Microsoft hints of tiered global prices

One world, one price. That's no longer the case for Microsoft products.

Microsoft has begun to tackle the vexing issue of how to price its products in global markets, particularly in countries where software piracy is rampant and where pressure from open source competition is strongest.

Late last month, Martin Taylor, a general manager of platform strategy at Microsoft, told some Wall Street analysts that the company is working with governments on product pricing. In a few cases already -- always involving countries, not corporations -- Microsoft has been forced to lower the price of its desktop software.

Microsoft has always sold its products for the same price, regardless of geographic location. But in the past year, some countries -- Thailand and Taiwan, for example -- have wrung better pricing out of Microsoft for Windows XP and Office XP. Earlier this month, Malaysia became the most recent country to get a cut-rate bundle from Microsoft. The Israeli government has also complained about Office pricing and has said that it will look for alternatives.

"It's clear that it's a problem," said Paul DeGroot, an analyst at Directions on Microsoft, a Kirkland, Wash.-based consulting firm.

Not an uncommon dilemma

Some analysts say international corporations might benefit if Microsoft decides to introduce local pricing to its global pricing policy. Variability in pricing, particularly as it relates to currency fluctuation, is a problem for every large company, said Julie Giera, an analyst at Forrester Research, Cambridge, Mass.

For Microsoft, it's challenging because the company sells products in so many countries. International companies have agreements with Microsoft that are priced differently. "It's certainly an area that Microsoft needs to address," she said. "All the vendors need to do something. Customers that do business globally are getting frustrated at pricing policies that exist."

But not all large companies think better local pricing would offer them much benefit. Factors other than price, such as import duties and legal restrictions on shipping across borders, also factor into the decision of how products are purchased, said George Defenbaugh, manager of global IT infrastructure projects at Amerada Hess Corp., New York.

"Price is one of the factors, and I'm not even sure it's the most important one," he said. "If you tried to buy something out of the country because it was cheaper, but it gets tied up in customs, what's it worth to you?"

Price sensitivity

DeGroot said that Microsoft is perhaps more vulnerable to price pressure on its software than, say, Oracle Corp. or IBM, because both of those vendors make most of their revenue on integration and services. "There is no price sheet for implementing a Websphere e-commerce solution," he said. "Yet a typical integration will cost three times the cost of the software. You can cut the price of software and still make money on the integration and service."

But Microsoft is in a different situation because it makes money from its licenses. Virtually everyone buys the desktop operating system and Office, so it has far more exposure than its competitors, he said.

DeGroot said that he doubted that server products, such as Exchange or Windows Server, and associated client-access licenses would ever be included in any potential changes to pricing. Rather, he said, this would be limited to consumer products.

In a recent advisory, Gartner Inc., the Stamford, Conn.-based research company, recommended that its clients continue purchasing Windows without waiting for pricing changes because Microsoft has "not yet announced any offerings in any markets or specific timelines for doing so."

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