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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Dwight E. Karlsen who wrote (41209)	4/5/2000 6:34:00 AM
From: John F. Dowd	Read Replies (1) \| Respond to of 74651

DEK:So Gateway can walk away and load the vaunted Linux. Or they can sell the thin client OS that LE at ORCL says is going to destroy MSFT. If they want Windows and Corel then they take Windows w/o Office Suite and forego the discounts. The Japanese sell features bundled in cars. It is a take it or leave it deal. If you want a different bundle you are going to probably pay more for less. JFD

To: Dwight E. Karlsen who wrote (41209)	4/5/2000 9:19:00 AM
From: rudedog	Read Replies (1) \| Respond to of 74651

Dwight - I have not been involved in any contract work with OEMS (or any PC work for that matter) for several years, but was involved in some of that before 1997. The deals MSFT offered prior to the original consent decree actually offered discounts for agreements where MSFT products were licensed for every machine, even when they were not installed. Those types of agreements were ended unilaterally by MSFT just prior to the original consent decree, probably as one of a number of concessions MSFT made to get closure on that original action. The later agreements, such as the one you refer to with Gateway, have a different structure, and people still in that end of the business say that there has been no attempt or suggestion to go back to "per system" licensing - the kind where MSFT is licensed on every system shipped. Even when the OEMs paid for the licenses, in the "bad old days", they did not actually load it on every system, just paid for the licenses. 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. From what folks in the business tell me, current contracts are very different - they have a very simple schedule of cost versus sales volume, with larger discounts for more volume, pretty much the way that anyone (including say Intel) would sell products. The MSFT pricing schedule may be skewed a little more to the high volume sellers - i.e. the price discounts may drop more quickly for the largest volumes - but since the terms of those deals are not public, I don't know for sure. 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. I don't see anything in this except the natural response of the OEMs to the discount structures.