"The ostensible argument for this practice was that it simplified tracking of license requirements, since the OEM simply had to report total sales to MSFT, and there is in fact a good economic argument - it is a lot less expensive on both sides (the OEM and MSFT) to do it that way. But the DOJ correctly determined that the real goal was the exclusionary aspect rather than the cost efficiencies."
"ostensible" is right. I can hardly believe that it was any cheaper at all to report "total sales" vs. "total units of software shipped". Even the entry level garden variety software like QuickBooks will give you exact figures of how many units and sales dollars of each component sold, for any time-frame you choose. The real goal as you said, was exclusion.
"In any event, the effect at the product level for a company like GTW, which has lower volumes than CPQ, DELL,
IBM or HP, would be for them to want to ship those products on as many systems as possible to get into the largest volume discount category - just as they would want to do on processors, memory or any other component. There is always a tradeoff between cost and discount level, but for a product which is fungible, like memory, it is more likely that the OEM would use alternate suppliers and forego the highest discounts in favor of assuring better supply. In the case of software which is not fungible, like the OS or app suites, it is more likely that the OEM would want to maximize the discount."
That's understandable, and I agree to a certain point. But additionally, the OEM is going to want to ship apps which are in popular demand with their customers--people want to use what others in their office are using, so as to enable easy file sharing without losing formatting. Also, they want to use the program with which they have already invested in the learning curve, to keep themselves productive. So, during the years of exclusionary license agreements, MS-Office attained the high ground, gaining the broad user base. So naturally PC OEMs zero in what people are asking for the most--and attain good volume discounts--where they can, but the volume discount is secondary: The PC OEM does this even when Corel is offering a cheaper price than Microsoft. So the damage was done early on, and is very difficult if not impossible for a company like Corel to reverse--even when Corel is offering essentially the same exact product, for $20-30 cheaper than MS per copy.
One has to wonder--why did MS offer up flat-rate pricing as a concession? Answer is, they know that they have always been a merciless company, leveraging their dominance in any and all ways they can. But along the way, they've made the playing field very uneven and uncompetitive. There are obvious advantages to the consumer for having a dominant (or at least large market share) OS, but when it is application that is dominant, the choices to the consumer dry up. |
