From: mccall@mksol.dseg.ti.com (fred j mccall 575-3539)
Subject: Re: MS-DOS bundling (was: FCC will proclaim ...)
Organization: Texas Instruments Inc
Date: Wed, 30 Dec 1992 18:37:17 GMT

In <1992Dec29.213438.387@wes.on.ca> tomh@wes.on.ca (Tom Haapanen) writes:

>> philco@microsoft.com (Phillip Cooper) writes:
>>> All right, this mis-information being spread is getting a little out of
>>> hand.  It is true that *one* type of licensing contract offered to system
>>> vendors charges royalties per computer.  It is also true that another
>>> type of licensing contract charges royalties per copy of OS sold.

>jmaynard@oac.hsc.uth.tmc.edu (Jay Maynard) writes:
>> Not necessarily. For example, say that MS charges $8 per machine for the
>> every-machine-gets-one contract, and $20 per license for the completely
>> unbundled version.

>Wait, Jay -- suppose IBM says "buy *all* your computer equipment from us,
>and we'll give you 40% off list.  If you just buy that AS/400 that you
>need, we can only give you 25% off the list prices."  Ooh, they're holding 
>an economic gun to our heads!  :)

Not the same thing.  You want the same thing, look at it this way.
Two clone makers.  Cloner A ships 100k systems/year, with MS-DOS on
75% of them (so he's shipping 75k copies of MS-DOS.  Cloner B ships
10k systems/year, with MS-DOS on all of them.  Now, in comes MS and
they say, "Well, we will grant you the license to put MS-DOS on all
your machines if you pay us $8 per machine you ship, whether or not it
has MS-DOS on it.  If you don't like that, we will charge you $16 for
every copy of MS-DOS that you ship."

Now, look at the situation.  This is NOT a volume discount, since the
number of units of MS-DOs I buy has nothing to do with it.  After all,
Cloner B is only buying 10k copies a year and he gets it for $8/copy.
Cloner B, with a much higher volume of 75k copies/year can only get it
for twice that unless he pays MS for 25k machines/year on which he
does NOT install MS-DOS.  Of course, Cloner A is going to have to take
the deal as well, since his cost is $800k under the blanket deal and
$1200k under the 'volume purchase' deal.  

Now, the people who buy those 25k machines/year from Cloner A are
going to have to pay that MS royalty in the cost of the machine, even
though there are no MS products in it.  THIS IS AN ARTIFICIAL PRICE
BARRIER TO MARKET ENTRY BY OTHER OPERATING SYSTEMS, WHICH ONLY MS CAN
'FORCE' BECAUSE OF THEIR CURRENT MARKET POSITION.  And that is
'monopoly power', violates all those tenets that make a free market
such a desirable thing, and ought to be illegal.

Oh, by the way.  IBM *did* try something similar way back in early
history, with their mainframe business.  They basically stated that if
you used anything but IBM punch cards they would invalidate your
warranty and service contract on your equipment.  The CLAIM was that
other punch cards were lower quality and could damage the machines.
This was shown to be false and IBM was 'forced' to stop that policy.
In other words, IBM was using monopoly power in one aspect of a
business to make money by coercing people into using their product in
another aspect of the business.  The AT&T used to do the same thing
with regard to telephone equipment -- and they, too, were forced to
stop.

>Of course none of us know whether the real numbers are anything like $8,
>$20, 40% or 25%.

Right, which is why the numbers in my preceding example are totally
made up.  But the PRINCIPLE is the same; the price difference is NOT
based on volume, or on any sound reason.

>> This would be a prime case of MS forcing vendors to sell DOS and Windows
>> with each machine, whether or not the customer wants or needs it. (I can
>> hear the cries now: "But they're not holding a gun to their head!"...to
>> which I answer that force can be economic as well as physical.)

>No, they're not forcing anything.  All it means is that the vendor pays
>Microsoft a royalty of $X per machine shipped for the RIGHT TO INSTALL
>MS-DOS on all the machines.  They can choose to install or not to install,
>it's just that the money they pay Microsoft doesn't depend on the actual
>number of MS-DOS systems shipped, but on the total number of units.

>If we use your hypothetical $8 figure, that means that the vendor has to
>add $8 to the cost of every system sold, saving him a hypothetical $12
>for each one of the MS-DOS systems making up 90% of his sales.  Sure, there
>is that extra hypothetical $8 for that last 10% of non-MS-DOS systems, but
>that's all that's there.

>So, no, the vendor isn't forced to ship MS-DOS.  Yes, you will pay for the
>license, but you can't choose everything on your machine, can you?  Can
>you delete that silly game port, or drop that never-used "Turbo" button,
>decline the Weitek socket you will never use, or buy your ATI Ultra without
>that "mouse" they include?  No, of course not.  But that won't stop you
>from buying that particular machine if THE TOTAL PACKAGE is a good deal.
>Why should that hypothetical $8 for MS-DOS be any different?

I hope you get it now -- but I don't think you will.

>> (Fortunately, though
>> , this may be changing; at least Dell is standing up to MS' pressure,
>> and I can always go get a PS/Valuepoint...)

>How do you *KNOW* that Dell isn't still paying the per-unit royalty, and
>just absorbing that hypothetical $8 if you specify a different operating
>system?

>Oh, and why is bundling OS/2 all right on PS/Valuepoints, but including
>MS-DOS and Windows is evil?  Shouldn't IBM give us a choice, too, using
>the same criterial you apply to others?

Those are IBM machines and they can do what they want insofar as
bundling their own stuff.  If Microsoft sold machine, I would grant
them the same privilege.

-- 
"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.
Newsgroups: comp.os.os2.advocacy