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Challenges And Strategy - Rigity And PricingChallenges And Strategy - Rigity And Pricing
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Subjects > Computers (Search) > Microsoft (Search) > Challenges and Strategy By Bill Gates
RIGIDITY/PRICING: In the Autodesk memo, Walker talks about the short term thinking that high profitability can generate. He cites specific examples such as a very conservative approach to giving out free software or a desire to maintain fixed percentages for the wrong reasons. Microsoft priced DOS even lower than we do today to help it get established. I wonder if we would be as aggressive today. This is not a simplistic advocacy for just lowering our prices -- our prices in the US are about where they should be. However the price of success is that people fail to allow the kind of investments that will lead to incredible profits in the future. For example we have gotten away without funding any internal or external research. Nathan is working with me to put together a lan that will end up costing $10M per year about two years from now. I have no plan to reduce our spending in some other category by $10M. Microsoft is good at investing in new subsidaries and even at investing in new products (database, mail, BBU, networking). Most of our rigidity comes when we have a very profitable product and when the market changes. In these circumstances we should spend more or charge less, but our systems locks us into staying the same and losing share.
My largest concern about price comes from Borland. Organizations smaller than Borland will not have enough presence or credibility to use low price against us broadly I think 90% of the significant competition we will face in productivity applications will come from Lotus, WordPerfect?Create|Search, Borland, Claris and IBM barring technical innovations by small companies. It is amazing how similar the applications strategies of Microsoft, Lotus, Borland and Claris are. Philippe has a much lower cost structure than Lotus, IBM or Microsoft, so he can afford to do things we would consider wild. For example Borland is considering not offering their Windows word processor separately but integrating it with Quattro for free -- the technical opportunity and value would be very strong. This is very different than Lotus temporarily offering Ami for free. Oly immense loyalty to a product at the end user level prevents corporations from using their buying power to force a cheap site license. When the US Goverment DOD moves software procurement to a separate contract, the price per user of software will end up around 0. Why shouldn't some small organization price their product at say $1M for the entire US Government for all time? We would if we were small and hungry. Fortunately most organizations don't force cheap software on their end users.
Another price concern that I have is that companies will eventually equip all the employees that need software with a full complement of packages, and our only revenue opportunity will be upgrades or ephermeral information. although this problem is over five years away, I think it is important to keep in mind.
Other sections of this memo:
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