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Microsoft

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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  • by Anonymous Coward on Sunday November 17, 2002 @08:29PM (#4693487)
    ...of the MS products. You're getting a good deal.
  • I wonder (Score:1, Insightful)

    by JessLeah (625838) on Sunday November 17, 2002 @08:29PM (#4693488)
    A) Where on earth they get this data?
    B) If we can trust this data?
    C) How MSFT makes money if it's only making money on two of its franchises? (I know they are BIG franchises, but still... think of how much money MSFT pours into its keyboards/mice/joysticks/flight sims/etc.etc.etc...)
  • Monopoly! (Score:5, Insightful)

    by Cbs228 (596164) on Sunday November 17, 2002 @08:29PM (#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!
  • uhhh... (Score:1, Insightful)

    by Anonymous Coward on Sunday November 17, 2002 @08:29PM (#4693491)
    Red Hat Pro is up there as well, at $150...
  • Sour Grapes, Troll (Score:2, Insightful)

    by Gothmolly (148874) on Sunday November 17, 2002 @08:30PM (#4693495)
    That one division carries a company is NOT an abuse of their monopoly position. Keeping Netscape off the desktop with the threat of higher Windows licensing costs IS. Just because a company makes a profit in 1 area and loses in another doesn't make it abusive. And stop posting anonymously.
  • by Bob Bitchen (147646) on Sunday November 17, 2002 @08:32PM (#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 deft (253558) on Sunday November 17, 2002 @08:33PM (#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...
  • Market (Score:2, Insightful)

    by Junky191 (549088) on Sunday November 17, 2002 @08:34PM (#4693528)
    The market has a way of working these things out. If MS charges too much, people won't buy the product, and their business model will fail. PEople forget that the consumer determines prices by choosing whether or not to buy. This $300 has been dictated by the consumer, and will only change when the consumer changes, monopolies have no bearing on this fact.
  • by krazyninja (447747) on Sunday November 17, 2002 @08:36PM (#4693538)
    How can this called as an abuse? Companies exist to make profits. If there is a monopoly, the profit margins tend to be higher. I fail to see how this can be termed as an abuse. We can talk about the practices followed by MS to gain its marketshare as an "abuse", but marking up the profits is IMO not an abuse, being in a capitalist economy.

  • by Anonymous Coward on Sunday November 17, 2002 @08:36PM (#4693540)
    Ever heard of Debeers?? Its the reason that you can have a 2000% much less 200% markup on diamonds, fucking cretin, research before posting!!
  • by Anonymous Coward on Sunday November 17, 2002 @08:38PM (#4693547)
    >>If MS really had a monopoly

    dude, they were convicted in a court of law. even the biased judges agreed they had been abusing their monopoly.

  • by JessLeah (625838) on Sunday November 17, 2002 @08:38PM (#4693549)
    They aren't charging $1000 a copy (or $2000, or more) because there is a limit people will stand-- in this area, at least (and perhaps only in this area). Joe Consumer won't care if you tell him "This OS is made by an evil candy-from-babies-stealing monopoly with flappin' heads and beady little eyes", but he WILL care if you say "Hey, did you see that new Windows on sale at Best Buy? It's a thousand bucks!"

    I've found that most Americans remain quite apathetic to anything and everything, in general-- until you make it blindingly obvious that something will hit them in the wallet.

    Saying "Windows is made by a monopolist" doesn't get them riled up.
    Saying "Windows will now cost $1,000 a version" does.

    Why? Simple. Since they feel that Windows is great, and therefore "worth" $300-- but $1000 gets it to the point where it's seriously impacting their finances. And that is where most Americans put their collective foot down.
  • by rant-mode-on (512772) on Sunday November 17, 2002 @08:38PM (#4693550) Homepage
    • This profit subsidizes the rest of the MS products. You're getting a good deal.
    *BZZZT* WRONG! The profit subsidises projects that puts other companies out of business. The X-Box is currently losing $750M/year, and is set to rise. How can other companies hope to compete, or even break into that market?
  • by bobsta22 (583801) on Sunday November 17, 2002 @08:39PM (#4693556)
    Soooo - we learn little, and see all. MSchlop breaks all with its monopoly in the OS/Apps area and is then allowed to use that power to stamp all over other industries.

    Thus, it can subsidise its XBox and kill off the Sony/ Ninetendo et al by slowly strangling rather than producing the games/technology. Skinning us for cash when its got a grip that cant be shaken loose.

    Of course, in a country where the Presidents brother can 'gerrymander' an election, and the President cowtows to the OilCorp - where the judiciary is too scared to tackle this behmoth, well, we shouldnt be amazed. We arent, are we?

  • Bashing party! (Score:5, Insightful)

    by targo (409974) <<moc.liamtoh> <ta> <t_ograt>> on Sunday November 17, 2002 @08:39PM (#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 ;-)
  • by JessLeah (625838) on Sunday November 17, 2002 @08:43PM (#4693586)
    I'll bite the bait this troll is dangling in front of us.

    First of all, MS isn't "acting like a capitalist"-- you're right on that accusation-- but they are certainly not acting like a welfare agency. Depending upon which aspects of MS's business plan you dislike the most, they are acting like "a software racket" (think of the Mafia's control of certain industries-- like that, only without all the guns and cement shoes and stuff ;) ), or perhaps "corporate fascists", or maybe "anti-competitive hypercapitalists". In reality what MS is doing runs contrary to several core concepts of capitalism... to wit:

    The free market. It's not free if one company runs the show (almost) by their lonesome.

    Competition. (See above)

    Competing on quality and price, not marketing.

    At least, that's how the "classical capitalists" would have it-- people like Adam Smith and whatnot.

    In any case, MS's behavior in the past decade or so has been sort of a twisted mockery of what capitalism is "supposed to be". Look at what ths Soviets did to socialism-- twisted it into a monstrous nightmare. MS is doing roughly the same thing to capitalism-- wrecking it.

    They are most certainly not anything to do with welfare...

  • by JessLeah (625838) on Sunday November 17, 2002 @08:46PM (#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...
  • by rlwhite (219604) <rogerwh@gmail.REDHATcom minus distro> on Sunday November 17, 2002 @08:46PM (#4693614)
    You're absolutely right about it not being an abuse in terms of the letter of the law, BUT an 89% profit rate is a very strong sign that the market is bearing a heavy price for the monopoly. (Note that 20% profit rates are normally considered very good in most businesses, IIRC. 89% is almost unheard of.) Isn't this type of burden on the market exactly what anti-trust laws were intended to prevent?
  • Wrong. (Score:4, Insightful)

    by oGMo (379) on Sunday November 17, 2002 @08:48PM (#4693623)
    That one division carries a company is NOT an abuse of their monopoly position.

    When you're a monopoly, yes it is.

    Just because a company makes a profit in 1 area and loses in another doesn't make it abusive.

    Again, when your entire multi-billion-dollar monopoly which has widespread penetration in many markets is being supported by two out of thousands of products... that's abuse.

    The key is that this isn't just any company. Sure, a normal company might choose to try their hand at a new market, supporting it with profits from another. But this is a monopoly, and they're using their monopoly to gain marketshare in other markets. All the other markets! This is the definition of such abuse.

    Summary: do not compare this to "any other company". Whey we're dealing with a monopoly, the rules are different.

  • by Arandir (19206) on Sunday November 17, 2002 @08:49PM (#4693634) Homepage Journal
    striking new evidence of what in my opinion can only be described as abuse of their monopoly position

    Every piece of proprietary software that makes a profit is in exactly the same position. So why pick on just Microsoft? The monopoly isn't limited to Microsoft, but available to anyone that has a copyright.

    I know it's fun picking on Microsoft, especially after some of the stupid stunts they've been pulling, but before you start waving evidence around, stop to think about what it means.

    One example: Ximian Connector. Proprietary software. Currently selling for $69 single user. If Ximian can sell this piece of non-free software for $39 instead of $69 and still make a profit, then Ximian is a monopoly!
  • by I Am The Owl (531076) on Sunday November 17, 2002 @08:49PM (#4693637) Homepage Journal
    The full verison 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".

    That's just an outright lie. Do you know what a monopoly is? It is one company selling one product that has absolutely no close alternatives. Is that to say that nobody on Slashdot uses Linux, or MacOS?

    Honestly, your inflammatory editorializing and FUD are giving the Open Source community a bad name. Most of the rest of us, as you may have noticed, are not a bunch of whining, ill-informed teenagers.

  • by adagioforstrings (192285) on Sunday November 17, 2002 @08:49PM (#4693638)
    If MS really had a monopoly, why aren't they charging $1000 a copy then?

    Microsoft charges a price they believe the market will bear. They don't charge $1000 a copy because people wouldn't stand for that. That isn't to say the price could creep up to close $1000 in a few years (provided they will still be in the OS business). Actually, this issue is already covered in Judge Jackson's finding of fact in 1999. See this [albion.com].

    Notice in particular the first sentence (emphasis mine):
    Microsoft's actual pricing behavior is consistent with the proposition that the firm enjoys monopoly power in the market for Intel-compatible PC operating systems...Another indication of monopoly power is the fact that Microsoft raised the price that it charged OEMs for Windows 95, with trivial exceptions, to the same level as the price it charged for Windows 98 just prior to releasing the newer product. In a competitive market, one would expect the price of an older operating system to stay the same or decrease upon the release of a newer, more attractive version.

    And this is all from 1999! How much have they (not) changed in three years?
  • Re:uhhh... (Score:3, Insightful)

    by fandelem (559908) on Sunday November 17, 2002 @08:52PM (#4693646) Homepage
    i can download a full version of redhat for free. and have it be legal.

    can you download windows XP, legally, for free?

    i think it takes a whole different spin on things when a company can sell something for 150$ (and people purchase it) as well as give it away for free, and still be afloat.

    k.
  • by zentec (204030) <zentec@ g m ail.com> on Sunday November 17, 2002 @08:53PM (#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 symbolic (11752) on Sunday November 17, 2002 @08:54PM (#4693655)
    It's a "will consumers ever grow a spine and tell Microsoft to take a flying leap" issue. I realize the alternatives may entail an initial cost outlay over and above the current licensing (for businesses, anyway), but it is my opinion that this will yield significant benefits over the long term. I personally wouldn't mind seeing Bill Gates in a position where he's asking what Microsoft can do to be of greater value to consumers, and hopefully stay in business. But until the spine issue is resolved, this will remain little more than wishful thinking.
  • SEC filings (Score:1, Insightful)

    by Anonymous Coward on Sunday November 17, 2002 @08:56PM (#4693676)
    These filings nowadays require much more detail. Admit it, the Chimp in the White House did something right.

    But to be realistic, MS could raise WinXP to $1000 a copy and it wouldn't decrease sales. It might even increase them because of perceived increased worth. As opposed to a certain bargain basement priced operating system, which is perceived to be worth what it costs, free.

    Now, I don't understand American management's love affair with MS, just that it exists. It does tell me if management has this kind of bucks to throw around, there ain't no recession.
  • Re:Monopoly! (Score:4, Insightful)

    by sam_handelman (519767) <skh2003@@@columbia...edu> on Sunday November 17, 2002 @08:58PM (#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:Huh? (Score:4, Insightful)

    by JessLeah (625838) on Sunday November 17, 2002 @09:00PM (#4693697)
    <JessLeah casts 'Dispel Troll' and recites:>

    1) One small good deed does not cancel out many large bad deeds.
    2) IE is actually not a buggy piece of anything-- I personally think it's quite nice. I merely dislike it because of the morals of the people making/pushing it.
    3) Putting words in my mouth does not mean I agree with them. There will always be situations where companies will release some things at a loss or for free-- it's the concept of the "loss leader". Look at how many video game companies routinely lose GOBS of money underselling their consoles. They make their money on the cartridges/CDs. That's a very common and acceptable course of action.

    Do you really think your cell phone company (assuming you have a cell phone) makes money off of the sale of cell phones?
  • by phatvibez (518108) on Sunday November 17, 2002 @09:01PM (#4693699) Homepage
    I didn't see where they said that one division carrying the the rest of the company was an abuse of their monopoly position?

    They just simply pointed out that it was further proof that a monopoly exists...not that it was an abuse itself.

    more specifically that they can artificially inflate prices and keep them high is an abuse of monopoly powers.

  • Re:Wrong. (Score:4, Insightful)

    by targo (409974) <<moc.liamtoh> <ta> <t_ograt>> on Sunday November 17, 2002 @09:11PM (#4693747) Homepage
    Again, when your entire multi-billion-dollar monopoly which has widespread penetration in many markets is being supported by two out of thousands of products... that's abuse.

    And arbitrarily changing numbers... that's lying.
    First, MS does not produce thousands of products. If you consider Office to be one product (although it actually consists of more than ten different apps) then by this logic the number is way less than one hundred.
    Second, Windows servers (quite different from your home windows) are profitable.
    SQL Server is profitable.
    Exchange server is profitable.
    Most of the other server apps (Biztalk, SharePoint etc.) are also profitable.
    All the development tools are profitable.
    MS Press is profitable.
    Hardware (other than XBox) is profitable.
    PC Games are profitable.
    etc. etc. I don't remember all the different products.
    You may dislike Microsoft, there's nothing wrong with that but lying is just plain childish and unethical.
  • by rseuhs (322520) on Sunday November 17, 2002 @09:12PM (#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.

  • by hackwrench (573697) <hackwrench@hotmail.com> on Sunday November 17, 2002 @09:16PM (#4693774) Homepage Journal
    Microsoft is leveraging their high prices to enable them to give away other products, thus undercutting their competition. If Microsoft didn't require their overcharging in order to charge lower prices on their other products, you wouldn't hear many complaints on the lower priced goods.
  • by RealityProphet (625675) on Sunday November 17, 2002 @09:16PM (#4693775)
    Microsoft is aggresively entering new markets because, when you own 99.9% of one market, further growth in that market can only take place at the rate of growth of the market. And since the OS market is realtiely mature, it does not grow as fast as other, emerging markets. Sorry to burst your bubble, but it has nothing to do with linux being a "major" competitor...
  • by Anonymous Coward on Sunday November 17, 2002 @09:17PM (#4693780)
    He's referring to margin after you subtract out labor and real estate costs, which is really low. The markup on an individual item might be high, but the profit on it (taking everything into account) is low.
  • Re:Bashing party! (Score:3, Insightful)

    by aaarrrgggh (9205) on Sunday November 17, 2002 @09:18PM (#4693787)
    Windows CE NEW?! At least six years old, and still not turning a profit...
  • Re:Monopoly! (Score:5, Insightful)

    by trotski (592530) on Sunday November 17, 2002 @09:25PM (#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:Wrong. (Score:5, Insightful)

    by oGMo (379) on Sunday November 17, 2002 @09:28PM (#4693837)
    When we're dealing with a monopoly, the rules are different.
    Did you ever stop to think about that statement. Really think about it? Ever wonder how fscked the world would be if that attitude were applied universally?

    What? What would the world be like if there were nested "if" statements? Wait. The world is like that. You just forgot.

    There are qualifiers, checks, and balances for a reason. Otherwise there would be unchecked chaos.

    Just because it is the law doesn't make it a good law. Removing the blindfold from Lady Justice is far too grave a matter to justify a separate standard for monopolies.

    This is tripe. "Lady Justice" is hardly blind to begin with. If you kill someone in self defense, is that the same as cold-blooded premeditated murder? The system sees circumstance as important. Being a monopoly is one of these circumstances.

    Monopolies are an imbalance in the system. The system cannot be perfect, so it tries to correct for its imperfections. In a perfect system, there would never be a monopoly. However, an imperfect system with corrections is better than a blind system which refuses to acknowledge a problem.

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

    by enkidu (13673) on Sunday November 17, 2002 @09:31PM (#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.

  • by jrpascucci (550709) <jrpascucci@ y a hoo.com> on Sunday November 17, 2002 @09:31PM (#4693858)
    Hi, The truth is, one of the key components one looks at is net income (how much money comes to you), and not core earnings (profits). If the net income growth is vectoring upwards, and profits are still positive, that company is good for the long term: this is a 'successfully managed company'. Think of it this way: a company that makes $1.00 a year on revenues of 1B is frequently "worth more" than one that makes $1M on revenues of 10M, since you can almost _always_ manage your way smaller (tighten expenses, cost-of-doing-business, etc), and it's really hard to manage your way larger: if the money isn't already moving through you to begin with, you have to 'do something hard', like make a new product, invent something, a new service, to bring the money to you. The fact that most of these business areas are raking in the revenue means that they really are 'investing', instead of merely taking the loss to bend the market to their will. For instance, they spent 628M to make 531M: you don't think they could cut out 100M on MSN to make it profitable, or at least not a loss? They surely could, but I bet that they would harm their long-term growth of income. XBox is a little egregious: made 505M, spent 682M. CE/Mobility is just right for a 'start-up': made 17M, spent 40M. Now, if these continue for several years at these levels, then you might question, but XBox is relatively new, CE/MObility has become 'hot' recently, MSN probably doubles as a way to defray (hide) some of their existing costs (hosting microsoft.com, msdn, etc) that might be associated with other business units, etc. -J
  • Re:Bashing party! (Score:5, Insightful)

    by ryants (310088) on Sunday November 17, 2002 @09:33PM (#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.
  • Re:Wrong. (Score:2, Insightful)

    by theLOUDroom (556455) on Sunday November 17, 2002 @09:35PM (#4693877)
    Actually it is a good law.
    Monopolies are bad for the economy.
    It's not my opinion, it economic fact. Take econ101 somewhere and you'll learn about it.
    Remove the blindfold from yourself. Learn about the way the world works. Not every law is a good law, but not every generalization can be applied universally.
  • Re:File formats! (Score:2, Insightful)

    by Corrado (64013) <rnhurtNO@SPAMgmail.com> on Sunday November 17, 2002 @09:36PM (#4693882) Homepage Journal
    This begs the question then: why are Microsoft making all of their future file formats XML [microsoft.com]?

    I don't agree with all of Microsofts efforts but I think this looks like a pretty good effort to work and play well with others. However, knowing Microsoft's history I think that this is likely a ploy to gain more market share. :/
  • M$ Tax (Score:2, Insightful)

    by jsavage47hotmail.com (616726) on Sunday November 17, 2002 @09:38PM (#4693888)
    Actually you did pay for windoze, ever hear of the M$ Tax? That computer would have been about 100 USD cheaper if it hadn't shipped with windoze.
  • by rseuhs (322520) on Sunday November 17, 2002 @09:38PM (#4693889)
    The differnence is that a grocery store has actually a realistical possibility in returning the investment and finally make a profit.

    Microsoft's playthings like XBox and WinCE will never be profitable.

    Or to put it in words you understand:

    ALL divisions at Microsoft are dependent on Windows and Office. With people refusing to upgrade and/or migrating to OpenOffice and Linux, ***** ALL ****** Microsoft products are endangered. - Sooner than you might think.

    Expect the MSFT-shares to drop a bit in price over the next days. Shareholders don't like being lied to - they also don't like a company that is picking up losing ventures one after another (most recently and most serious is XBox. Sold about half as many units as Microsoft expected and promised - at a higher loss than expected.)

    It's no coincidence that Bill Gates sells thousands of shares each week. He knows that even after all the beating the MSFT-stock received, it's still overpriced.

    Microsoft's problem is that without happy shareholders, all their tax-stock-option loopholes don't work anymore. And without them, they would make losses - RIGHT NOW.

    Always remember: The most profitable product Microsoft sells is not Windows and not Office, it's MSFT-stock.

  • Re:Wrong. (Score:3, Insightful)

    by WolfWithoutAClause (162946) on Sunday November 17, 2002 @09:38PM (#4693892) Homepage
    When we're dealing with a monopoly, the rules are different.

    Did you ever stop to think about that statement. Really think about it?

    I have. Large monopolies like Microsoft scare the shit out of me. If they don't you, then you don't understand what Microsoft can do right now.

    Ever wonder how fscked the world would be if that attitude were applied universally?

    It's not an attitude. It's a fact, a law; and law is supposed to be applied universally. There are specific rules that deal with monopolies. And they are there for good reason. Some markets are natural monopolies, but it is wrong to allow monopolistic practices to spread to non monopoly markets; the consumer and the businesses in those markets, and all their employees always suffer. To the extent that the laws succeed in that goal- they are good law.

  • Re:Bashing party! (Score:5, Insightful)

    by targo (409974) <<moc.liamtoh> <ta> <t_ograt>> on Sunday November 17, 2002 @09:39PM (#4693896) Homepage
    you can claim research costs for tax benefits

    This only means that you don't pay income tax on that particular amount. It most certainly doesn't mean that R&D is free, it is just discounted by some small percentage. If your claims were true then everybody would spend all the tax money on R&D, and not pay taxes at all.
  • Re:Monopoly! (Score:4, Insightful)

    by VegetariMan (162508) on Sunday November 17, 2002 @09:40PM (#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:Wrong. (Score:4, Insightful)

    by proxima (165692) on Sunday November 17, 2002 @09:41PM (#4693916)
    When we're dealing with a monopoly, the rules are different.

    Did you ever stop to think about that statement. Really think about it?

    Yes, I have. At first glance, it may make sense that government should treat all companies alike. However, monopolies are considered bad for capitalism by most economists. Inevitably monopolies form; markets which operate best with monopolies are called natural monopolies (like water, electricity, etc).

    In order to keep markets competitive, governments put greater restrictions on monopolies. Your electric company can't move into the light bulb business and charge you more for electricity if you don't buy their light bulbs.

    Whether or not the operating system and office suite markets naturally create monopolies is irrelevant. Economically speaking, it's bad for competition and a free market to have Microsoft use its monopoly power to enter new markets. Giving away free products, anticompetitive licensing agreements to OEMs, and simply underpricing other competition are examples of this.

    So yes, the rules are different for a monopoly. This is good for every consumer and every firm except Microsoft.

  • Re:Bull shit (Score:3, Insightful)

    by the eric conspiracy (20178) on Sunday November 17, 2002 @09:43PM (#4693925)
    A lot of businesses have that much markup.

    Like Hell. Markup is NOT the same thing as profit.

    Profit is equal to revenues minus the cost of manufacturing and minus the cost of sales admin and R&D. Markup is the increase percentage of cost of goods (i.e. manufacturing cost) to reach the selling price.

    Most businesses have to have 80% markup to just break even. In the US the average business makes about 10% profit on a 80-100% markup.

    Do you think I can buy a computer cable for $5 from Tiawan, mark it up and 100% and sell it to you for $10 and make a 100% profit? No friggin way. I still have to pay inventory carrying costs, rent on the warehouse, salaries and benefits of my bookkeeper and shipping clerks, taxes and so on.

    What Microsoft has to do is sell their product at a price that is about 7 times what their manufacturing, sale, admin and R&D cost is to achieve an 86% profit. If we assume that their sales,admin,R&D costs are essentially the same as their manufacturing cost (typical for most companies), that means Microsoft's markup is 1400%, or fourteen times what the typical US business markup is.

    Microsoft has been, and continues to be the most profitable (as a percentage of sales) large organization in the world. Major products like Windows with it's 86% profit exceed any other known large scale product in profitability. And that includes products like cocaine sold by drug cartels that only averages a 50% profit margin, and the patented pharmaceuticals that people on this site whine about so much.

    THE ONLY CONCIEVEABLE WAY THAT MICROSOFT CAN MANTAIN SUCH PROFITS IS THROUGH PRICE GOUGING MADE POSSIBLE BY A MONOPOLY.

  • by g4dget (579145) on Sunday November 17, 2002 @09:44PM (#4693928)
    That one division carries a company is NOT an abuse of their monopoly position. Keeping Netscape off the desktop with the threat of higher Windows licensing costs IS. Just because a company makes a profit in 1 area and loses in another doesn't make it abusive.

    No, but it becomes abusive when the company uses profits from one division to lower the prices of their products from another division in order to drive out competitors.

    The US itself complains about this constantly when it comes to European steel imports and other goods. Maybe the solution to this problem is for the Europeans simply to impose hefty import duties on Microsoft's below-cost exports to the EU.
  • by octothorpe (34673) <etwilson AT gmail DOT com> on Sunday November 17, 2002 @09:47PM (#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 Anonymous Coward on Sunday November 17, 2002 @09:47PM (#4693948)
    I hate the abusive stuff MS pulls as much as the next person. The only way things will change is put your money where your mouth is. As other's have said, buy computers using other OS or software. If you're really that fed up, then switch.
  • by MattCohn.com (555899) on Sunday November 17, 2002 @09:52PM (#4693969)
    Incorrect.

    Now I'm not the average slashbot who runs nothing but Linux from his home computer to his coffie machine, but what I got from the article is that Microsoft is sustaining a foot in the door of a market that doesn't want them. If they are loosing money making mice and keyboards, our economy is set up so they would have to inovate or go out of business. Microsoft is the exception to the rule. They can keep on producing their products even after the market has voted them as the weekest link. The fact that Microsoft is using sales of its other products to continue to produce infirior hardware is not fair to the consumers who have already choosen Logitech and Genius. Two companys who produce amazing hardware and make a profit at it. I don't know about you, but I'm not sure how long I'd last without MY Genius NetMouse Pro.
  • Re:Bashing party! (Score:3, Insightful)

    by dusanv (256645) on Sunday November 17, 2002 @09:57PM (#4693992)
    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?
  • Re:Monopoly! (Score:3, Insightful)

    by xswl0931 (562013) on Sunday November 17, 2002 @09:58PM (#4693995)
    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.
  • by Xtifr (1323) on Sunday November 17, 2002 @10:05PM (#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.
  • by MBCook (132727) <foobarsoft@foobarsoft.com> on Sunday November 17, 2002 @10:07PM (#4694028) Homepage
    How can other companies hope to compete, or even break into that market?

    Of course, because the video game arena was profitable and easy to get into BEFORE MS entered. Well, except for Sega, they lost too much on the hardware and had to leave that part of the business. But, that must have been for some other reason. Neo-geo has done great in the US. Well, I guess they've failed before MS got into the market. There have been a LOT of companies over the years that have tried to get into this market before, and most all have died. Even veterans like Sega have had problems pre-MS.

    In fact the only company in recent times that I can think of to successfully break into the video game business was Sony. Why was that? They had the money to make a great product and keep it afloat untill it really took off. MS is doing the same thing. For all the MS bashing here on /. (which I'm usually part of) you have to admit that the XBox is a great piece of hardware compared to the other consoles on the market. And being MS, they can afford to entice publishers and devote resources to helping them make the games look/run better.

  • by the eric conspiracy (20178) on Sunday November 17, 2002 @10:07PM (#4694029)
    Consumers do have a choice at present

    OK, call up Gateway and try to get them to sell you a computer without Windows pre-installed. Can't do it, can you? Or try running over to Best Buy and getting a computer without Windows on it.

    Or try buying a Sony laptop without Windows installed on it.

    The fact is that consumers do not and will not have a choice until the have the freedom to purchase any computer they want WITHOUT Windows installed on it.

    Right now Microsoft has the market sewn up with these pre-installs to the point where consumers do not have a choice.

  • Re:Wrong. (Score:4, Insightful)

    by the_rev_matt (239420) <slashbot@revmatt ... inus threevowels> on Sunday November 17, 2002 @10:12PM (#4694060) Homepage
    Um, yea. I'm trying to figure out how you think that MS Press, Hardware, PC Games, etc etc are profitable. Read Microsoft's own 10Q. They state in black and white that all those divisions all lost money. You have an interesting, if wildly inaccurate, interpretation of the word "profitable".
  • Re:Huh? (Score:5, Insightful)

    by baldass_newbie (136609) on Sunday November 17, 2002 @10:16PM (#4694079) Homepage Journal
    MS gives out IE for free, that's anti-competetive?

    Boy. You don't even kind of get it, do you?
    Giving away software isn't what makes MicroSoft a monopoly. Using their leverage as THE MAIN supplier of household Operating Systems to distribute this software, to the exclusion of others, with a toehold in the OS that other browsers will not have and then, ultimately, claiming that the browser is INEXTRICABLY intertwined with the OS -- all of these things are what make MS a monopoly.
    Repeat after me: It's not giving away software, it's unfairly using an advantage and obstructing others that makes MicroSoft a monopoly.
    I don't think most people would care if MS kept to standards, but that's another story.
  • Re:Profits? (Score:2, Insightful)

    by workindev (607574) on Sunday November 17, 2002 @10:16PM (#4694082) Homepage
    When any one company can afford to loose billions of dollars running other companies out of business while creating inferior products

    Its funny how the typical slashdotter throws all reason out the window when it comes to Microsoft.

    First point, they are not loosing billions and billions of dollars. Microsoft is one of the most profitable companies out there. The fact of the matter is that every company out there has a cash cow product that funds the research and development of other products. If it were a requirement that everything that every company made was profitable from the first day they started making it, we would still be riding in horse and buggy carriages.

    Why can't you see that the reason that Microsoft has such a dominant market presence today is because they make software that people want. When you sit and complain that the consumer does not have a choice you are only saying that the alternatives that you champion so much are the inferior products. There are Microsoft alternatives with every product they sell, and the reason they are successful is because 95% of all consumers choose Microsoft over the alternatives. This is no "monopoly rent". I guarantee that if they were charging more than people were willing to pay, they would no longer be the most popular software company out there.
  • Re:Monopoly! (Score:4, Insightful)

    by Salamander (33735) <[jeff] [at] [pl.atyp.us]> on Sunday November 17, 2002 @10:23PM (#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.

  • by Kwil (53679) on Sunday November 17, 2002 @10:35PM (#4694163)
    ..it's called "Employee Stock Options", and it's sold to Microsoft Employees in exchange for them receiving an otherwise mediocre wage.

    When the price of the stock goes down, it ends up either increasing the real money that MS has to pay, or increasing the number of stock options they pay. Of course, the latter means that actually everybody's stock is slightly devalued, it's just that the ponzi effects haven't shown up yet.

    Should the stock start to drop quickly, I'm betting the amount it will drop will be staggering as all of those employee shares start flooding onto the market.

    When the MS bubble finally bursts (and if the company never pays dividends, sooner or later it will, just like any ponzi scheme) it's going to be sheer hell on the economy.
  • Re:Huh? (Score:3, Insightful)

    by walt-sjc (145127) on Sunday November 17, 2002 @10:36PM (#4694167)
    Actually, YOU don't seem to understand the basic definition of a monopoly [m-w.com]. MS has a monopoly because the court found that there was not a viable competitor in the market - they have exclusive possesion or control of the desktop OS market.

    The "abuse" of that monopoly (using monopoly power to leverage other business in a way that gives MS an unfair advantage) is the illegal part.

    While I agree that "most people" don't care if MS used standards, I would bet that "most computer professionals" DO care, yet due to the monopoly issue can do very little about it. MS's failure to adhere to standards (and the embrace and extend practice) makes it REALLY flippin hard to interface MS systems to other non-MS systems.
  • Re:Bashing party! (Score:2, Insightful)

    by SparkyMartin (206236) on Sunday November 17, 2002 @10:41PM (#4694187)
    Also:
    4) The price M$ charges for its' Windows or Office products hasn't substantially changed over 10 years. If Win3.1 was $199 in 94 and if XP was $899 today then there would be a problem.
    5) If M$ cut their prices in half, the next /. article would be something like "Microsoft using monopoly position to undercut and stifle competition"
    6) Most companies have profitable divisions that subsidize other divisions that operate at a loss.

    Now I don't like M$ very much myself, but there's alot of knee-jerk spindoctoring going on with some of these M$ articles, but they make for a good read. :)
  • by praedor (218403) on Sunday November 17, 2002 @10:48PM (#4694236) Homepage

    Not that it alters your post much but I buy most of my linux versions these days for two reasons: no broadband (don't want to wait through a week of downloading to get the new distro) and desire to support the linux developers in my current favored distro.


  • by purplebear (229854) on Sunday November 17, 2002 @10:53PM (#4694273)
    I use Linux daily, as my desktop. You are absolutely mistaken on the "only two reasons to buy Linux" assumption. The most important reason to buy Linux us to support your developers. I have bought many of the distributions you listed. Of course, in most cases, not until after I had them installed and working well.

    I don't buy distributions for the discs, manuals or support, I buy them to support Linux.

  • by StDave (13072) on Sunday November 17, 2002 @10:54PM (#4694279) Homepage Journal
    I think what we are looking at here is some sort of economic evolution. You will notice that Microsoft's most mature products (office and Windows) are profit leaders. However, loss leaders will be products that some day (maybe 5 years) will bear the fruit grown in the soil rich with competitor's blood. Once all of the competition for browsers, or Database servers are dead, they can crank up the profit margin on those products, as all of the competition has been swallowed, killed, or discredited by FUD.

    The real unanswered question is whether this is a death knell or call to arms.
  • by Billly Gates (198444) on Sunday November 17, 2002 @10:55PM (#4694285) Journal
    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.

  • Re:Monopoly! (Score:2, Insightful)

    by radicalsubversiv (558571) <michael@sherr[ ]s.org ['ard' in gap]> on Sunday November 17, 2002 @10:57PM (#4694296) Homepage Journal
    The supposed magic of capitalism (Adam Smith's invisible hand) rests upon a competitive market -- one with many producers, relative ease of entry and exit, and an undifferentiated product.

    Note that this describes neither the market for colas or computer operating systems. In the case of colas, it may be a case of what some economists call "monopolistic competition," in which the products are highly differentiated, so the producers are not forced to compete on price. (In this case, the differentation is a bit of a fraud, built by multi-million dollar advertising budgets designed to sell an image rather than a beverage.) If the buying public perceived all colas as identical, Coke would sell for no more than its store-brand equivalents.

    Microsoft's case, however, is one of obvious monopoly. Note that this does not mean that Microsoft will set the price of Windows as high as it wishes. What it does mean is that Microsoft is able to set the price, rather than having the price determined by the market! Microsoft, if it acts intelligently, will set the price at such a point as it maximizes revenue (volume sold * price).

    Which brings us to your question about the level of profit we should consider acceptable. From an economics point of view, only a "normal" rate of profit is acceptable -- anything above that is considered excess profit, and has no social justification. What is a normal rate of profit? It is the "opportunity cost of capital" -- the rate of return capital requires to locate and remain in an industry, rather than investing in, say, federal bonds (which carry no risk).

    In a perfectly competitive marketplace, there is never any excess profit. This is because excess profit is a market signal for other firms to enter the market and drive the price down. However, in a market which is served by a monopoly, that monopoly is perfectly able to secure a rate of profit far above the normal rate. In other words, from the point of view of Smith's invisible hand, Microsoft's profit is in no way socially justifiable.

    Really, if you're going to toss around the same tired old free market arguments, please consider making some attempt to actually learn the "science" behind your ideology. As it happens, I'm a socialist and think that neoclassical economics is largely nonsense, but I am actually taking the time to gain some working knowledge in it. You would do yourself a favor by doing the same.
  • by Rydia (556444) on Sunday November 17, 2002 @11:07PM (#4694353)

    The specs of the system and the money involved have very, very little to do with the overall quality of the games. The Sega Genesis had jack for money and barely any developers against the NES behemoth. They didn't need money, they didn't need to "entice developers," they got a few good ones together that would work for cheap, made their own games for their own system, and gave Nintendo one hell of a run for their money. One could even say that the infusion of cash has been a bad thing for the industry, large markets have turned something that was very much an art form for decent profit to a big media market. When anything that looks somewhat pretty or is halfway entertaining makes a metric assload of money, there's much less incentive than there was when only the really great games got any sizable amount of cash. There's just no motivation anymore, which is why we can always predict that the great games are going to come from people like Yuki Naka, Yu Suzuki, Shigeru Miyamoto, their teams, and the projects they supervise. The names are so important because these are the people that still treat it like an art (except Yu Suzuki not so much anymore, but he hasn't had any public support since Shenmue flopped).

    Also, it's pretty silly to call a console with UMA technologically superior to the others. Just because they throw fancy/powerful PC hardware in a box doesn't mean it's a superior gaming platform. The biggest point of a console is architecture, not raw power, not how impressive the hardware is, but how incredibly well everything works together. One of the best things Sony did with the PS2 was the emotion engine [arstechnica.com], while it had some serious oversights (lack of hardware antialiasing), it was a better attempt at a SYSTEM than MS's PC in a slightly smaller box. I don't know as much about the customization of flipper and the rest of the gamecube, but from what I know of the N64 I think I can assume that Nintendo knows what they're doing hardware-wise (aside from that unfortunate incident with the N64 cartridges). I know that someone's going to mention all the wonderful benchmarks that everyone and their mother with a dev kit has put out. Be sure to read what they're testing - 9 times out of 10, the benchmarks are just polygons without effects. Benchmarks on consoles are useless.

  • Re:I wonder (Score:1, Insightful)

    by Anonymous Coward on Sunday November 17, 2002 @11:08PM (#4694359)
    MSN and CE are in startup mode? How many years does a startup division need in order to no longer be a startup? When it actually sees positive earnings?
    I remember joining MSN after Windows 95 came out. I canceled the same month, but unless the 'new' MSN is some other division of Microsoft not related to the MSN that I subscribed to, I would have to say that MSN is about 7 years old.
    Didn't CE come out with the Dreamcast? Wasn't that released in '97?

    They are in startup mode only because Microsoft has two forms of businesses - Monopolies and Not-Quite Monopolies.
  • by cartman (18204) on Sunday November 17, 2002 @11:19PM (#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 tunah (530328) <sam&krayup,com> on Sunday November 17, 2002 @11:19PM (#4694401) Homepage
    *Sigh*

    Okay, here's how it works. People who buy computers have a reasonable disposable income. They also feel windows is a necessity for their computer. Therefore their demand for windows varies little with price.

    As long as the response of demand to a change in price is proportionately less, MS increases profits by increasing price. However, this does not produce a socially desirable outcome. Microsoft's surplus, or benefit derived from sales, is bigger than if the price was $50, but the consumer's is much smaller. The total is less than if the price was $50. This situation can only be maintained in the long run due to the monopoly position of MS, and is called a market failure.

    Therefore, the socially desirable thing is for the government to buy/regulate/whatever microsoft to sell their supernormal profits cheaper.

  • by invenustus (56481) on Sunday November 17, 2002 @11:40PM (#4694504)
    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 Anonymous Coward on Sunday November 17, 2002 @11:42PM (#4694515)
    Most business type software enjoys an 80 percent profit on their software products. Now Microsoft is a bit higher, they don't make 89 percent across the board. Just on 2 products.

    People have choices out there. Problem is they are free, and most people choose something they can pay for to provide peace of mind it's a good investment.

    Really simple.
  • Re:Monopoly! (Score:4, Insightful)

    by danheskett (178529) <danheskett@NoSPAm.gmail.com> on Sunday November 17, 2002 @11:45PM (#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:5, Insightful)

    by Flower (31351) on Sunday November 17, 2002 @11:46PM (#4694528) Homepage
    Yeah, this would work in a Free Market void of marketing, PR and advertising. It would be true of a Free Market if "DOS ain't done until Lotus won't run" never happened. It would work ****IF**** once the monopolist has control of the market they don't abuse their ability to set price or if they don't punish OEMs for trying to use a competitor's product. You omit from your example that Superior has agreements which punish airports for allowing Lincoln onto their runways and contracts that don't permit the airplane makers to roll out aircraft to Lincoln as fast as the company needs them to grow. And anyway, who has heard of Lincoln? The only advertising they can afford is word of mouth.

    Remember that a whispering campaign by Microsoft alowed them to kill the first competing GUI OS for the PC (merit of competitor's product beside the point) while getting the market to wait for Windows 1.0. Hey, MS didn't even have a product to compete with.

    I refuse to buy the concept that some utopian Free Market is better than a regulated one. It all falls apart when you accept that in today's day and age a truly informed consumer that is swayed by hard fact and unmoved by corporate propaganda doesn't exist. Even the Christian Right could not effectively boycott Disney and its byzantine array of subsidaries(sp.)And the only good monopoly I've seen so far has been the NFL.

    And btw, MS didn't have a patent in its pocket to become a monopoly. I may hate software patents and think they are an abomination but they aren't the one true reason of why monopolies are bad.

  • by tshak (173364) on Sunday November 17, 2002 @11:48PM (#4694534) Homepage
    Microsoft's playthings like XBox and WinCE will never be profitable.



    How does such rubbish get a +5? NONE of us know whether or not they will be profitable, and people who actually study business (or who at least have a basic understanding of business, unlike many here at /.) predict that many of Microsofts ventures will be profitable.

    Microsoft's problem is that without happy shareholders, all their tax-stock-option loopholes don't work anymore.

    NEWSFLASH - Companies rely on happy shareholders. Please, got back to school.
  • Also note that these are operating profits and not GAAP earnings.

    Odds are good that they're neither [billparish.com], and the fact that they still look bad should horrify you.
  • by MacAndrew (463832) on Monday November 18, 2002 @12:02AM (#4694594) Homepage
    Hold on -- the problem with comparing the $300 list price with the 85% profit margin at first blush appears to be that, of course, copies are sold at every price from $300 down to whatever bulk OEM bundling deal might be hammered out.

    However, that misses the point altogether of a margin: an 85% profit margin is always an 85% margin. 85% tells you what fraction of the take, and it's a big take, is characterized as profit. And 85%, especially given the VOLUME we're talking here, is staggering. 85% suggests you've either got a product that it unusual and special and hot and patented or hard to imitate, or that something fishy is going on.

    You almost want to ask, why don't they spin off the Windows division? Well, we know that the Windows division bankrolls other, future plans of the Microsoft Corporation as it casts about trying to provide for its ongoing viability.

    As for the relevance of monopoly, easy, it raises the highest price that the market will tolerate by imposing illegal constraints on the market finding something better. It's the essential reason that a monopoly is desirable. Think of it as getting a higher price from your customer with a handshake and a gun than a handshake alone. Simple as that, and just as illegal.
  • by Your Login Here (238436) on Monday November 18, 2002 @12:09AM (#4694615)
    I notice that a GeForce 3 class video card is conspicuously absent from your numbers. As is a DVD-Rom drive. And I suspect that the X-Box's unified memory architecture requires faster, more expensive RAM then you're using.
  • big fucking deal (Score:3, Insightful)

    by larry bagina (561269) on Monday November 18, 2002 @12:20AM (#4694676) Journal
    well, i hope i'm not interrupting the cirvle jerk, but this isn't really the news that the poster or michael seem to think it is.

    I happen to know another company with a negative cash flow in most divisions. Actually, all divisions. It's VA Linux, and they're burning up money (from VCs and the IPO). Does that make them evil? Nope. Capitalism is about investing money (and taking a loss here and now) in the hopes of achieving profits in the future. It cost a lot of money to develop SourceForge (and all those star wars ripoff ads!), but now that it's developed, maybe they'll be able to sell it for large amounts of money.

    Why is it different for MS? Because they don't need to seek outside VCs or do an IPO to create MSN or MSNBC or XBox? Or because someone has a hard on for them?

  • by darekana (205478) on Monday November 18, 2002 @12:25AM (#4694696) Homepage
    "How can other companies hope to compete, or even break into that market?"

    You and what other companies? :)
    Maybe Atari or Neo Geo or Nec (TurboGrafx) or 3DO or Amiga or Indrema... or everyone else. [google.com]
  • Re:Monopoly (Score:2, Insightful)

    by Fulg0re- (119573) on Monday November 18, 2002 @12:41AM (#4694754)
    Small correction.

    In terms of Perfect Competition, Price = Marginal Cost. (P = MC)

    In terms of Monopoly pricing, Marginal Revenue (MR) = Marginal Cost (MC). Solve for Quantity (Q*), and plug that into Price (P).

    Price cannot equal Marginal Revenue as they are two different curves. For example:

    if P = 100 - 2Q

    Total Revenue (TR) = P*Q

    TR = (100 - 2Q)(Q)
    TR = 100Q - 2Q^2

    MR = dTR/dQ
    MR = 100 - 4Q

    Now, in order practice price discrimination the monopolist must (1) rule out arbitrage and (2) be able to classify customers.

    To maximize profits the monopolist should increase the price paid by customers with an inelastic demand and decrease the price paid by customers with an elastic demand.

    Price discrimination will increase profits but unit sales are unaffected.
  • Re:I wonder (Score:2, Insightful)

    by runenfool (503) on Monday November 18, 2002 @12:45AM (#4694764)
    It must be nice to be able to fund divisions in 'start up mode' six years after they were created (Windows CE).

    How can competitors fight back when Microsoft can continue to fund money losing products until the end of time? It pretty much means that the competition has to run twice as fast to win the race, and if they stumble, they lose.

    Attacking them in their core markets is the only way to go. OpenOffice needs to continue to improve, as does Linux. The loss of the Windows/Office revenues would be very hard on Microsoft.
  • Re:Monopoly! (Score:3, Insightful)

    by Malcontent (40834) on Monday November 18, 2002 @12:46AM (#4694769)
    What is more important to point out is that they are able to subsidize other businesses with their monopoly profits. This makes it impossible for other companies to compete with MS in any market that MS enters.
  • by cookd (72933) <[moc.onuj] [ta] [koocsalguod]> on Monday November 18, 2002 @01:36AM (#4694952) Journal
    Microsoft definitely has a monopoly. But it is not illegal to be a monopoly. It is illegal to use monopoly power in certain ways, and neither I nor the vast majority of the SlashDot crowd is anywhere near capable of determining what behavior by a monopoly is legal and what behavior is illegal.

    Homework assignment: go read the complete trial history of 7 major monopoly trials. After that, I'll listen to your opinions about how illegal Microsoft is. Until then, don't take it upon yourself to determine how illegal and evil Microsoft is.

    Microsoft has done something that no other industry could do: provide a platform compelling enough to allow it to continue to make 85% profit margins even in the face of fairly strong competition being given away for free. People want/need/think they need Windows and Office. And maybe they don't just get it because they are ignorant masses. Perhaps they get it because it provides some things that nothing else can.

    First, it is pretty tough to say exactly what it cost to produce Windows. We can see how much Bill spent on employees in the Windows division last year versus the profits that Windows sales brought. But Last Year's work on Windows isn't what made people want to make Last Year's Windows purchases. It was the work of years of figuring out how to make Windows valuable. A lot of this was research (which loses money). Some of this is peripheral applications (which lose money) -- without them available, nobody would want to buy Windows.

    Now in doing this, Microsoft has stepped into controversial territory. Instead of under-pricing to take over a market, they are under-pricing to ensure the survival of another market. Those are different things. Predatory pricing is illegal, but the other hasn't been completely evaluated in court (AFAIK). Perhaps they are both wrong, perhaps only one. (Although it is likely that the real answer is that you can't really have one without the other, so maybe the question is moot.)

    But I suggest that instead of yelling about how evil (aka very effective at doing what companies are supposed to do -- make a profit) and mean (aka looking out for themselves instead of their competition) Microsoft is, and how all Microsofties should go to jail, I would much rather focus on topics more grounded in reality:

    What is Microsoft doing that Open Source isn't? How can we start doing this better without abandoning our values?

    Should this practice of non-predatory undercutting be legal? It has definite advantages for some people (even not counting Microsoft), and definite disadvantages for some people. Is it different, as I asserted earlier, or is it the same as the normal predatory price undercutting?

    What population is most hurt by this practice? Can Linux fill this need? Should we work to make this happen, or would it be better to chase the more mainstream population?

    What do we need to do to shore up Linux's environment in the same way that Microsoft shores up Windows' environment?

    The mindless repetition of whining and flaming of Microsoft every time any article about them comes out won't get anybody anywhere. Lets talk about something intelligent for a change. Please?

    Thanks.
  • by DeepRedux (601768) on Monday November 18, 2002 @01:42AM (#4694970)
    Bottled water seems to keep selling even through tap water is basically "free". Some people will pay for what they perceive as quality even given a free alternative.
  • by krazor84 (602198) on Monday November 18, 2002 @02:03AM (#4695039)
    From the FAQ
    "One of the facts that this myth ignores is the role of the capital markets in a free economy. So long as investors are left free from government controls, they are free to bring an unlimited amount of new capital into any given industry. Thus, for example, a software company that has built its way up to a $400 billion market capitalization over a period of twenty years (Microsoft), may suddenly face, almost overnight, a $350 billion rival (AOL Time Warner)--thanks to the free capital markets that make such a merger possible."

    Remind me, are AOL Time-Warner making Operating Systmens? Or are they making products to run on Microsofts OS's, I.e. complimenting rather than competing with Microsoft. And if Microsoft makes money off it's OS and Office exclusively, as shown in the /. article, then why should Microsoft feel threatened by AOL Time-Warner? Infact, are their any companies which are in a posistion to try and create an OS for the PC home market which could compete with Microsoft?
    The answer, is no there isn't. Other companies do not have the commercial influence to threaten Microsofts posisiton in the OS market.
  • Re:Monopoly! (Score:4, Insightful)

    by nathanh (1214) on Monday November 18, 2002 @02:20AM (#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.

  • by Anonymous Coward on Monday November 18, 2002 @05:30AM (#4695645)
    The example used is extremely poor and misleading. Every company that makes consoles lose on the hardware, not just MS. Its possible and likely that MS loses less on its hardware than the other two of the big three. However windows doesn't subsidize it. What does is the fact that every 50$ game sold, around 10-20$ goes into making it, and the rest goes as profit.

    This is the standard in the industry, and unless Sony bites the big one, I don't think you'd ever have to worry about MS gaining a monopoly in video game consoles.
  • by mark99 (459508) on Monday November 18, 2002 @05:57AM (#4695715) Journal
    I had a look at the report.

    Looking under Note 9 - Segement Info it looks like 3 of 7 segements are profitable, namely Client, Server Platforms and Info Worker. These three are by far the biggest.

    The 4 non-profitable ones are obviously bets on the future (Business Solutions,MSN, CE/Mobility, Home and Entertainment).

    One can make a case for Monopoly Rents, but it looks to me more like a classic business portfolio (Cash Cow/Dogs/Stars/Question Marks)

    Just my 0.02
  • by alexjohns (53323) <<moc.liamg> <ta> <cirumla>> on Monday November 18, 2002 @08:59AM (#4696316) Journal
    Not necessarily a paradox.

    A bicycle is a viable alternative to a car. Unless you work a long way from home or have to bring new furniture home, or have kids to drop off at daycare, or live someplace where it snows a lot.

    So a bicylce is a viable alternative to a car, but there's lots of caveats.

    Going naked is a viable alternative to clothing. Unless you're not a supermodel, or want to leave the house, or own lots of mirrors, or don't like to get arrested.

    The Linux/Windows thing is not a true paradox. Linux is a viable alternative to Windows as long as your work doesn't require Windows, you don't want to play any of the games only available on Windows, you don't need any of the apps only available on Windows, and you're willing to spend a little time when things don't work right out of the box.

    If you lost your car for some reason, you could probably get by: friends, bike, public transportation, taxi, rentals. If you lost Windows, you could probably get by - most Windows apps have an equivalent on Linux, and those that don't you could get from a friend's PC or at work or maybe on a Mac. We generally don't have to make the either/or choice, but we could if we just weren't so lazy/set in our ways.

    Not a true paradox, but funny, I guess.

  • Re:Monopoly! (Score:2, Insightful)

    by MindStalker (22827) <mindstalker@gmail. c o m> on Monday November 18, 2002 @09:12AM (#4696398) Journal
    Well Free Market does include government to set rules fairly and enforce them fairly. The problem is, that simply isn't happening.

I've got all the money I'll ever need if I die by 4 o'clock. -- Henny Youngman

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