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To: Charles Hughes who wrote (21879)	12/2/1998 8:27:00 PM
From: rudedog	Read Replies (1) \| Respond to of 24154

Chaz - These are the most numerous manufactures, employ per PC produced the most employees, sell PCs at the lowest cost to the consumer, and in my experience, have the best personal service and the greatest compatibility: the clone shops There are about 200,000 of these companies worldwide, employing about 800,000 people. Taken as a group, they are certainly the largest manufacturer, in revenue, market share and number of employees. you are using the wholesale figure for Windows OEM pricing to the biggest manufacturers and mixing it with the retail price of the high end PC. If you are going to make this comparison at all, and I don't think you should, you should at least compare that OEM price to Dell's other costs of parts in manufacturing that PC - probably under $1000, or compare retail to retail. You are right about that, I should have used wholesale for both the box and OS. But Dell's GM as of their last statement was about 23% so the component cost would be about $1700. The industry wide figures show ASP around $1800, but margins in the white box segment are much lower, on the order of 11%. So the base price of components in the average box is around $1600 across the industry. These manufacturers have the very worst OEM pricing from Microsoft Any reseller can buy Win98 in quantity 3 for less than $60 (via the DSP program), which is about 3.7% of his component cost. In 1993 the industry ASP was about $2600, and GMs were a little higher for the white box guys - about 15%. So back then the average cost of components was $2210. DOS and Windows combined cost about $60 in small quantities back then also - my brother ran one of those 'small clone shops' you describe (still does). So taking this line, the OS would have been 2.7% of the cost at that time. Not a big part of the pie then or now for the 'average' machine. One can't act as though we were just talking about Windows and DOS here. We are also talking about NT. The price of which has risen dramatically, and already is over 20% of the cost of such a PC. NT pricing has not changed much since its introduction, and in some channels has gone down. NT Workstation is available in quantity 3 to resellers for under $200, which is about the same as when the product was first introduced. And NTW was never intended to be a PC OS, it was designed for the workstation market where OS prices are considerably higher, and where NTW is the low price leader. The desktop NT will be the release known today as 'janus', which will be a replacement for Win98. Although no pricing has yet been determined, most OEMs understand that it will be the same or lower cost compared to Win98. To get full functionality in the Windows OS from Microsoft, you must buy add-on packs. This raises the price to the consumer considerably for those who buy this. I'm not sure what you are getting at here, I don't add anything to the OS. What 'add-on' packs are you talking about? I thought that the argument was that MSFT was putting too much stuff into the base OS, not that they were leaving stuff out... I actually think the idea that MSFT would have a 30% drop in usage if they raised prices, over the short term, to be pretty silly. People would just have to pay the extra 30%. I am in exactly the opposite camp - I think that you have it backwards. MSFT will have to drop prices from CURRENT levels or they will start to lose OEM business. They do not have a lock on the big guys, and as soon as 2 or 3 of the big 4 validate an alternative desktop, MSFT will be in deep doodoo. MSFT does not want that to happen. I know for a fact that at least 3 of the top 4 (HP, IBM, CPQ and DELL) have tested several non-MSFT desktop OS products for targeted products (mostly low end machines where OS cost is an issue) and I doubt that they would hesitate for an instant to deploy those products if MSFT does not get competitive on price.

To: Charles Hughes who wrote (21879)	12/3/1998 11:07:00 AM
From: Reginald Middleton	Read Replies (2) \| Respond to of 24154

No deathgrip, just supply and demand. Let's address your rather onesided argument: <1. These manufacturers have the very worst OEM pricing from Microsoft.> Vendors in every category give volume discounts. You act as if MSFT is doing something out of the ordinary here. The small OEM's also get the worst pricing on thier hard drives as well, yet you can't villify Seagate, now can you? <2. One can't act as though we were just talking about Windowsand DOS here. We are also talking about NT. The price of which has risen dramatically, and already is over 20% of the cost of such a PC.> The price has risen with the ability of the product to perform. There is a massive difference between NT5 and NT 3.51, performance, app compatibility, stability, scalability, etc. You are also doing the same thing you accused Rudedog of doing. NT is a high(er) end product that is not marketed to the retail consumer. It is clearly an enterprise OS (server and workstation) and should be compared to others in its class. Sun, SGI and IBM all outprice NT in these categories. IF NT is price gouging, you better explain that to Sun who is losing workstation business to the under priced PC OS. <3. To get full functionality in the Windows OS from Microsoft, you must buy add-on packs. This raises the price to the consumer considerably for those who buy this.> Correction, to get the maximum functionality from Windows, you must buy add on packs. This is the same with practically any other product whose vendor has any depth in their offerings. I (a power user) bought a notebook with Win 98 and I am sailing along quite fine. <4. Worst, you are using the wholesale figure for Windows OEM pricing to the biggest manufacturers and mixing it with the retail price of the high end PC. If you are going to make this comparison at all, and I don't think you should, you should at least compare that OEM price to Dell's other costs of parts in manufacturing that PC - probably under $1000, or compare retail to retail.> I take issue with this whole software vs. hardware pricing debate. They are two different industries, with different cost structures, dynamics and economics. Simply because elasticity drops in one is not a reason to force it in another unless the market dictates so. When the market does do such, it is beyond the control of any us. MSFT practically created the PC OS industry. Before then, when software was considered and economic after thought that was thrown in with the hardware, did anybody attempt to coerce the hardware vendors to drop the price of the hardware down to that of the (free) software. Gates had the vision to see superior economics in the software model and the widespread acceptance of the PC. I am going to bitch to Mercedes Benz because the price of the 500 SLs did not drop as fast as the cassette tapes used in the car radios.