Vista’s Price Falls; How Long Before Yahoo’s Price Rises?

February 29, 2008, 12:02 pm

Vista’s Price Falls; How Long Before Yahoo’s Price Rises?

By Saul Hansell

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.

Copyright 2007 The New York Times Company

 

I would like to see Apple license its OS. The last time they did it,
it was with a different hardware architecture. This time it would be
on Intel PCs. The form factors could stay the same. Heck, I have had
the Mac OS running on two Dells already. It wasn't running perfectly
but it shows how close Apple could be to making such a move.

I don't think it will happen. Apple still is sticking with its
premium hardware prices. It would require a complete change in
business model. However, Apple now knows it can create competitive
hardware, so any decrease in hardware sales could be more than made up
for if the Mac OS catches on.

Apple is going international now. In order to grow its business, I
think it needs to enlist people who want to make a profit in target
countries. Give them some profit for hardware, let Chinese companies
design computers for the Mac OS and increase the overall supply.

It's interesting that the iPhone could bring Apple back to the PDA, a
space many people thought Apple would never be back in. Nothing's
unheard of in the second coming of Steve Jobs Apple has a chance
to capitalize on MS's weakness.

Will they do it? Not likely. MS is feeling the heat, and the next
version of Windows will probably be stellar.

 

Perhaps, but I/m neither holding my breath nor betting my own money on
that eventuality. I suspect Jobs is convinced that the current Apple
business model is just fine.

 

I would love to see what it would do to the stock price and see what
the analysts would say. Some people would want to cut the price in
half, some would want to double it. It would just be one of those
rare events that would make life a bit more interesting (um, maybe I
do need to get out more lol).