June 14, 2004
Ten years out, in terms of actual hardware costs you can almost think of hardware as being free
-- Bill Gates
We've all been reaping the benefits of Moore's Law for the last 20 years, but there is one unintended consequence of this rule: as hardware becomes cheaper, software becomes more expensive
In other words, it was OK for a retail copy of Windows to cost $99 when computers regularly cost $2,000 to build, circa 1997. That's only five percent of the total cost, after all. But in this era of cheap, $500 computers (with monitor!), that same $99 license is a whopping one fifth of the total cost. Perhaps the more relevant question is, What if software was never free? One answer, obviously: Linux.
Microsoft's response is.. a little more complex.
"[in Thailand] Microsoft offered a special price of 1,500 baht ($38) for XP Home and Office XP combined," recalled Jumrud Sawangsamud, chairman of affordable computing working committee. Normally, Windows XP Home Edition sold for 4,500 baht and Office XP cost 15,000 baht.
We've already seen Microsoft do something like this, informally, with their "student" licenses for Office XP
. However, what immediately struck me about the Thailand pricing is the obvious parallels with the pharmaceutical industry-- that is, subsidizing development costs differently in different markets.* And, sure enough, a few paragraphs down:
Setting prices based on geography is not new in other industries. Pharmaceutical firms charge lower prices in developing markets like Africa than in mature ones like the United States. Even McDonald's sets different prices for Big Macs based on geography.
Unfortunately, what isn't mentioned here is how profoundly unpopular this pricing strategy is
. It's also an increasingly difficult strategy to enforce in a global market, in the age of the Internet. Ignorance is bliss, at least, when it comes to someone in Thailand paying less than one-tenth what I am for Office XP and Windows XP
. Granted, software may make my life easier, but it sure won't save or prolong my life-- but a drug can. So you can imagine the intense pressure for illegal "grey market" drugs, imported from countries with socialized medicine (eg, strict price controls and/or much lower drug prices, such as Canada or Mexico). These illegally imported drugs are sold in the US through websites at significantly lower rates. It is a huge issue, and there is legislation working its way through the senate to legalize the drug importation process
. In an election year, and with the clout of older voters who need these lifesaving drugs, you'd have to be a very gutsy politician indeed to oppose its legalization.
I have no comments on the ethics of the "grey market"-- I think in a global market, it's inevitable-- but I don't see any reason why, given a strongly tiered per-country pricing structure, the same problems (and pressures) won't come up in software, too.
* In the interests of fair disclosure, I should mention that one of the largest drug companies in the world is the second largest employer in this area, and I currently work for that company.
Posted by Jeff Atwood
That's true. Windows does cost more compared to total price of the PC as compared to 1998. But it does one hell of a lot more. Compare that to the PC. The peripherals are mostly the same. The box is mostly the same. The only thing that changed is more RAM, bigger disk and faster CPU. In other words, manufactured devices - that are inherently easier to cut costs on.
"But it does one hell of a lot more."
True, but I think the Pentium 4 is quite an advance over the Pentium 1. And motherboards are far more integrated now (gigabit ethernet, sound, video, wifi). So you could definitely argue that hardware is both more full featured AND cheaper.
"manufactured devices - that are inherently easier to cut costs on."
Modern cpu manufacturing plants cost BILLIONS of dollars. And I think software is the ultimate "manufactured good"-- the only physical cost is the cost of the media you duplicate it on. It's pretty much like having a license to print money.
(Whoah, 3 years later…)
Well, at least software often has an advantage in this field: those cheaper versions are often localized, and seldom come in more than one language. Would you really use a Thai OS and office suite, no matter how cheap it turns out to be?
Well, you would have a point. If it was true, you can get the English version of Windows XP today for 2k-3k baht which isn't bad considering 2k baht = $40 (depending on the exchange rate), I know this becasue I just returned from there with a fresh copy myself (I was stationed there for 3 mos). Its not cheaper because its a cheaper version. Cost of living effects the price you pay for vertually anything virtually everywhere. That's one reason why cigerettes in your town may be (hypothetical number here) $4, but 2hrs down your local highway you may pay upwards of $7. Case in point, while I was there I bought a $1500 camara. I was wondering for about 1 week why everyone's eyes was always glued to the camara on my neck, until I walked by a realty "shop". I could have bought a 2 story, 4 room house and spent $200 less.
pentium 4 is the worst processor ever made
One point - hardware manufacturing moved almost to the third world and is being more and more automatized.
Software development cannot be automatized that well, and as for moving to the thirld world - well, I think we all are not exactly glad for that.
And by the way, software developer aguing for cheaper software - we call it 'sawing the branch you sit on' here in Czech Republic...
Price discrimination between the USA and Europe has been around for a very long time, and grey market imports of US licences to the EU have been around for nearly as long.
This is especially true for the UK, which uses very nearly the same localisations (and most US-localised systems include UK localisations).
That wasn't new in 2004.
manufacturing cost can be cut over time, but software needs much better educated and highly paid workers, and unlike manucacturing computers you can keep using the same factories over and over again when one model gets replaced with another one. Software you need to start from the begining every time.
Hope to know more important things regarding design from it. thank you.