 and still make a profit. These guys make me sick!
    • Re:Monopoly! (Score:4, Insightful)

      by sam_handelman (519767) <(ude.aibmuloc) (ta) (3002hks)> on Sunday November 17, 2002 @09:58PM (#4693686) Homepage Journal
      Hold on for just a second. A can of coke costs about a nickle to make, can, ship and refrigerate and I just payed 0.75$ for it out of a vending machine.

      High profit margins don't make you a monopoly. Let's put aside for a moment the fact that a significant portion of that $300 price per unit (the store purchase price) is going to various middlemen. Windows costs $80 as often as not. [pricewatch.com] Not intended as an advertisement, it is just the first quote I grabbed. Also, I'm sure that MS could charge less than $45 and still make a profit - since they'd sell more copies. We'll put all of that aside.

      Are their prices out of line for software, generally? Higher than the cost of Linux doesn't count. Is their profit margin out of line for successful software makers in other areas? How much could Blizzard sell Diablo II for and still make a profit? What about other business software bendors - GraphPad software, say? Has anyone examined them to see if they're making too much money on their $400/desktop prism software?

      MS has priced their product (successfully, I'm sure) to maximise their profit - which is NOT the cheapest price they could charge, any more than the same is true for Coca-Cola. This is a feature of our modern "capitalist" society; competition only goes so far in the face of advertising and consumer apathy. It has nothing to do with being a monopoly.
      • Re:Monopoly! (Score:5, Insightful)

        by trotski (592530) on Sunday November 17, 2002 @10:25PM (#4693821)
        It has everything to do with being a monopoly.

        People feel they don't have a choice with windows and so will pay a lot for it. If say an equaly compatible operating system with as much consumer awareness and (percieved) ease of use as windows came along and sold for 40 bucks, microsoft would have to slash it's prices for people to continue buying their product. Same with Office (yes I am aware of StarOffice ect... see consumer awareness)

        Just look at the XBox/PS2 thing.... Microsoft can't charge what it would like to charge for XBox; it has to keep it's prices in line with playstation. This forces ms to sell their boxes at a loss!

        The bottom line is, if Microsoft had serious competition who was selling it's product for less than MS, microsoft would have to cut prices to remain competitive. Since it does not have serious competition (yet) they can charge whatever they like!
      • Re:Monopoly! (Score:5, Insightful)

        by enkidu (13673) on Sunday November 17, 2002 @10:31PM (#4693855) Homepage Journal
        MS has priced their product (successfully, I'm sure) to maximise their profit - which is NOT the cheapest price they could charge, any more than the same is true for Coca-Cola. This is a feature of our modern "capitalist" society; competition only goes so far in the face of advertising and consumer apathy. It has nothing to do with being a monopoly.
        You're missing the point. The fact that Microsoft is attempting to make a profit is not at issue here. What is being presented is the fact the Microsoft enjoys abnormally high profit margins from their core products of Windows and Office. Under normal market conditions, if a manufacturer is able to enjoy such high margins, competition soon sprouts up with the aim of underselling the unusually high prices of the original manufacturer. What the paper is pointing out is that Microsoft both enjoys extraordinarily high profit margins and is not worried about competition. Classic signs of a monopoly and abuse of that monopoly.

        Again, having a monopoly is not illegal. Abuse of a monopoly, either through anti-competitive behavior or through price gouging, is illegal. Why? Because it makes for inefficient markets and lowers the excess utility for everyone (except the monopolist of course). And it looks like Microsoft has been screwing the market in more ways than one.

        • Re:Monopoly! (Score:3, Insightful)

          by xswl0931 (562013)
          I think you are missing the point. I guess what you are saying is that MS should only charge enough to cover manufacturing costs and perhaps a bit more for profit, but let's not let them cover the cost of R&D. As I've pointed out before, MS intends to spend $5.4billion on R&D for fiscal 2003. That creates a lot of jobs and costs a lot of money to actually make software. People forget that manufacturing costs is more than just the cost of duplicating a CD and the packaging.
          • Re:Monopoly! (Score:5, Interesting)

            by enkidu (13673) on Monday November 18, 2002 @03:08AM (#4695058) Homepage Journal
            Uhmm, even after that $5.4 billion in R&D they still enjoyed $14.2 billion in profits last fiscal year (EBITDA). That's on $30 billion in sales. Find me another company with $30 billion in sales enjoying a 44% operating margin. Heck find me another company with more than $1 billion in sales enjoying a 44% operating margin. For more than 5 consecutive years. Find me a company who is holding 1.3 times their annual sales IN CASH. BTW these figures are AFTER the expenses of research have been taken out.

            The research that Microsoft does is not the issue. The jobs and software that Microsoft creates is not the issue. At issue is the fact that Microsoft is abusing its monopoly position to charge excessively in markets which it holds dominance (namely operating systems for the main OEM manufacturers of PCs and office suites). At issue is the fact that Microsoft is using the profits it gains from this abuse to extend its monopoly to other markets. At issue is the fact that Microsoft is effectively DUMPING their products in markets in order to gain market share. (This of course does not touch on their other abuses: API abuses, forced upgrades, fake deals, stealing trade secrets, coersion, forced bundling etc etc etc).

            EnkiduEOT

        • Re:Monopoly! (Score:4, Insightful)

          by Salamander (33735) <jeffNO@SPAMpl.atyp.us> on Sunday November 17, 2002 @11:23PM (#4694112) Homepage Journal
          What is being presented is the fact the Microsoft enjoys abnormally high profit margins

          What is being presented is a claim that Microsoft enjoys abnormally high profit margins, and the question has been raised is whether those margins are, in fact, abnormally high. Maybe they are, but it's a valid question. Clearly, at least part of that margin is perfectly normal business, and michael's characterization of the entire margin as "monopoly rent" is just spew.

      • Re:Monopoly! (Score:4, Interesting)

        by passion (84900) on Sunday November 17, 2002 @10:33PM (#4693872)

        Hold on for just a second. A can of coke costs about a nickle to make, can, ship and refrigerate and I just payed 0.75$ for it out of a vending machine.

        High profit margins don't make you a monopoly.

        Hang on, now to make this analogy more correct, you'd have to make sure that you almost never saw a vending machine for anything but Coke. Certain companies would make cups that could only contain Coke, and would be threatened if their cups were able to hold anything else. Everytime you wanted to take a sip, it would go flat, and you'd have to open a new can. Everytime that you wanted to buy a new can, you'd have to also buy a new cup.

        get real, when people go to a computer store, and the salesperson asks them "What kind of computer would you like to buy?" they're looking for an answer like: {Dell|Compaq|Gateway|IBM}, -- Not linux, Mac OSX, FreeBSD, OS/2, etc.

        • Re:Monopoly! (Score:3, Interesting)

          by Have Blue (616)
          He's not making an analogy, he's making a counterexample. And he's right: Both products are priced at what the market will bear, except that the present or absence of competition is included in "market conditions", along with a TON of other factors.

          For example, Coke has a contract with my old university (UIUC) that only Coke products may be sold in vending machines around the campus. It's still $1 for a bottle and $.60 for a can, even though there's nothing to stop them from gouging us to hell.
      • Re:Monopoly! (Score:4, Insightful)

        by VegetariMan (162508) on Sunday November 17, 2002 @10:40PM (#4693897) Homepage
        I don't think the high profit margin is offered as proof of their monopoly status. It's merely offered as another piece of the puzzle; monopolies are characterized by the ability to charge whatever they like. It also points out one manner in which consumers are harmed by this illegal monopoly-- they are forced to pay high prices.

        And let's put some things into perspective: XP Pro is $300. Jaguar is $130. RedHat is $40 (or $150 for the de-luxe version.) So why is XP $300? Because they can get away with it.

        And with the billions of dollars of CASH in the bank and the sky-high profit margins I'd say its pretty obvious they are charging more than the market would bear, were they not a monopoly.

        Furthermore, the example of your coke can is misleading. Coke actually has competitors. Also, I think you are vastly underestimating the cost of creating the product and very importantly the cost of stocking your nearby vending machine. It simply isn't an adequate analogy for the software industry.
        • Re:Monopoly! (Score:4, Insightful)

          by danheskett (178529) <danheskett AT gmail DOT com> on Monday November 18, 2002 @12:45AM (#4694524)
          And let's put some things into perspective: XP Pro is $300. Jaguar is $130. RedHat is $40 (or $150 for the de-luxe version.) So why is XP $300? Because they can get away with it.
          XP Home - which competes more for desktops on the "Average Guys" computer is not $300. It is $99 for most people (upgrade), or $199 for the full version. OEM'd its much cheaper (MUCH).

          Jaguar and Redhat are bit players. They will of course charge less. But in reality the margin that you pay for Windows more than its nearest competitors is not outrageous by any means. None at all. People routinely pay 25% more for one car over another brand, becauses it trendy, or the market leader, or whatnot, even though the cars are nearly identical.

          Secondly, software margins are always going to appear high because duplication costs are very low. Windows duplication costs are of course very low.

          Remember though that the profit MS realizes now is part of a larger investment made by MS since around 1990, when the development of XP really actually began - they are only now seeing the vast market returns that a decade of development can bring. (Mind you, that the first version of NT sucked, and where relentlessly pounded in the market).

          I can develop some good software in one year - for say $80k. After a year I can start selling that software, and if it's good, it can sell many times that cost. Its not like making durable goods. The economics of software are very different.

          The company I work, our main vendor developed some software that goes for about $1500 per user per year. Typical sites might have 40-50 users though some are only 4-5. Regardless, their margins now are close to 100% since resellers handle support. They maintain and document the software. They dont even press CD's. Yet the margins now obscure the fact that for three years their income was $0.

          Finally, two questions to ask yourself as to whether MS is or is not a monopoly. First is competition. Is there more or less competition now than there was in 1995 for mainstreams OS's? Thats an easy one. Second, ask what would happen to MS's market share if they raised prices very high? Also easy. Recall the slew of stories about people migrating to OpenOffice and *nix as MS introduced new licensing terms.
          • Re:Monopoly! (Score:4, Insightful)

            by nathanh (1214) on Monday November 18, 2002 @03:20AM (#4695088) Homepage
            Finally, two questions to ask yourself as to whether MS is or is not a monopoly. First is competition. Is there more or less competition now than there was in 1995 for mainstreams OS's? Thats an easy one. Second, ask what would happen to MS's market share if they raised prices very high? Also easy.

            There's only one question you need to ask yourself: was Microsoft found to be a monopoly by a Federal judge with that finding upheld in the Supreme court? The answer is YES.

      • Re:Monopoly! (Score:5, Informative)

        by Laven (102436) on Monday November 18, 2002 @02:11AM (#4694853)
        High profit margins don't make you a monopoly.

        According to the field of Microeconomics no firm will be able to maintain high profit margins in the long term unless they are a monopoly (or similar things like oligopoly w/ collusion.) In a real competitive market with low costs of entry, other firms will see Microsoft with such high profits and have incentive to enter the market, undercutting Microsoft. As the result of new firms entering, prices go down to a point of "normal or zero economic profit." This is how the competitive market works.

        Microsoft is able to maintain such high profit margins because of their monopoly market position. Little other market factors would allow sustained high profit in the long term.

  • by EnlightenmentFan (617608) on Sunday November 17, 2002 @09:32PM (#4693506) Homepage Journal
    Let's hope the Europeans can succeed where our courts have failed. Does MS sell software at a loss in order to wipe out rivals? This document deserves to appear at SmokingGun.com.
    • by JessLeah (625838) on Sunday November 17, 2002 @09:46PM (#4693609)
      I'll put it simply.

      The courts did not fail-- by their current definition of failure.

      A more pro-Microsoft administration succeeded the previous one in the Federal government. Their idea of "failure" would be if MS did suffer.

      When Bush took the white house, one of the first things I thought (after "Oh, shit!" ;) ) was "Well, there goes the MS case... they'll be let off with a relative slap on the wrist."

      Which was, by most observers' assessments, just what happened...
      • This decision didn't come from the administration, it came from a judge. True, judges are appointed by the President, but Judge Colleen Kollar-Kotelly [uscourts.gov] was appointed to the United States District Court in 1997, over three years before the current administration was inaugurated. Only Congress can impeach a judge, so I don't understand how the current administration could possibly have affected the outcome of this case.
  • by Jason1729 (561790) on Sunday November 17, 2002 @09:32PM (#4693507)
    The other $255 pays for IE and WMP
  • by Bob Bitchen (147646) on Sunday November 17, 2002 @09:32PM (#4693509) Homepage
    Come on who's posting this stuff? Essentially you're saying that you're okay with the monopoly but they shouldn't abuse it. That's crazy, but I guess that's what a monopoly can do to how people percieve the company. Microsoft can't innovate but they can dominate and they do that well. You try to keep quarter after quarter of growth in a company Microsoft's size and you too will find that you will have to do anything and everything.
    • by rodgerd (402) on Sunday November 17, 2002 @09:43PM (#4693589) Homepage
      That's the whole point, though: under US law, there's nothing wrong with having a monopoly per se. That just means you're wildly successful and everyone wants your products.

      There is something wrong with abusing that monopoly to shut out competition (denying people choice) or leveraging that monopoly to compete in other markets (eg, using the DirectX and Win32 API to compete in the games console market).

      It also suggests that Microsoft could get hammered under various nations' anti-dumping laws, since it would appear they're selling goods at well under the cost of manufacture.
    • by Xtifr (1323) on Sunday November 17, 2002 @11:05PM (#4694020) Homepage
      Essentially you're saying that you're okay with the monopoly but they shouldn't abuse it.

      Yes, that's the whole point. There's nothing wrong with a monopoly, per se. In fact, in many cases, it can be a big advantage (to customers) when a monopoly exists, as it eliminates subtle (and sometimes blatant) differences between different vendors' products. Cisco has been investigated several times by the SEC, and they definitely have a monopoly, but they don't abuse it. Their prices are still reasonable, they don't use tricks to lock out potential competitors, or give themselves an unfair advantage in new markets; they run an open, clean business, and they still provide a quality product at a fair price.
  • Office suite wars (Score:5, Interesting)

    by azpenguin (589022) on Sunday November 17, 2002 @09:32PM (#4693511)
    This shows the potential danger that StarOffice and OpenOffice pose to Microsoft if they ever get off the ground in the way that many would like them to. Especially if OpenOffice gains a large foothold in the business world - it would put serious pressure on all Microsoft divisions to make up the lost Office profits. If Linux ever gains a significant desktop share, this could get good.
    • File formats! (Score:4, Informative)

      by zapfie (560589) on Sunday November 17, 2002 @10:04PM (#4693715)
      Microsoft is very aware of this. They also know that at this point, an office application that can't reliably import/export/work with with Microsoft Office documents isn't worth beans. Hence why their file formats are so thoroughly undecipherable.. they want to make sure that others are unable to work effectively with MS Office documents (crack open a MS Word document with a plain text editor, and you will see what I mean).
    • This wont happen because of pallidium. Its whole purpose is to lock file formats from competitors. ...and do not give me this crap from the faq that it was somehow designed to enhance security. One of its own creators admitted during a presentation that MS was trying to invent a method to control their own bits on someone else's computer when developing pallidium and this was the whole reason for it. It was only later that Microsoft relized that pallidium could also benefit user security as well as their own. This is why MS is marketing pallidium as a secure e-commerce and buffer overflowing proof system for pc's that will enhance multimedia. Enhance multimedia = encyrpted RIAA music.

      Ms will effectively own your pc at the hardware level and you all will pay a monthly bill to use it. It's inevitable and will be the fact of life in a couple years. Linux will be effectivly dead in the pc market and ms will double there current prices for windows and office and still sell it cheap if you chose to rent it. Joe consumer will think MS office is standard because its better and not because ms crippled all pc hardware. Ask any user who makes the best software and %90 will say Microsoft. They do not and will not know any better and it wont matter how good OpenOffice is.

  • by deft (253558) on Sunday November 17, 2002 @09:33PM (#4693513) Homepage
    where for some reason they needed to compete with linux on the desktop.... how hard would the linux sell be when windows is 45 bucks...
    • by rseuhs (322520) on Sunday November 17, 2002 @10:12PM (#4693751)
      If you think that any private person currently uses Linux, you are wrong.

      I've paid zero for Windows (came with computers) but have paid over 500$ for various Linux distributions in the last years.

      Was it worth it?

      Sure it was, I can be more profitable using a real GUI than using Windows' single-desktop excuse for a GUI. (Windows XP's 4 measly desktops are too little, too late, sorry. I have barely enough space on KDE's 16 desktops. KDE1 was better but uglier than Windows. KDE3 is better and prettier.)

      I now don't have to manage different versions of .docs

      I no longer have to download, manage and install various add-on software because from office-suite to ICQ-client, everything is included in a decent distro.

      I don't have to worry about worms, viruses and don't have to waste that much time on applying patches. (Sure I have to do it, but I waste much less time than I would using Windows.) I also don't have to care about virus scanners.

      I can quickly solve any problem that arises. For example I have a script to prefix files with a given string. (simple shellscript) With Windows, it's of course possible, but it's much harder because I would have to learn VBscript which is different to normal commands.

      Money is not the reason why I use Linux. Time is.

      With Linux I am a much happier computer user than I was with Windows. I regained the ability to let the computer do exactly what I want, not just what some programmers thought of.

  • Profits? (Score:5, Interesting)

    by BWJones (18351) on Sunday November 17, 2002 @09:35PM (#4693529) Homepage Journal
    From the Financial Times article: Bill Gates, Microsoft's chairman, speaking yesterday in Las Vegas at Comdex, America's largest information technology conference and show, warned that investors and pundits were becoming too pessimistic about the prospects for innovation in the information technology industry.

    Of course we are becoming more pessimistic. When any one company can afford to loose billions of dollars running other companies out of business while creating inferior products, of course we are going to have less innovation.

  • Necessary (Score:3, Informative)

    by man_ls (248470) on Sunday November 17, 2002 @09:36PM (#4693537)
    Microsoft OS division has a profit margin of 85%.

    That's great.

    Microsoft's X-Box division has a profit margin of -300%.

    The OS division is where MS gets the cash to pour into products that will never turn a profit, or at best break even; the services they're providing (even for a charge) that are good to have but aren't really marketable, or are only marketed by MS for the sole purpose of having a presence in that market, without hope of actually taking over.

  • by blastedtokyo (540215) on Sunday November 17, 2002 @09:36PM (#4693541)
    Go back 10 years. Microsoft's main revenue drivers in 1992 were uh, Windows 3x and Office 4.3. Arguably Windows had pretty good market share but Office was still losing to Lotus 1-2-3 and Wordperfect.

    Go back 15 years. Microsoft's main revenue drivers were DOS and ummm Word for DOS. Languages contributed more then too (although I'd argue that MS has much more dominant share of DOS/Windows development tools today than they did 15 years ago)

    We're not talking monopoly rents. We're talking about how some parts of your business become cash cows and support other parts of your business that they believe are worth investing in and will one day become profitable.

  • Bashing party! (Score:5, Insightful)

    by targo (409974) <targo_t@NETBSDhotmail.com minus bsd> on Sunday November 17, 2002 @09:39PM (#4693561) Homepage
    Of course, the poster doesn't mention that
    1) The server applications are also strongly in black.
    2) These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.
    3) All the segments that are in red are relatively new (except MSN). In the tech industry it is very common for new products to produce a loss for the first few years. Why should be any different for MS?

    But hey, don't let a few insignificant facts distract you from waging a holy war ;-)
    • Re:Bashing party! (Score:3, Insightful)

      by aaarrrgggh (9205)
      Windows CE NEW?! At least six years old, and still not turning a profit...
    • Re:Bashing party! (Score:5, Insightful)

      by ryants (310088) on Sunday November 17, 2002 @10:33PM (#4693867)
      2) These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.
      Well... in Canada, you can claim research costs for tax benefits. I imagine (though don't know for sure) that something similar happens in the US to encourage research and development. So the costs of R&D are probably nicely offset by the tax benefits.
    • by rufusdufus (450462) on Sunday November 17, 2002 @10:41PM (#4693905)
      I worked in Windows and NT for many years, and then MSR for a couple after that.
      MSR provides nothing to the Windows internals. What a ridiculous statement.

      MSR is a prestige organization only, and MS pays huge for that 'prestige'. Every so often you will hear about something from MSR getting into a product, but let me assure you its all hype. Most things that actually do get into a product were built by people from the product team who changed orgs to MSR after the idea was already proven. And those are very rare too.

      No, MSR is a worthless academic sideshow that will be cut off the day MS profits are unable to hide its wasteful useless bloat.

    • Re:Bashing party! (Score:3, Interesting)

      by g4dget (579145)
      These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.

      Well, why don't you work out the numbers and let us know. So far, you are just making wild assertions with no support.
    • Re:Bashing party! (Score:3, Insightful)

      by dusanv (256645)
      1) The server applications are also strongly in black.

      I wounder how well would they fare without the monopoly on the desktop. My guess is they wouldn't even be on the chart (think Code Red & friends). On top of that thier monopoly on the desktop gives them the power to overcharge customers, squash competitiors, and finance forays into other areas...

      2) These numbers do not reflect the cost of MS Research. MSR is costing Microsoft a hefty sum every year, and they actually do provide many interesting things, especially for Windows internals.

      Ah? Can you come up with an example please?
  • by myowntrueself (607117) on Sunday November 17, 2002 @09:43PM (#4693590)
    we could drive M$ to bankruptcy by buying BULK xboxes and using them as Linux servers?

  • by Eric_Cartman_South_P (594330) on Sunday November 17, 2002 @09:46PM (#4693610)
    If someone is found guilty of pirating warez, lates say Windoze XP... should the company value its "loss" at the retail level, the fair market value, or the cost of production? All said and done, if a company found guilty of abusing it's monopolistic powers, which also pads its prices with monopoly rent, should the courts normalize the value of said companies goods when the value must be assertained?

    • by ClarkEvans (102211) on Sunday November 17, 2002 @11:09PM (#4694044) Homepage
      If someone is found guilty of pirating warez, lates say Windoze XP... should the company value its "loss" at the retail level, the fair market value, or the cost of production?

      Actually, Microsoft should be paying the Pirates!

      With extra copies of the software out there in use, the value of the software (which is proportional to its user base) is increased. Therefore, Priates are actually helping the monopoly along. For early adoption software, I'm sure Microsoft is very happy to have Pirates spreading copies to friends or anyone else in the market. More copies is less sales for competitors and greater chance that their file format will become the standard.

      However, once a product hits 60% or some other magic number of market dominance, the software is ubiquitious and the Pirate isn't helping to "spread the word". At this point, the Pirate is a net loss for Microsoft, and they are actively hunted down. Further, all of those "non-prirate, good customers" who have, unfortunately, illegally installed copies; well, Microsoft will be very nice to them with their payment plans.

      Moral: If you want to hurt Microsoft, don't use or help spread the use of their products.
  • by knodi (93913) <softwaredeveloper@@@gmail...com> on Sunday November 17, 2002 @09:53PM (#4693651) Homepage
    What about soda fountains at McDonalds (or wherever you buy your greasy fat)? They charge you $1.25 for seventeen cents of syrup and some essentially free carbonated water. It's the highest profit margin in the food industry, but it's merely a simultaneous choice by EVERY restaurant to do it.
    What if people just EXPECT windows to cost more?

    I know, it's faulty logic on MS's part; I recently bought licenses to all my illegal MS software because the university was selling them cheap. Before, I couldn't afford office and windows XP and vis-studio.net, so I stole them. Then I paid about 50 bucks and got licenses.
    If they would just acknowledge that lower prices = less piracy and greater market penetration (esp. in poorer countries), then we'd all live in a happier world, wouldn't we?
  • by zentec (204030) <zentec@nOSPAM.gmail.com> on Sunday November 17, 2002 @09:53PM (#4693652)

    Most companies have profit margins no where near this obscene level. In retail, it's measured in fractions of a percent, in manufacturing it's generally well below 15%. I'm sure that this information will be put to good use when corporations demand negotiations on OS and product site licenses.

    What really rankles me about Microsoft is the purposely shortened life-cycle of their products. I can't help but wonder if their software isn't purposely broken so you have to go out to Microsoft and get updates. Once you're in the habit of doing so, most companies would feel mighty exposed not to have currently supported software.

    Combine this with Microsoft realizing that the OS/PC market has suddenly matured, they know their cash cow isn't going to be around forever. I'm sure it's a case of "gettin' while the gettin' is good".

    I have faith in the free market system giving Microsoft their come-uppance. Many companies are realizing that life with Microsoft is far more intolerable than using works-in-progress operating systems (Linux) and applications (OpenOffice).

  • by rufusdufus (450462) on Sunday November 17, 2002 @09:55PM (#4693665)
    Most employees at MS think that the project they work on is successful. Even the ones that are total losers. This is because the orgs are always mixed up so that everyone works in profitable division, and exact profits from each product are never given out. Just praise.

    It was always embarrassing to here people talk about how great their product was doing according the the VPs. Anyone who'd been there long enough knows the truth, but dont rub it in peoples faces. Bad for moral.
  • by sconeu (64226) on Sunday November 17, 2002 @10:09PM (#4693732) Homepage Journal
    Did anybody else think they'd come up with a new product when they read the headline?

  • by kolchak (99585) on Sunday November 17, 2002 @10:30PM (#4693846)
    ...and still no one likes M$ :)
  • by octothorpe (34673) <etwilson@gmail.TEAcom minus caffeine> on Sunday November 17, 2002 @10:47PM (#4693945) Homepage
    It seems to me that MS should be worried by these figures. They have a whole load of different products but only Windows and Office actually make them any money? We're not talking just Xbox here, this is MSNBC, MSN, PocketPC, VisualStudio, Consulting, etc. They've busted there butts trying to diversify for the last ten years and have come up with zero to show for it. Whether they are a monopoly or not is not the point. The point is that they have a huge sled and only two dogs are pulling it. If something should happen to Windows and Office, say Linux and OpenOffice, they would have nothing left to fall back on. Yea, they have a ton of money in the bank to keep them going for a few years but they'll have to work hard at finding something else to do for a living.
    • by imr (106517) on Monday November 18, 2002 @12:00AM (#4694320)
      you forget half of the circle.
      The diversification is not meant as a way to find new products to sale in order to have more profits. The diversification is meant as a way to sustain or extend the monopoly. The monopoly is based on the unavoidable duo windows/office which provides the cash flow to operate the monopoly. All derivative products and their strategy are always centered around keeping the duo unavoidable.
      Take the browser as an exemple, you cant find a more unprofitable redmond product since it was never sold but given. It was never meant to be profitable. It was meant to destroy the netscape navigator and the risk of applications which didnt care about the underlaying os (think web apps and java). Now it's ok because anyone "need" ie to do that.
      This is all in the finding of facts of the doj trial. Those losses are the top of the iceberg that is meant to destroy others.
      Actually, as soon as people stop to pay a lot for something that is cheap (an os and an office suite), then the duo wont be a cash cow anymore in the minute. That must be what keep them awake. It's called open source.
  • Creative accounting (Score:5, Informative)

    by iabervon (1971) on Sunday November 17, 2002 @11:09PM (#4694040) Homepage Journal
    Really, the incomes of different Microsoft divisions are entirely fictional. Most of their sales come from package deals to OEMs, which they could account for in any sort of way. After all, the number one computer game for a long time was the solitaire version that came with Windows. If Microsoft wanted their entertainment division to make more money, they could charge for solitaire and include windows with it for free. Since most people get them both via an OEM, nobody sees them itemized, so MS could change the pricing around, and the only effect would be that the division split on the SEC reports would be different.

    Of course, the SEC filing is not a lie, but Microsoft could choose any gross income they wanted for any given division, and it would be just as accurate, because it doesn't actually reflect any measurable difference in the world outside.
  • by XBL (305578) on Sunday November 17, 2002 @11:43PM (#4694202)
    The price of PCs have gone down dramatically in the last several years. Even though the price of Windows is the same, or has risen is something that the consumer mostly doesn't see directly. Not many people have done the Windows upgrade since Windows 95 came out. Now they just get a new OS when they buy a new computer. A similar thing happens with Office being loaded on new PCs. Unless consumers *really* start to resent the prices of Microsoft, not much will happen.
  • by cartman (18204) on Monday November 18, 2002 @12:19AM (#4694400)
    First, there were about 10 people who made points like these: Mcdonald's charges $1.25 for a large coke when it only costs them $0.03. Diamond retailers have a 200% markup. Vending machines sell coke for $0.75/can when it costs $0.10 to manufacture. Look at how big their profit margins are! And so on...

    The profit margins at Mcdonald's, jewelry retailers, and vending machine companies are very low. You have to take into account all the costs in calculating profit. Mcdonald's only pays $0.03 for the coke they are selling you, but they paid over $1 million for the building in which they are selling it to you, and over $200k/yr for employees in that building, plus costs for managers and benefits, to say nothing of corporate expenses, advertisements, and so on. Retail jewelry stores fail more often than any other kind of store. Sure, they charge a 100% markup, but they get like 2 paying customers per day, for which they must pay rent on a store and employees' salaries, etc.

    An 89% profit margin is extremely unusual. IIRC, the average profit margin in American business is around 4%. The only other large companies that take anywhere near that profit are drug companies, right after marketing a "blockbuster drug" where there few competitive alternatives.
  • by InnovATIONS (588225) on Monday November 18, 2002 @01:31AM (#4694725)
    Windows is a Monopoly because there are no viable alternatives.

    Linux is a viable alternative to Windows.

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