From: bruce@ais.com (Bruce C. Wright)
Newsgroups: comp.os.os2.advocacy
Subject: Re: Bundling Networks, OS/2 v. NT
Date: 12 Oct 92 00:51:33 GMT
Organization: Applied Information Systems, Chapel Hill, NC

In article <1992Oct12.002430.61014@ns1.cc.lehigh.edu>, sjb5@ns1.cc.lehigh.edu (STACY JOHN BEHRENS) writes:
> In article <1992Oct11.093615.7205@microsoft.com>, petesk@microsoft.com (Pete Ske
> lly) writes:
>>In article <1992Oct10.231756.49561@ns1.cc.lehigh.edu> sjb5@ns1.cc.lehigh.edu wr
> ote:
>>
>>> >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.
>>
>>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).
>>
>>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.
>>
> If you don't sell enough copies or the price is too low to cover the
> development costs for a given set of features, then you lose money.  People
> don't like to buy things they don't need.  Even simpler economics.

Stacy (or John, whichever you prefer to be called), I think you are
letting your dislike and distrust of Microsoft cloud your judgement
on this point.  You're digging yourself deeper and deeper into a
totally untenable position.  What Pete says, whether you like it or
not and whether you like the messenger (and the messenger's source)
or not, is quite correct.

Question:  Just what percentage of the total cost of a typical software
package would you estimate is earmarked for amortizing the development
costs?  The general tone of your articles seems to imply that you think
that this percentage is fairly high -- maybe 50% or more.  I'll give
you a clue:  for off-the-shelf (non-custom) software, the _highest_
likely value is probably around 20%, and that would be in special cases
where the development costs were unusually high compared to what the
market would bear for the product.  Most of the costs go into production,
marketing, distribution, and support;  development costs are usually no
more than 10% and likely in single digits.  Obviously different products
have different numbers, but I think the general picture is very different
from the one you appear to have.

> When I buy a product, I am buying a certain set
> features which I deem cost effective for what they provide.  The company I buy
> it from has a responsibility to price this at a price that is equiable to both
> parties involved.  If the price is not set to a point where I can pay for it
> because it includes features which I deem unnecissary to me, then that product
> will not get purchased.  The networking development involved a certain cost.
> Take the networking out of a certain version, and I am no longer purchasing
> that networking software, nor will I be any further burden on that company for
> that particular feature set.  Therefore the price of the development costs
> should not enter into the equation for that product and thus it should cost
> less.  MS would be selling the networking to those who need it and want it.

You seem to be convinced that the networking support is a high-cost
development item relative to other things in the basic system.  It
isn't.  It has often been sold separately in the past with other OS's
because enough people have wanted it do enable the vendor to set up
separate product lines for it (it should be noted that it _does_ cost
the vendor something to split up a product, it's not all gravy);  it's
also not uncommon for the network support to be bundled in:  it's more
of a marketing decision than anything else.  Sometimes you can make
more money by just selling more units (because of the increased feature
set) rather than reducing the costs of each unit, even at the same price.

The kind of `a la carte' pricing that you seem to be so fond of would
result in very expensive software because you are having to duplicate
many of the costs over and over again for all of the components:  Why
stop at networks?  Why not unbundle everything, since the same argument
applies a fortiori to other common components, e.g., the GUI?  (I
should note that not all of these costs are going to the software
publisher -- MS or IBM in this case -- a lot of them would be going
to distributors and retailers for handling all the extra packages).
The idea (not a new one) is to bundle a lot of features together and
maybe a lot of people will see subsets that they like and discard the
rest;  and since the entire package only has to be manufactured and
distributed once, the total cost (and price) can be kept down.

Your idea has a sort of `ivory tower' idealism, but I don't think it
can work in the real world -- for MS _OR_ IBM ... or anyone else for
that matter.

Bruce C. Wright
Newsgroups: comp.os.os2.advocacy