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Vista is too cheap

A lot of posts in various places lately have been complaining about the price of Vista, saying it’s too expensive. But think carefully: what is it you are really paying for? I don’t mean the alleged $10 million house that Bill Gates lives in, or the high salaries of Microsoft staff, or any of the usual stuff. I’m talking Operating Systems here, and I do mean plural.

It’s taken five years of constant development time to create Vista. That’s two and a half years for the version they scrapped in 2003/2004 and then the three years since then after they realised they had to copy Apple. This pdf of the internal Microsoft emails sent between senior Microsoft executives shows just how much the then Apple Mac OS X Operating System was admired by the MS people. It follows from this that Microsoft had to make significant changes to their OS, and this has had to be paid for somehow.

In order to fund five years of development work, heck, even three years worth of development work, you need a lot of money.

Look at Microsoft Office for instance. It’s a pretty nice Office program that has got to be the dominant business application through linking with the Windows Operating System at a deep level, a level other competitors did not have access to. This gave it a better performance than its competitors which were quickly wiped out. Every three years or so Microsoft brings out a new version of Office for which it charges three to four times as much as they charge for their Windows Operating System – which actually took longer to develop.

Both software packages are dominant, with both Windows and Office both having been reported in the past to have a 90% market share. Normally, they both have a similar development timescale. So why is Windows so cheap? Why do Microsoft not charge less for Office?

Following Economic theory it seems to me that they should both be the same price. If Office is the right price, then Vista is too cheap. If Vista is the right price, then Office is too dear. Microsoft can’t have it both ways.

Unless they’re abusing their monopoly position. They could do this by selling Windows Vista cheaper than or at cost in order to lock users into the platform; they then sell copies of MS Office at very high prices to make their enormous profits. With users locked in to the Windows platform, both at a desktop and at a server level because of links between Microsoft programs designed to shut out the opposition, users have to buy Office. Because they have to, prices can be much higher.

Remember, demand for each software product is similar, each having about 90% market share. With supply being almost completely elastic the laws of economics suggest that prices should be low and similar.

So, Vista is too cheap.

Or Office is too dear.

Which is it?


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