From: petesk@microsoft.com (Pete Skelly)
Subject: Re: Bundling Networks, OS/2 v. NT
Date: 13 Oct 92 06:27:12 GMT
Organization: Microsoft Corp.

In article <1992Oct12.211315.28385@mksol.dseg.ti.com> mccall@mksol.dseg.ti.com wrote:
> 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.

I think not exactly.

Let's say that Z is the price people are willing to pay for the product.

Y = f(Z), in most cases, Y = Z.

Z, I would say, is based on the prices of what competitors products are,
among other things, and not so much on how much it takes to develop the
software.  There are psychological factors involved.  If you lower the
price too much below what people expect, they think that it's not as good
of a product.

> 
> >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.

Y is based on what the market expects to pay for the product.  Sorry I left
that part out.  Also, remember that the market knows or cares little about
X.  

> 
> >> 
> >> >>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.

I would argue that this is not really that true in many goods that are 
information based.  (Products with little cost of manufacture and goods).
Any Econ folks out there to shed more light on this?


> 
> >Then MS is eating the cost
> >of network development, so to speak.  Would you still complain.
> 
> Right.  I can see them doing that.  NOT!

how many people regularly use edlin right now.  Why do they ship it still.



> 
> >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.

Go read the marketing info on NT again.  I don't get this impression.

petesk@microsoft.com
My Opinions...