Last week you did an interview with
analysts Tom Austin and Dave Smith at the Gartner
Symposium at which you talked about Lindows.com and had
some strong comments about our $199 computer.
While we appreciate the exposure, I did want to challenge
some of your answers because I thought they were
misleading. Below I've taken quotes from your talk that I
and from the
Gartner website (video). After each quote, I've added some of
my own thoughts. Feel free to email me with any response
you might have.
First up, the interviewer asked if lowering the cost of
Microsoft software would spur sales of personal computers
and open a whole new market.
Ballmer: "Would there be a material difference in
sales between a $475 computer and a $500 computer?
...We're not blind to the issues that you're saying, but
we're trying to be smart about it because I don't think
people's gut reaction is right. I don't think a $475
machine outsells a $500 machine so radically as to be
worth our taking the precipitous action you talk about."
I think you used a classic "straw man" argument - where
you use incorrect information to draw a favorable but
inaccurate conclusion. You're probably right that if the
price difference were just $25 then it wouldn't matter all
that much, but $25 isn't a realistic number. Rather than
work with a hypothetical, lets look at actual numbers for
a computer outfitted with Microsoft software versus the
identical computer outfitted with LindowsOS. All price
quotes are from Walmart.com as of 10/02.
* Included at no additional cost in the
Warehouse along with hundreds of other programs.
As you can see, the price difference is dramatic for a
general purpose computer running a typical set of
productivity programs. The total cost for a Microsoft
solution is over $1,000 versus less than $500 for a
LindowsOS solution. That's more than 20 times the $25
difference you cite in your example. Over $700, or more
than 70% of the total cost of a general purpose computer
is monies going to Microsoft. That's why your $25
illustration is inaccurate. New markets will emerge and
the tech industry will grow as consumers realize that
modern computing for their home, business or school has
become much more affordable.
Concerning the $199 PC from
Ballmer: "Somebody is subsidizing that hardware.
Somebody is losing -- I mean, people know what power
supplies and disks and processors all cost."
Actually Steve, I don't think most people know what
individual components cost. You seem to think they cost
more than $200, but that's not true in this case. I assure
you that we're not subsidizing these computers - they're
just very affordable because hardware prices are dropping
dramatically. This is why we believe that if we can make
the accompanying software more affordable many more people
will use computers or buy multiple computers. Even though
we're not subsidizing these computers, if we were I don't
think there's necessarily anything wrong with that just as
Microsoft subsidizes their Xbox machines. But in this
instance we are not. They're just a great value.
Ballmer: "Well, if you take a look at our price
for a home computer, which is what you find actually on
I think, you wouldn't find it in the stores -- it doesn't
sell well enough to be in the stores, but on
you'll find a $199 computer."
I have to admit this comment made me angry and let me
explain why. As you know Steve, one of the main reasons
other products aren't in more retail outlets is not
because there isn't demand, but because Microsoft wields
incredible financial clout which is used to extort
companies not to work with competing products. Yes,
after two anti-trust violations you're obligated to offer
equitable pricing to the largest computer builders for the
Microsoft Windows XP software, but what Microsoft does now
is use MDF (market development funds) to pressure the
behavior you want from many OEMs. You give computer
companies a price break on Microsoft software in the form
of a rebate for every computer they've sold. This program
is disguised as a "marketing" program but OEMs only
qualify if they agree to terms such as not working with
competitor's products. Since most hardware companies
operate on slim margins, they can't afford to defy
Microsoft's demands and lose millions in kickbacks. If you
wanted to spur innovation and give consumers a true
choice, then you would allow them to carry competing
products without jeopardizing their pricing terms. Until
then, it's highly misleading to suggest that because of
consumer demand or lack of sales that competitor's products
aren't on the store shelves.
Ballmer: "We agree it would be nice to have have
a variety of different options in our licensing - per
user, per device. The key question is, how do we do that
and not have the level of complexity explode?"
With the price of hardware dropping so quickly, many
people will have multiple computers and we agree that they
should only have to pay for one copy of software - since
that's all they can use at a time. Maybe they have a
laptop and a desktop or even multiple computers in their
house or office. Per user rather than per machine pricing
is most fair and offers dramatic savings in these
increasingly common situations. If we use the above
numbers for a person owning 2 computers, the difference is
a startling: $2,134.20 (2 computers running Microsoft
software) versus $755.56 (same computers running
LindowsOS). Per user licensing is not nearly as
complicated as you might think. Feel free to use our
license as a template since we already offer per user
licensing. We think it's the only thing that makes sense
as we move to a world where we're surrounded by
inexpensive computers dedicated to specific tasks or
interested in trying LindowsOS can join the Insider's
and immediately download LindowsOS
it on CD.
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thank you to all our
Insiders for helping us shape the direction of
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Warehouse" (a $198 value) for $99. You'll want
to hurry though, as
offer ends very soon with the General Release of LindowsOS.
to answers questions you may have about LindowsOS or
Bringing Choice to
is a consumer company that brings choice to computer
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founder and former CEO of MP3.com. LindowsOS is a modern,
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