Microsoft Software Too Expensive Says CEO

by CXOtoday Staff    Oct 21, 2004

Microsoft CEO Steve Ballmer recently declared that a $100 PC was needed to combat piracy in the emerging economies. Ballmer was quoted as stating that “There has to be…a $100 computer to go down-market in some of these countries. We have to engineer (PCs) to be lighter and cheaper.”

Open Source Industry Australia (OSIA) agrees with Microsoft on this point. However, hardware prices have already dropped rapidly in recent years due to fierce competition. The biggest single cost remaining in new PCs is the software, which it needs to run to do anything useful; an operating system and an office productivity suite. And here lies the problem.

Microsoft Windows & Office XP combined, retail for almost US$1000, which could equate to many months of wages for consumers in emerging economic regions like Africa and Southern and South-Eastern Asia. This cost is 300% more than the cost of the entire PC hardware, and 10 times more than the price that Steve Ballmer wants PCs to cost.

“The Microsoft software in the average user’s PC is the most expensive part of the computer, and is the reason why it will never be possible to create a $100 computer when using Microsoft products,” said OSIA spokesperson Mike Williams.

“Hardware suppliers are already struggling on margins of a few percent, while Microsoft makes a profit of almost 80% on its core franchises of Office and Windows. We find it refreshing that Ballmer is acknowledging that this level of price gouging can’t continue, not if he is serious about a $100 PC. The only way to make that happen is to use commodity products like Linux and OpenOffice.org, which have comparable or better facilities for the markets in question anyway.”

“We understand that Microsoft prides itself on the high level of service and support it gives its customers. With the growing popularity of free and open source software, Microsoft clearly can’t charge US$1000 for the software that a PC requires to be minimally useful, if it is serious about making the US$100 PC a reality.

Ballmer has therefore recognized that Microsoft has to look towards becoming a services company or a company which adds real value to minimal-cost products. This is what many of the firms successfully operating in the open source industry do now,” continued Williams. “Speaking on behalf of the open source industry, we are looking forward to Microsoft joining us in the brave new commodity world. We know we can survive and thrive here. Let’s see if Microsoft can too.”

Tags: MS, Linux