From: mccall@mksol.dseg.ti.com (fred j mccall 575-3539)
Subject: Re: Bundling Networks, OS/2 v. NT
Organization: Texas Instruments Inc
Date: Mon, 12 Oct 1992 21:13:15 GMT

In <1992Oct11.093615.7205@microsoft.com> petesk@microsoft.com (Pete Skelly) writes:

>In article <1992Oct10.231756.49561@ns1.cc.lehigh.edu> sjb5@ns1.cc.lehigh.edu wrote:

>> >
>> >Well, I hate to say it, but software doesn't work that way.  Software
>> >is almost all startup up cost and and very little production cost.
>> >Software has no intrinsic value besides what people are willing to pay
>> >for it, and if what you say is true, that most people won't be using
>> >the networking products, then the networking products will be worth little
>> >to them.  They will be willing to pay what they were willing to pay for the
>> >orrigional WNT product, minus the value of the networking products, which
>> >was little or nothing.  The net price will not have changed.  All that
>> >will change is the possible price for the WNT with the networking, which
>> >may go up, because the people willing to buy it will pay more for it.
>> 
>> So no money went into developing that networking software?  If people want
>> and/or need the networking, they *will* buy it.  If they don't need it, don't
>> force them into it.  Are you claiming that NT would cost just as much if we
>> removed networking, multiprocessing, and security features?  Of course it
>> wouldn't.  In fact people would really bitch and moan about this.

>Let X be the cost of development per unit sold.
>Let Y be the price per unit per unit sold.

>To make a profit, X < Y.

>Now, who ever said that Y = f(X).  

If it isn't, you are not in a competitive environment and hence should
be a regulated monopoly.

>More to the point, Y is not necessarily based on the value of X, more than
>it should be more than X to make a profit.  Y is based on what the market
>will pay for the product.  Simple economics.

Yeah.  simple economics, indeed.  It seems you should have taken
Einstein's advice with regard to simplicity on this one; make things
as simple as possible, but no simpler.

>> 
>> >>So in asking to remove networking, you are asking to raise the price of
>> >the networking version, and not lower the price of the non-networked
>> >version.
>> 
>> No you are lowering the price of the non-networking version.  The costs didn't
>> go into that version and so the company can't honestly claim that the
>> pdevelopment price is just as much.

>The price for the Non-networked version will be what people will pay for it.
>People, like yourself, will not pay more for the networked version.
>So, if networks are shipped with all versions, then to sell it to you,
>the price should be the same as the price you would have paid for a 
>non-networked version.  What's wront if the price is the same for the
>networked and non-networked versions.  

Because you have increased your value of X above (that floor price
below which there is no profit in selling the thing) because now some
proportion of the network stuff costs must be included in X.  In a
competetive environment, Y (selling price) most generally is a
function of X (development plus production costs, maintenance, etc.).
If your Y is *NOT* some sort of function of X, expected sales, market
competition, etc., then you are operating from a monopoly position and
should probably be regulated.

>Then MS is eating the cost
>of network development, so to speak.  Would you still complain.

Right.  I can see them doing that.  NOT!

>If not, then why not ship everyone the networked version, at the 
>cost you would have paid for the non-networked version.
>Would it not then be possible that the development costs of the network
>be made up by the extra sales of people who would buy NT because it
>is a good networking deal.

It is possible, but it all rather depends on the mix of people.  After
all, people who want to use NT for networking would still have to buy
NT, even if the networking were separate.  It all depends on what
percentage of prospective NT customers Microsoft expects to want the
networking stuff (as opposed to folks who don't want it, folks who
prefer to buy some 3rd party product that comes bundled with something
else that they need, etc.).  

What the current strategy does is reinforce the idea that NT is for
NETWORK SERVERS ONLY.  A few people might install it on
workstation-class machines that aren't networked, but that's not real
likely in most cases.  MS seems to be saying that that market isn't
large enough to be important.



-- 
"Insisting on perfect safety is for people who don't have the balls to live
 in the real world."   -- Mary Shafer, NASA Ames Dryden
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Fred.McCall@dseg.ti.com - I don't speak for others and they don't speak for me.