A few weeks ago, I installed some new network equipment for one of my clients. During the upgrade, we decided that...
some of the PCs in the network were long overdue for replacement. So, I called for some quotes on a bunch of new Pentium IVs, as well as operating systems and software. As most of my clients in Europe have site licenses, I haven't looked at software prices for a while. Ouch.
This probably won't be as much of a surprise to you as it was to me, but the price of Microsoft Windows XP Pro and Office licenses exceeds the price of a top-of-the-line PC.
That price quote reminded me of another quote, taken from Microsoft CEO Bill Gates' 1998 speech at Valencia Community College. Among other things, he said: "... in the last 20 years alone, the price of computing has come down by a factor of a million .... If this had been the case in the airline industry, today we could buy a 747 for the price of a pizza ... that's really what has happened in computing ... for the next 20 years, there will be no slowing down. The price of computing will again drop by a factor of a million."
Now, I don't know where Mr. Gates generally orders his pizza, but at these prices I wouldn't mind delivering a few to his home! Obviously, his words obviously do not apply to his company's own products.
The history of pricing
Hardware prices have come down steadily since the IBM PC was first introduced. Ten years ago, I'd pay about $2,500 for a clone PC with a 486 CPU, four megs of RAM and half a gig of disk space. Today, I can get an A-brand system with a Celeron, 256 megs of RAM and 40 gigs of disk space for less than $500.
With PCs, mass production and the laws of economics have done their usual thing. Also, progressive integration has led to new and inexpensive chips. Today, you get a thousand times more computing power for far less money.
Making the same comparison with software led to some surprises. I looked at 10-year-old price lists for off-the-shelf software, not the software that comes bundled with new computers. Word processors WordPerfect and the first version (3.1) of Microsoft Word for Windows retailed for just over $500, roughly one-fifth of the price of a good PC. On the operating system side, MS-DOS 6 retailed for less than a hundred dollars, but Windows 3.1 went for up to twice that much. A copy of Lotus 123, the major spreadsheet of those days, and the MS-DOS database called dBase cost about $700.
Windows XP Professional will cost you more than half the price of a new computer. Also, the price of Microsoft Office has gone up steadily, while a copy of WordPerfect Office 12 retails for $200, under half the price charged 10 years ago.
Of course, open source products like Linux and OpenOffice.org may be used free of charge.
Massaging the market
A look at these price developments reveals two interesting things:
- The prices of hardware are mainly dictated by developments in technology, manufacturing and market volume; and,
- The prices of Microsoft products appear totally unrelated to technology, manufacturing and market volume.
Even factoring in local market factors, special offers and inflation, it's obvious to me that Microsoft manipulates and inflates software prices. On the whole, other software vendors, insofar as they still are able to compete with Microsoft, do have prices that are far more reasonable. Microsoft's prices also vary wildly among different countries, and bundled OEM (original equipment manufacturer) versions are dramatically cheaper than boxed copies of the same products.
Value for money?
In defense of their pricing policy, Microsoft execs have often pointed out that today's software products cannot be compared to their predecessors in terms of performance, complexity and features. There is some truth in that; but the same goes for hardware.
Then again, does the price of Microsoft software really reflect the increased performance? Take a good look at Windows 98. Compare it to Windows 95, for example, or Windows XP versus Windows 2000 or even NT. These are, in fact, point releases, maintenance releases in which a number of bugs and shortcomings have been fixed. Largely, the new versions are the same as their predecessors. Most "improvements" have been cosmetic and nothing more. Yet, each upgrade has been presented as a "new" product and has been accompanied by a severe price hike.
This discrepancy is further demonstrated by the downright weird differences in price between versions intended for home use and corporate use. Windows XP Pro, for example, is much more expensive than the Home Edition. Yet, these products are essentially the same, except that a few key features have been removed from Home Edition to make it unattractive for corporate use. This practice is nothing new: Microsoft Windows Server NT 4 only differed in a few small details from its desktop twin, yet it was a lot more expensive.
A few years ago, Microsoft changed its existing corporate licensing structures. This change, introduced as Software Assurance, required many businesses to renew and repay for existing licenses in order to be assured of continued support and upgrades. This change, however, did not offer any return on investment that justified the extra costs.
There's more price gouging to come. In the summer of 2005, Microsoft CEO Steve Ballmer told analysts about Microsoft's plan to release new, more expensive versions of Windows and Office. The company will release more Professional Editions of Windows and add Enterprise and Premium versions of Office. What extra features, if any, these versions will offer in order to justify their inflated licensing costs, Ballmer did not clarify.
The TCO specter
So far, I've only discussed the cost of purchasing and licensing software. Costs do not end there, and the buying price is only the beginning.
I compared software maintenance costs of today and a decade ago and saw an unbelievable increase. Meanwhile, hardware maintenance costs have remained steady. Some people blame those higher software maintenance costs on increases in software's complexity. Well, that depends upon what you mean by complexity.
One would think that increased software complexity would bring increased performance. Yet, better performance has been made possible mostly by the increased power of hardware, not software.
Microsoft's products are more complex today, in that they have more complex architectural and design flaws. The number of Microsoft bugs, security leaks and glitches has increased exponentially over the years. Proper maintenance of a corporate Microsoft environment requires frequent patching, frequent reboots and repairs of software that just breaks during regular use. This forces the average company to employ staff and accept a certain amount of downtime.
In addition, Microsoft's products are more complex in terms of increased system requirements. For example, let's say that a corporation runs e-mail, file and print services, intranet and Internet Web applications and a database. In the Microsoft environment, each application requires its own server platform and its own Windows server license, backup facilities and UPS, as well as its own network, power and cooling load. This level of complexity doesn't necessarily increase performance, but it does cause the total cost of ownership of Microsoft products to run wild.
Return on investment
Microsoft has dominant market share and leads the industry. The company hasn't led in driving down prices and increasing performance. Instead, Microsoft has driven up the cost of purchasing and using its products. Unfortunately, I believe this trend will continue.
It's a shame that users have to pay more without getting more in return. No such benefit exists. Today we pay much more for office software than what IT market developments show to be reasonable, but our productivity hasn't increased all that much.
Microsoft products' value-for-the-money ratio has become worse and worse over the years. Typing a letter in Word still involves the same basic tasks and demands the same amount of time and effort as it did 10 years ago. Any advantage in speed and time is due to better hardware, not to better software. The same goes for other day-to-day tasks such as administration, finances, correspondence and what not. These tasks now tax the corporate ICT infrastructure much more heavily than they used to, due to the decreased efficiency and reliability of Microsoft products.
On the whole, my corporate clients don't generate much more revenue or cut any costs by using the latest versions of Windows and Office. This defies the whole purpose of using IT in the first place.
At the mercy of Microsoft
While I was researching the prices of Windows Office XP Professional for my client here in South Africa, Microsoft pulled it from the shelves. We can't buy it in South Africa, according to my software dealer. He said it's been replaced with Office 2003, which is about 50% more expensive and offers no real extra value. Of course, I have to get the full package for all PCs, and I can't get just MS Word or Power Point, the only applications really needed.
The fact that a vendor can pull a product right out from under you and replace it with a more expensive one is a strong argument in favor of the open source office suite, OpenOffice. My software dealer suggested it to me, even though he doesn't make money on the product. He's so unhappy with Microsoft's antics that he's taken to suggesting OpenOffice as an alternative.
It's clearly time for a change.
About the author: An IT professional for over 15 years, Frank van Wensveen has worked in systems and network administration and implementation, software development, support, engineering and consulting. He currently runs his own IT consultancy and Internet development firm in Johannesburg, South Africa.