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The other side of the coin

Tim Holloway
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Joined: Jun 25, 2001
Posts: 16055
    
  21

http://zdnet.com.com/2100-1104_2-5166912.html
The flip side of getting cheap labor off lower cost-of-living is that the people with the lower COL can't afford the same pricing structure as the high-COL people can. Businesses and governments, of course can negotiate, but retail is another matter.
The price of software, like most high-tech things, is almost entirely artificial. Both code and chips have a relatively high startup cost, but you can then coast for several years at minimal cost. Historically this has led to some pretty fat profit margins. Though the chip business is fairly competitive, so that's less so.
Now companies like Microsoft are getting in trouble. First, the market in developed countries is pretty well saturated, but there's plenty of potential in India and China. But the relatively high cost of MS software, based as it is on Western market prices makes it a much harder sell over there. So there's a problem for them.
They can drop prices over there. That makes the products more attractive, but the absolute dollar profit drops radically. If they don't drop prices, less expensive/free systems such as Linux may eat their market before they even own it. Forget about those "TCO studies" in the MS ads - they'll be using much cheaper labor to support whatever systems choices they make.
However, discounting is a slippery slope. Other countries, including the high-margin ones will claim discriminatory pricing, yell to the WTO and demand the same Everyday Low Prices[TM]. Another hit to profitability.
An alternative, that MS is exloring in Thailand is to make stripped-down products to justify the lower costs. Think of the political fallout from creating "Windows Third World Edition", though.
What goes around comes around, you see.


Customer surveys are for companies who didn't pay proper attention to begin with.
Jeroen Wenting
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Joined: Oct 12, 2000
Posts: 5093
cheaper "lite" versions of software packages have existed for a long time.
Targeted initially at people that had no need for all the bells and whistles, they're also a good entry point for those that can't afford the larger more capable version.
As to discriminatory pricing, that's well accepted in many industries though usually it's the US profiting from the lower prices so you don't complain...
Just take a look at electronics and CDs/DVDs. All that is 20-30% cheaper in the US than they are in Europe despite US spending power per person is on average 30-40% higher than that in Europe.


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Tim Holloway
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Joined: Jun 25, 2001
Posts: 16055
    
  21

Windows certainly would benefit from a lightweight edition. I think even the pocket PC edition requires more resources than Win 3.1 did. MS could probably halve the number of viruses floating around the world by simply releasing a Win/XP release (with security fixes) that would run on the old P-90s stuck on 98. And maybe even make a few more billions.
Discount pricing is one thing. The problem here is the same one we're struggling with in the jobs area. When income is 20% of Western amount, there's a lot of discounting required to be competitive. Especially when the price of some of the major competition (Linux) is $0 world-wide.
People are upset enough at the wage differential. Would you like to pay 10x what people do in India for Windows? Or would you try and get a copy of Windows India Edition smuggled over (the $35 Thai edition is designed to speak Thai, BTW).
Conversely, if you strip enough features to justify selling Windows so much cheaper in the third World, would it still be worth paying for? Especially since the competitions' still got their full feature set for free?
 
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