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The MS Monopoly End Game

Bill G. obviously slept through this part of Econ 101

Francis Vale

The basic rules of the Monopoly board game are simple; buy up as many premium properties as you can, put up hotels as fast as you can, and then suck up all the money from your hapless co-players when they land on your gilt-edged lots. Own enough of the board and soon your friends are bankrupt and you win. It’s a great game but with one serious drawback if viewed as a Capitalism 101 teaching tool: If all the players have no money left, how does the winner continue to make money? Bill Gates and company may have overlooked this basic economic flaw in its own Monopoly game play. Now that they own all the PC properties, Microsoft should be able to charge whatever it pleases, and therefore make up its own game rules and there is absolutely nothing that playing customers can do about it. On the flip side, a court-proven monopolist like Microsoft can’t significantly cut product prices as the rules of the business game forbid it. A monopoly company’s primary path to ever increasing revenues is no longer grabbing market share as it essentially has it all. The only significant revenue growth options left for Microsoft are thus customer gouging price hikes and onerous IT contracts.

Which is exactly what is going on now, with Windows XP Home Edition costing $99 for an upgrade or $200 for a new OS install, while an XP Professional desktop costs $199 for an upgrade and a whopping $299 for a new install. Meanwhile, an upgrade to Microsoft’s new XP Office suite will run you about $210 while a fresh new system is about double that. The XP Office Pro upgrade will set you back about three hundred large and a completely new system will push you back a staggering $500. Brand new PCs with a powerful P4, lots of RAM and muy grande disc drives are now available for about $800 and prices are still dropping. But the cost of a completely new XP consumer system including OS and Office is $500+. If you go the XP Pro route, the cost of all-new software is the same as hardware, and maybe even more. It’s clearly MS Monopoly end game.

Redmond is also pushing a new payment system called Software Assurance to make sure its IT chokehold is never loosened. When the new plan was first announced last year, it required an annual fee that's 29% of the price of the original license for a desktop OS, and 25% of the original cost for a server OS. In return, Software Assurance subscribers get no cost software upgrades during the term of their contracts, which generally run for several years. According to Microsoft, “Software Assurance benefits are automatically included in Enterprise Agreement 6.0 and Enterprise Subscription Agreement 6.0.” Microsoft benignly asserts that its new pricing policies will result in annual savings of 15% or more for big customers that upgrade their systems regularly.

But a British trade group, the Infrastructure Forum, cried foul and said the only thing truly being assured was Redmond-across-the-pond price gouging that would drive up software costs for its ninety-eight member companies by $1.25 billion over the next four years. Microsoft XP pricing proposals to UK government departments and agencies were similarly estimated to involve 250% higher upgrade costs. Microsoft was sternly warned that Britain's public services could switch to using other manufacturers' products rather than pay XP license fee increases believed to total $85 million.

The normally reserved Brits were not alone in their foaming at the mouth response to these XP price increases. Many American companies also joined the Assurance hue and cry and angrily denounced the new XP licensing plan.

The basic rules of economics can be startlingly simple. A free good is available without the use of resources. There is zero opportunity cost, for example, air. You don’t have to give up drinking tap water to breathe air. In contrast, an economic good is a commodity in limited supply. Meanwhile, an expenditure on producer or capital goods is called investment, which leads to The Economic Problem--the scarcity of commodities. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire. Society thus has to decide which commodities to make. For example, do we build smart bombs or schools? We also have to decide how to make those commodities. Do we employ automation or human workers? Or, can we use low cost or free software capital goods in place of expensive software capital goods to create the desired commodities? If a substitute free capital good (i.e., software) performs just as well its much costlier counterpart, then valuable investment resources are freed up to buy capital goods to make other desirable commodities. Thus, monopoly-based pricing inherently contains a business self-destruct. According to the economic rules, makers of commodities must, if they are to stay viable and competitive in a globally competitive market, find very low cost or free software substitutes for XP Office and XP OS, like Open Source StarOffice and Linux.

The Economic Problem caused StarOffice to be chosen by a number of UK government agencies. The Central Scottish Police achieved an estimated annual saving of $356,000 by switching to StarOffice. The Penwith District Council saved over $214,000 in licensing costs, and estimate an ongoing saving of $71,000 per annum for their 250 users. For large scale IT enterprises with several thousand seats to XP Office upgrade, the choice of switching to StarOffice would result in annual savings in the millions. The new StarOffice 6, scheduled to be released in the first half of 2002, has a substantially redesigned user interface that is much more user and desktop friendly than the previous version, which was off-putting to many used to MS Office. With a much more familiar Office-like interface and its deep rooted use of XML to handle almost any MS Office file format either now or in the future, StarOffice 6, which will either continue to be free or available at very low cost, should prove to be a no brainer alternative to XP Office, especially the Pro variant.

But whereas Sun Micro has now decided to charge for StarOffice 6 (albeit far less than the price of MS Office), then other cross platform MS Office alternatives also become viable, for example, the new ThinkFree Office, www.thinkfree.com, a Java-based suite. Currently available for Windows and MacOS 8 and above (but not MacOS X), the ThinkFree Office client suite includes all the standard features of MS Office, and can handle almost all Office formats, including ThinkFree presentation software than can open PowerPoint files. ThinkFree Office is sold on an annual subscription basis and the $49.95 yearly cost includes free upgrades and 20 MB of on-line storage. 1 GB of on-line space is available for $299.95 annually. A Linux ThinkFree Office client is expected to ship this summer using the new JVM release v 1.4 that offers much better performance. ThinkFree Server-based versions for enterprise or work group use are also available for Linux, Solaris, and MacOS X. Per user pricing for server-based ThinkFree Office starts at $40 for 25 users and quickly goes down as the number of users increases.

But what’s available for eating the big economic enchilada, Windows XP, and replacing it with a no-monopoly pricing alternative? Linux, of course, has been widely touted as the desktop open source savior. But apart from some desktop replacement headway made in Europe by S.u.S.E, the market share numbers of desktop Linux are dismal. Mostly, it’s the inability to come up with a truly user friendly--as in naïve user--version of Linux. Civilizing UNIX is possible, though, just look at MacOS X and its gorgeous Aqua user interface. And in comparison to XP and its almost daily security updates and its likewise almost continual system error recoveries, MacOS X is a shining UNIX star.

Hence, the arrival of Lindows, the creation of the founder of MP3.com, that is getting a lot of media attention these days. The Lindows PC business model is to sell a naïve user-friendly version of Linux that, via Wine (an implementation of the Windows 3.x and Win32 APIs on top of X and UNIX that does not require any Windows code), will run almost all MS and other Windows applications. Lindows has also garnered considerable legal attention from Microsoft, which recently sued this Linux upstart, asserting that customers would somehow confuse Lindows with Windows. This ill-conceived Windows trademark lawsuit turned out to be a double whammy backfire for Redmond. Not only did this lawsuit raise public awareness of Lindows and Linux generally, Judge John C. Coughenour in his Lindows favorable ruling also said: “Microsoft has raised serious questions about the validity of its trademark [Windows]…If the term lacks sufficient distinctiveness so that it is generic, it cannot be the subject of trademark protection under any circumstances.” By suing Lindows, Microsoft may have instead opened the way to losing all trademark protection for Windows!

At a retail price of $99, Lindows may face tough going in trying to find strong market positioning. Linux geeks will stick with Red Hat, S.u.S.E, etc., and the corporate customer, even with substantial volume discounts will not place its enterprise IT bets out on a tiny 20-30 person company. So naive consumers will need something that truly does offer incredible ease of installation and use, and a system that absolutely will run all the major Windows apps without fail (games, especially). However, excellent Windows application compatibility is still a highly elusive goal based on early Lindows beta test reports.

But whether it’s Lindows or something else, basic economic principles--unless Gates has somehow repealed them—still apply and the Microsoft monopoly is due for a business-busting asteroid that could abruptly end its gargantuan rule over the IT planet.

Francis Vale, Copyright 2002, All Rights Reserved

21st, The VXM Network, http://www.vxm.com

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