Recently Steve Ballmer, CEO of Microsoft, stated that PC’s are way too expensive. In his opinion the market needs a $100 PC. According to Ballmer a $100 PC will allow the less fortunate in this world (Asia, Africa, third world countries) to afford Microsoft products. And it will allow Microsoft to increase its marketshare and curb piracy.
After falling off my chair from laughter I wondered how things had been at Microsoft HQ after Ballmer fired this one. I can only try to imagine how suddenly the PR, Marketing and Spindoctor drones were forced into another damage control mission. Trying to slap together an answer for the furious IBM, HP, Dell, Intel and AMD executives who immediately called their Microsoft HQ hotline and demanded an explanation. Obviously followed by pretty much the rest of the hardware industry who no doubt were not amused by the bullying from the man famous for his monkey dance.
It doesn’t really matter if Ballmer acted alone or if this speech was orchestrated by the PR drones. What is significant is the unbelievable denial of market realities. In an almost unstoppable fashion Microsoft is met with increasing suspicion (especially in Europe) and their products are increasingly perceived as relatively more expensive. These days Microsoft actually has to work to win a big project. The money printing machine is losing pace. The perceived cost issue is probably one reason why the PR drones keep using the word “value” in their communications and came up with that “get the facts” compaign of which the content is so obviously cooked it makes you wonder if Microsoft fully appreciates the market’s intellectual capacity.
An important reason the market is scrutinizing Microsoft as a company and the value of their products is the questionnable business values, ethics and (illegal) conduct that surfaced during the anti-trust cases, Microsoft’s convictions in various courts. And last but not least the enormous success of Linux and Free and Open Source (F/OSS) software based solutions. Linux & F/OSS focused vendors like Red Hat and SuSe (Novell) sell service, support and consultancy. They do not charge for the Linux kernel and the applications than run on top of Linux (e.g. Win2K and Exchange in Microsoft speak). For example you can download the actual applications that make up Red Hat Enterprise Linux freely from Red Hat’s website, at no cost, $0, â‚¬0. You only pay for the annual service and/or support contract and any consultancy your company might need. And this is the biggest problem that Microsoft faces: if the acquisition cost of the competition’s solution is free, how do you compete with that.
Microsoft does not seem to have an answer and resorts to unguided rusty missiles, in this case fired by Ballmer. The intention of Ballmer’s $100 PC missile is pretty obvious: Microsoft is looking for ways to lower the cost of acquisition of the hardware+software combination to close the significant gap with solutions from vendors like Red Hat and SuSe (Novell). If Microsoft succeeds in closing a reasonable amount of the gap and they can successfully convince the market of the “added value” of their products, then they think they can win. From a consumer perspective this will off course not work as the $100 PC with Linux and F/OSS applications (e.g. from SolarPC) will always be cheaper than a $100 PC with Microsoft products for the simple reason that Microsoft products are not free and Linux and F/OSS applications are. In the Enterprise space, due to the relentless enhancement of Linux and F/OSS based solutions tailored to exceed Enterprise requirements like reliability, availability, security, manageability, performance, interoperability and Open Standards, these solutions are moving uphill fast and thus will continue to be perceived as a mature, cheaper alternative to Microsoft products.
The obvious question is why Microsoft doesn’t simply lower the price of their products. In the last 6 months the media has reported of several significant deals where they lowered the price of the licenses with a staggering amount. So if Microsoft wants to win a deal they are prepared to pay the price so to speak. The PR value of winning the deal was probably not as much as the negative effects of losing it. But how long can Microsoft keep this up? Analysts point out that Microsoft’s revenue curve is showing it has entered maturity. And that means it will start to flatten out. So Microsoft will have to make sure it continues to grow the revenues from their core business (Windows, Office and Exchange) while searching for other sources of income. Which means it can’t cut prices. Then there is this matter of shareholder value. Microsoft’s stock price includes the value of expected future revenue growth. Again this means they can’t cut prices since it will pull the plug out of their share price.
Which means Microsoft is left with which options to sustain their monopoly? I’ll let you know once I figure it out. In the mean time have a look here if you would like to learn more about Linux and F/OSS solutions for your company and how they can help your business to reach its objectives. I look forward to talk to you.