Vista’s Price Falls; How Long Before Yahoo’s Price Rises?
If you want to understand Microsoft’s motivation for buying Yahoo, look at the price cuts announced today for Windows Vista. (Stay with me on this.)
The price cuts for boxed copies of Vista are especially big in developing countries, where users will be able to buy full versions of the operating system for the price they would have paid for an upgrade. (The better to prevent piracy, Microsoft says.)
In the United States, the main difference will be with the Premium edition (now $129 instead of $159) and the Ultimate ($219, down from $299).
Microsoft says the cuts are meant to lift sales in retail stores, a small segment of the Windows market. The vast majority of operating systems, of course, are sold bundled with computers.
Microsoft’s many critics are gloating that this shows Vista shipped with far more bugs than features.
No matter how good Vista may be, there is another force at work here: The price people are willing to pay for software is coming down.
A software package — even an operating system — seems out of whack at $299 or even $159, when there is so much that can now be done free over the Web or through free downloads like iTunes and Google’s Picasa. Those prices also don’t really jibe with the cost of personal computers, which now start at $500.
Microsoft itself has already confronted this by creating the “Student and Teacher” version of Office. Now you can buy Word, Excel and PowerPoint (not Outlook) for $129 (plus whatever guilt you feel as you justify the purchase by saying that your spinning class at the gym makes you a student).
One look at Microsoft’s high profit margins certainly raises questions about how long this business model can continue before someone creates a more efficient model. The combination of the open source movement, the Web, and the advertising-supported software model epitomized by Google are starting to have the long-predicted effect.
So while the prices Microsoft can charge for its boxed software may be falling, the price it will pay for its own Web software and advertising play — Yahoo — is likely to rise.
Source: NYTimes
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