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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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  • by sconeu (64226) on Sunday November 17, 2002 @09:29PM (#4693489) Homepage Journal
    Obligatory Duplicate Story complaint.

    Friday on Slashdot [slashdot.org].
  • 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.
  • 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.
  • by Rombuu (22914) on Sunday November 17, 2002 @09:33PM (#4693514)
    The difference between the $45 price and the $300 price is what economists call "monopoly rents"

    Oh bullshit.

    If MS really had a monopoly, why aren't they charging $1000 a copy then? Just because they have a high profit margin, doesn't make it monopoly rents. Go down to your local jewery shop... those places routinely have 100 - 200% markups on items for sale... now tell me they have a monopoly on jewerly.
  • by Dr.Hair (6699) on Sunday November 17, 2002 @09:33PM (#4693518) Homepage
    Does anybody remember how hard it was for the government to get information on their billing practices from Microsoft during the discovery phase of the trial that just ended?

    Microsoft said that their books were too difficult to understand and that they wouldn't let the government have direct access to all of the electronic data, even after a court order on the matter.

    Does this new breakout of information have something to do with Microsoft being slapped on the wrist by the SEC for accounting irregularities?
  • 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.

  • 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.

  • Move to Redmond.. (Score:2, Interesting)

    by James_G (71902) <james@NoSPaM.globalmegacorp.org> on Sunday November 17, 2002 @09:39PM (#4693560)
    That's what I did.. I know enough people who work at Microsoft that if I need a copy of XP or Win2k or whatever, they can get it for me at the employee store. Last time I checked 2K pro went for $25 and XP went for $35.. Sounds far more reasonable than the $400 or whatever they charge retail :)
  • MS stocks on Monday (Score:2, Interesting)

    by certron (57841) on Sunday November 17, 2002 @09:42PM (#4693584)
    I'm curious to see what this will do to the MS stock price. Right now I'm thinking nothing, as I'm sure there are numerous companies of similar constitution who also run a few extremely profitable divisions and few to many money-losing operations. As much as I hate to say it, Microsoft being "evil" probably has nothing to do with this practice.

    It is interesting, though, to think about what would happen if their major revenue streams were to be threatened somehow... I have suspiscions that some of the books at MS have been, how you say, grilled to perfection?

    Probably the best thing to remember is this: Developers, Devel... oops, Diversify, Diversify, Diversify!

  • 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 oliverthered (187439) <oliverthered.hotmail@com> on Sunday November 17, 2002 @09:47PM (#4693617) Journal
    The last line of the registers story summed it up quite well.

    "because in several cases these look suspiciously like ventures normal businesses would be forced to put a bullet into."
  • by muixA (179615) on Sunday November 17, 2002 @09:48PM (#4693625) Journal
    I'd like to purpose one possible interpretation of this data: They are doomed, and they know it.

    Why are they doomed? If a majority of there profits come from the OS and the Office suite, what happens when there is a major competitor, like Linux / Open Office?

    The fact that they are trying to hard to break into new markets, indicates to me that they feel the cow has a limited life span.

    No matter how much cash a company has, they cannot continue to spend money on failing venturers, share-holders don't like that...

    Anyway, spin it how you like. I've felt this way for a while. I don't see them as having a real monopoly, there are alternatives, people just find the MS assurance worth the price, for now. It's not as if they have or infrastructure, real capital that no one else can match (like railroads, or telephone poles). They make software, and they make a lot of money making some of it, if suddnely the world doesn't want it anymore, they have nothing.

    --
    Matt
  • 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 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 deadgoon42 (309575) on Sunday November 17, 2002 @09:56PM (#4693675) Journal
    Through a steady stream of upgrades I have managed to avoid paying more that $100 for any version of Windows. So if it costs $45 per box then that's $55 profit. Also, I would assume that most of the Windows business is in OEM sales and I've heard figures as cheap as $50 for an OEM version bought in bulk.

    As far as using Office and Windows to prop up the rest of their business, everyone knows that has been going on for a while now. The reason Microsoft hangs onto its monoply with such vigor is that without it, the company would collapse under its own weight. So they are almost forced to charge more money and gain more market share just to keep the company afloat. If they were to lose a significant portion of their business in Windows or Office, they would quickly lose profitablity and even $36 billion in cash reserves wouldn't last forever in such a large company.
  • Re:Wrong. (Score:1, Interesting)

    by Arandir (19206) on Sunday November 17, 2002 @09:58PM (#4693689) Homepage Journal
    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?

    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.
  • by rodgerd (402) on Sunday November 17, 2002 @10:02PM (#4693707) Homepage
    No; one of the selling points Microsoft use when touting the X-Box to developers is that they can write the game once and then deploy on both PCs and the X-Box, whereas if they develop for the PS/2 or GameCube, they need to write the game again. They're leveraging the dominant position of Windows in the desktop market (where games need to be sold) to enhance their position in the console market.

    This is the kind of thing that can be considered an abuse of monopoly power.
  • by Anonymous Coward on Sunday November 17, 2002 @10:14PM (#4693766)
    yea, like Japan, Spain, France, Norway, Germany -- all of Europe, the Koreas, Canada, Mexico, Brazil hell all of South America. Oh and then there's Russia and Australia and egypt and south africa and whatnot. Learn some geography for fucks sake. You can buy game consoles in most places on Earth. Hell, in fucking Rwanda and Ethiopia you can get them if you live in a fairly big city.

    US is not the main focus of the game console market. The pacific rim is. If you can't make it in japan and the koreas, you're a minor player because that market dwarves the US market. Seriously, that was a sad excuse for a reply. Oh, and learn some geography for fucks sake.
  • 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:Collosal Bullshit (Score:3, Interesting)

    by oGMo (379) on Sunday November 17, 2002 @10:37PM (#4693884)

    This is so non-sequitur, I'm gonna burn a little karma and have a little fun, OK? ;-)

    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.
    Horseshit. Using your logic, every company in the world should only have one department: Sales.

    I see you referring to the color "blue". You correlate this closely with stocks in Japan performing ballet, but I don't think that is quite the conditional you wish to imply.

    No other department brings more money into the company than it consumes during its operation. Okay, okay, some could argue that profitable support departments may exist in some companies but this is rare.

    You are correct in referring to departments, and money, and how this has an impact on the environment. Why, just last week, someone I know took a fishing trip.

    Next you are going to tell me that Microsoft should get rid of all of their marketing staff, developers, support staff, admin staff, etc. because they are a cost centre being supported by the sales team.

    Is it because microsoft should get rid of all of their marketing staff developers support staff admin staff etc because they are a cost centre being supported by the sales team that you came to me?

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

    by g4dget (579145) on Sunday November 17, 2002 @10:41PM (#4693914)
    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:Monopoly! (Score:2, Interesting)

    by TheDanish (576008) on Sunday November 17, 2002 @10:43PM (#4693927) Journal
    (this is more of a supplement than a rebuttal to your post)

    Yes, it is true that firms price products such that they will maximize profit. However, when a firm has a monopoly on a product, they have market power. Now, in an ideal capitalist society, everyone is a price taker, but that's clearly never going to happen. Everyone, at least in a very small amount, has market power. However, Microsoft has a very large amount of it. That's bad because open competition can't drive software prices towards their equilibrium point. Okay, so lots of non-tech (and even tech) people aren't rational (one of the assumptions made in beginning econ is that they are), but if they were, they wouldn't buy the products at (> equilibrium price). But, since Microsoft is a profit-maximizing firm, they charge (equilibrium price + value of market power) just like everyone else would, and consumers will pay ("normal" equilibrium price + value of Microsoft's market power) because (1) it maximizes their utility and (2) their utility could have been increased even more, but the market power that Microsoft has causes them to pay that extra money. I think.

    Now, there's also the problem with utility maximization. If people are going to get more utility out of Windows than another OS, they'll be willing to spend that much more money.

    So does the problem of inflated prices lies in market power, consumers' increased utility in buying and using Windows, or simple irrationality? I'd go so far as to say that it's all of that and probably more. But, since I'm not an economist, I can't really explain the gory details.

    So, you're right that high profit margins have nothing to do with being a monopoly, but being a monopoly certainly doesn't hurt your profit maximizing decisions about pricing. One last note: consumers aren't apathetic, they're either ignorant or utility maximizers. Advertising, among other things, can cause ignorance of competitors and consumers will buy something until the marginal benefit is equal to the marginal cost in order to maximize their utility. If buying Windows increases their utility more than the cost, they're going to buy it.

    I'd like to be corrected about any of this, if possible -- I have a intro Micro Econ final coming up in a few weeks ;)
  • by bardencj (122074) on Sunday November 17, 2002 @10:46PM (#4693935)
    Something I don't think anyone's pointed out yet is that the OS would largely be useless (read: unsaleable) without software.

    Many people, myself included, viewed paying $499.95 for a copy of Lotus 1-2-3 back in '88 as unreasonable. It was higher than the price the market would bear. Lately the prices have been more reasonable, but for no apparent reason, now that I think about it.

    How do you make money overall when your customers don't like what you want to charge for the one item but the other item is useless if they don't buy both? Sell 'em one for a pittance!

    It's not a new idea. It's "give them the razor and make the money back on the blades" -- except in reverse.
  • Your mistake (Score:4, Interesting)

    by Loundry (4143) on Sunday November 17, 2002 @10:57PM (#4693986) Journal
    This is the content portion of your post:

    Windows XP shares >90% of its code with .NET Server, both products were written by the Server platform group, not the Client group. This explain why the Client group has such a high percentage of profit and why the Server platform group didn't.

    Good points! You should have stopped here.

    Instead, you couldn't resist getting in a few useless jabs:

    One more proof that these two websites are less and less appealing to people who have a brain and use it. It shouldn't be that hard to use your brain once in a while instead of spreading lies about your opponent, it actually might even be useful and intelligent.

    What wasteful, unwise things for you to write! You could have made your point without diving down to invective. As is, your post looks like a troll and will probably be regarded by most as such. If you want to be convincing, you will do much better to present your facts without slandering your opponent. Hell, every opponent is a potential convert.
  • by artemis67 (93453) on Sunday November 17, 2002 @11:04PM (#4694015)
    Look at Apple. Everyone knows that Apple has generous profit margins. However, they went out and bought their OS outright, and then spent another 4 years developing it before they offered a shrink-wrapped version. And the price they charge? $129. And that for an OS that serves 5% of the computer market.

    Microsoft, OTOH, initially develops NT in partnership with IBM, so some of their costs are defrayed. Then they are the sole developer, but they have several releases, in addition to charging a per-seat license on for the server version, so they make up their development costs with each version. Now they are up to WinXP, which costs $300 for the professional version, which they are selling to 90% of the computer market. It should be obvious that MS is charging far, far more than they need to.

    Also, keep in mind that most sales of Windows XP are preinstalled bundles on PC's, so who knows how much profit is made when you shell out the $300 for a shrink-wrapped copy.

    I'm sorry, but when someone is making 85%+ margins AND shutting other companies out of entering the market, I don't know of a clearer definition of monopoly.

    As a capitalist, I'd much rather see the market solve it's own problems. One way would certainly be for the government to seek out open source solutions as much as possible. Particularly the military; they already train their personnel on troubleshooting PC's, there's no reason they can't put more emphasis on Linux.

    I just wouldn't want to see it issued as a directive that all departments must switch to Linux, because I'd hate to see Mac OS X get shut out.
  • 85% profit...? (Score:2, Interesting)

    by jxliv7 (512531) on Sunday November 17, 2002 @11:06PM (#4694023)
    .
    wait a minute, Michael.

    if the profit margin is 85%, then the cost to produce it is $45. that means that selling it for $45 will only BREAK EVEN, not make a profit for Micro$oft.

    if we take a typical "sell it for twice what it costs to be able to stay in business standard," then M$'s fair selling price would be $90. and that would be to those in the retail and other distribution channels, because those reseller need to make a profit as well...!

    so if these resllers price it for twice the cost $90, they need to sell it for $180 to stay in business (by the same 2x cost rule).

    so, what's actually happening is that M$ is overpricing something that they could sell for $90, and making a tidy profit.

    good for them...!

    if you've ever been in business, you quickly learn NOT to begrudge anyone their fair share of a profit -- lest they do it to you -- but you also learn that FAIR is something that is never defined to your satisfaction.

    in reality, i say the price is whatever the seller and customer agree upon.

    an EDUCATED buyer is what drives prices down.

    FAIR ain't got nuthin' to do with real life...

  • 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 Gunzour (79584) <.moc.enilnonoocyt. .ta. .todhsals.> on Sunday November 17, 2002 @11:13PM (#4694066) Homepage Journal
    Well, Bill Gates has been selling shares in the millions, not thousands. He appears to have sold about 10 million shares in October.

    But I'm not sure what that has to do with the companies profitability or monopoly status. Microsoft is a profitable company, regardless of stock-option loopholes. If the price of MSFT stock goes down, that would actually reduce MSFT's expense for exercized stock options, if it chose to expense stock options. I'm guessing that's what you are referring to when you talk about "tax-stock-option loopholes".

    MSFT-stock is not sold by Microsoft, except at the IPO and any secondary offerings. When MSFT stock is bought and sold on the open market, Microsoft doesn't get any of that money. The shareholder who sells the shares gets the money.
  • by jforr (15487) on Sunday November 17, 2002 @11:27PM (#4694126)
    income from OS market: $2 billion a year
    loss from exterminating netscape: $300 million
    loss from running sega, nintendo, and sony out of the console market: $5 billion over 5 years
    the look on Bill Gate's face when MS is broken up by the EU: Priceless
  • Capitalism (Score:0, Interesting)

    by Anonymous Coward on Sunday November 17, 2002 @11:28PM (#4694130)
    See, the paradox with capitalism is that it always ends up in a state of monopoly. That is, the accumulation of wealth allows you greater power, which leads to mergers, and mega mergers. See Time/warner/AOL, Microsoft and all the things it has bought out, the oil cartels, the MPAA and RIAA, etc etc.

    Getting the state to regulate is a wasted effort too, because theses mega-companies have enough power and wealth to buy off politicians.

    I don't know what the answer is, but my favourite is stateless socialism (Anarchism). I know many here will disagree. But it's something that hasn't been tried yet.
  • by shiflett (151538) on Sunday November 17, 2002 @11:39PM (#4694177) Homepage
    I don't think the US has laws exactly like you are talking about, but the recent Microsoft settlement proves that it doesn't matter anyway.

    We do have laws protecting against the anti-competitive business practices Microsoft has used over the past 10-15 years, and we let them profit from those practices all of this time anyway. When it finally looked like they would get some punishment (everyone knew it would be much less than what they had gained from their illegal actions), it turned out that nothing happened.

    So, we have more problems than just the lack of legal protection, we also lack legal enforcement when it comes to rich corporations.

    As for your second question, I don't think Microsoft plans on losing money in their other markets forever. Take MSN as an example. Microsoft sees AOL as a huge opportunity. Imagine if you could try out a new market for several years without having to worry about how much money you spent. It would be nice, right? Well, it also poses a great opportunity to starve out the competition, leaving the market all to yourself in the end. If such illegal business practices work out, you will eventually recover your losses and have a new source of income. I think Microsoft recognizes this opportunity.
  • by Jubedgy (319420) on Sunday November 17, 2002 @11:41PM (#4694188)
    This brings up a question that's been bothering me lately: what exactly can the EU do to microsoft beyond not allowing MS to sell products in their countries? I suppose they could force MS to pay a tax so it can remain in their markets, but seeing as how MS is a US company, can they do anything else besides that?

    --Jubedgy
  • 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 crazyhorse44 (242315) on Sunday November 17, 2002 @11:48PM (#4694238)
    Imagine a monopoly, where comparable goods are offered not only at a significantly lower price, but literally FREE. Yet, this has had negligible impact on MSFT's monopoly. How long would the following monopolies have lasted?

    1. Standard Oil in the face of a competitor that gives away oil for free.

    2. Coca Cola if Pepsi began giving its product away free.

    3. AT&T if another company offered no-strings attached free long-distance.

    I would go so far as to hypothesize that MSFT is one of a new kind of monopoly the likes we have never seen before. Not unlike Ebay and Paypal, MSFT has not only created the market, but created all the rules. In order to break the monopoly, you're going to have to get MSFT to change the rules. However, as these companies have more money that god... the only way to do so is by getting the government to exert force.

    I don't blame MSFT at all in this. If I were chairman of MSFT I would be doing the exaxt same thing. You have to admit that these are some intelligent men and women, and they've made a whole lot of money for their stockholders. However, I do blame the US Gov't for not taking a more aggressive role in asserting its role as the final arbiter of economic policy in the United States.
  • 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.
  • Re:Monopoly! (Score:3, Interesting)

    by Have Blue (616) on Monday November 18, 2002 @12:16AM (#4694389) Homepage
    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.
  • by jpmorgan (517966) on Monday November 18, 2002 @12:30AM (#4694457) Homepage

    I wonder how many of Sony's customers actually call Sony up and ask for Linux to be pre-installed on their laptop... I'm sure there are a few, but not all that many. 'But Linux doesn't cost Sony anything! Why shouldn't they?' you cry.

    Well, let's get back to reality now. If Sony wants to ship a desktop with Linux pre-installed, they've got to hire people to put together a pre-installed Linux distribution to use. People with experience building OEM Windows distributions aren't rare, and the tools to help this process are relatively common. Also, you've suddenly got to make sure all your hardware is completely supported in Linux. So you have to go out to your component suppliers.

    So after you've done all this, you start selling pre-installed Linux on your computers... and suddenly somebody has a problem! Uh oh, I hope you have some people on hand for technical support! And you can't just outsource your technical support to a specialist company, like you can with Windows.

    Let's face it. There simply isn't enough consumer interest to support pre-installed Linux on the desktop. Sure, you're going to save about $100 per computer (OEM license cost), but how many do you have to ship to make up for initial setup cost in the first place? The cost of the Windows license simply isn't a big enough on most computers being sold these days to make up for the pathetic level of general consumer interest (I don't consider the 0.5% of desktop users using Linux to be significant).

    Now, the server market is different. Lots of people want Linux preinstalled on x86 servers and *gasp* I can buy it preinstalled! I've been able to for years! But there's appreciable demand, so that's no big surprise.

    For the record, I use Debian GNU/Linux, and have for years. When I bought this computer (it's not worth my time to hunt down parts at OEM prices and build it myself), I just went to a local store, specced it out and asked for it without a Windows license. Easy as pie. But I didn't expect the guy running the store to preinstall Debian on it for me.

  • All of you are wrong (Score:5, Interesting)

    by 0x0d0a (568518) on Monday November 18, 2002 @01:09AM (#4694613) Journal
    Microsoft is leveraging their high prices to enable them to give away other products, thus undercutting their competition.

    Without doing research, I can pretty reasonably put this in two words -- "bull" and "shit".

    I'll be willing to be that two years ago, three years ago, all those markets were reported as profitable. And it isn't because of a "tech downturn" that dropped *everything* into red ink without managers doing any cost saving. No, you'd hear about divisions being cut, layoffs, everything if there were real losses.

    It's pretty obvious what's going on. MS is making money, just as usual. A while ago, a big company went belly up because of "loss hiding" -- our old friend Enron. As a result of this, lots of laws were passed making executives and auditors legally liable for hiding losses, inflating profits, and tucking them into future good years. Perhaps more importantly, the current public opinion is to crucify execs doing this, and not to let the government let them off the hook easily.

    What's happened is that our buddy MS has, like most large companies over the past few years, has been tucking away a few too many losses under the rug and artificially jacked up reported profits.

    Now, all of a sudden, Bill G. and Co. could be doing hard jail time (to say nothing of their auditing firm) if they can be shown to be deliberately hiding losses for another year. So they want to get rid of their losses *now*. It can't wait for another year -- they have to show all those unreported losses and inflated profit immediately. Well, they can't say that Windows is losing money -- 2k to XP migration is critical right now, Linux is a threat, and looking less than stable would be an awful idea. They can't say that Office is losing money -- for the first time in years, competitors have just sprung up, including Open Office and even WordPerfect pulled a comeback. The Office product also has to be rock solid. So where are all those losses going? Right into these non-core markets. Everything else loses money to clear up the balance sheets.

    This isn't just MS, either. You're going to see a *lot* of big companies doing this, and a *lot* of negative filings, as companies have to avoid giving away past reporting falsehoods.

    Now, I haven't looked at their past sheets. If this is consistent with past filings, I'm wrong. But I'd quite confidently bet that I'm not.
  • by ez76 (322080) <slashdot.e76@us> on Monday November 18, 2002 @02:31AM (#4694940) Homepage
    What's happened is that our buddy MS has, like most large companies over the past few years, has been tucking away a few too many losses under the rug and artificially jacked up reported profits.
    What's artificial or jacked up about the profits they are making on Windows and Office?

    Why should the average investor care? At the end of the day they are raking in the cash hand over first, and with government sanction to do so.
  • by lpret (570480) <lpret42@ho t m a i l .com> on Monday November 18, 2002 @02:47AM (#4694989) Homepage Journal
    I've found this to be true on my college campus. I started a Linux User Group last year, and we had about 15 people coming frequently. Many of them were curious and interested in "not having to pirate warez". Well, Microsoft just struck a deal with our school in which XP Pro costs 5 dollars and Office XP Full costs 10 dollars. Since then, our LUG is about 5 hardcore linux users and no one cares anymore because the price is so cheap.

    On a similar note, I've always thought this would be a very productive way to market products to college students -- especially products like productivity suites, graphic design, and web design. Once you learn a program, you'll stick with it -- Once I get out, I will demand to work only with Photoshop, only with Dreamweaver, and I code ColdFusion. I didn't get these too legally (shoot! no one turn me in!) but once I start "the real world" my employer will shell out for it. On campus here, no one bothers to pirate XP anymore, we just buy it. Yet so many that once thought to look at Linux are back in the M$ camp.

  • 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:Office suite wars (Score:2, Interesting)

    by hysterik (4400) on Monday November 18, 2002 @03:12AM (#4695069)
    My wife is a first grade school teacher, and just got furnished a laptop (along with many other teachers). This is in the Dallas Independant School District, and guess what? It came with StarOffice 6.0, no Office. Surprised the heck out of me, there really was no reason for them to have XP on there, but I guess you can't seperate the laptop from the OS (XP) as easily as you can the word processors that typically come with it.

    The really strange thing is that my wife had to take a test to get the laptop, and that test was about using Office XP! I hope this change is a sign of things to come.
  • by dada21 (163177) <adam.dada@gmail.com> on Monday November 18, 2002 @10:24AM (#4696460) Homepage Journal
    Seeing the replies here really shows me that the disgust and contempt I have for the common American geek is justified. I desire a free market, most of you desire a socialist regime that enforces "equality."

    While I am no Objectivist, has anyone read Atlas Shrugged and seen that a company's sole purpose is profit? When a company profits, it prospers. Prospering along with that company are its suppliers, its employees, its investors. Microsoft is not Bill Gates, but millions of people who rely on them.

    Windows is no monopoly -- people are free to make a better product. Why have they not? Because Microsoft spends a fortune on Research and Development. They do it to stay ahead. They compete by offering customers (not consumers) what they want, at a price they are generally happy to pay.

    You socialists make me sick, and it gives me great joy in seeing the market crash because of excessive government regulations and unjust lawsuits against corporations. That's when it all started -- Microsoft gets sued, and some of you lost your jobs. Good.

    Eventually, it'll be on your backs and your consciences when the economy falls through the floor. With government increasing inflation every month, decreasing the value of our dollars (and our investments), and destroying any ability to make a profit by over-regulating and over-subsidizing industry upon industry, the day of Gault's Gulch should not be far, IMHO.

    I just hope some of you wisen up and realize that Microsoft is one of the greatest things to happen to this country... And if you want to compete with them, you are free to do so. Get together with the millions of other programmers out there and make Linux work.

    I've tried Linux. The interfaces are disgusting. The driver support is non-existant. The software available is terrible. Why? Because those who are working on it are generally unpaid, and that's what you get out of free labor: exactly what Russia got during communism -- NO PRODUCTION.

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