Apparently Microsoft’s strategy to return to their former profitability after their last horrendous results will be–are you ready for this– to increase the price of computers. No, I really am not making this up!
But I shouldn’t really have been surprised by this turn of events, here’s what I said back on March 29 in my post about the Windows adverts:
“In anycase, Microsoft has been too clever by half, as the saying goes. This is same race to the bottom that ends with a $199 netbook running either linux, or a version of windows that is priced so low there’s not much profit there.” *
Steve Ballmer could have just read my blog, and not paid all of his marketing whiz kids anything.
Using this same logic (a logic that is predicated on ignoring market forces) maybe GM should increase the price of cars, no? Of course, Microsoft could do this in a command economy, which monopolies can start to resemble. (Note I’ve had other posts about the convergence of MS and command economies, but those were done more in jest. Perhaps I was on to something.) My conclusion: Microsoft is on their deathbed, having completely thrown out the idea that they should compete on quality and on price, and meet customer demand for higher quality, lower price software.
They have entered their death spiral, wherein they will try to milk the maximum amount of money out of each sale, which will have the very predictable effect of driving some of their customers away. As those customers leave, they will have to milk their remaining customers even more, causing even more to leave. So my prediction: this is the beginning of the end for MS. Of course, MS won’t go poof overnight, they are too big for that. But a big, long death spiral has been started, and Ballmer wants to do everything possible to accelerate it! Insanity!
After publicly advertising the idea that Windows PCs are cheaper than Macs in its “Laptop Hunter” ads, Microsoft CEO Steve Ballmer told an audience of financial analysts that the company’s attempts to cut prices of Windows to induce demand in emerging markets had failed over the previous year, and that the solution to the company’s woes will be to increase the price of computers.
“The theory was wrong,” Ballmer said, explaining that there wasn’t enough new demand to make up for the drop in profits. “You’ll see us address the theory. We’re going to readjust those prices north [using Windows 7].”
Go ahead Steve, make my day.
Meanwhile, back in the real world:
As noted at www.laptopmag.com
February 23rd, 2009 by Joanna Stern
Android may give Linux a boost on netbooks, but according to Dell, its Inspiron Mini 9s with Ubuntu have already seen a steady sales stream coupled with low return rates….
While MSI told us a few months back that Wind netbooks running SuSE Linux saw 4x higher return rates than that of XP machines, Dell has had quite the opposite experience with its Inspiron Mini 9 offering with Ubuntu. “A third of our Mini 9 mix is Linux, which is well above the standard attach rate for other systems that offer Linux.
Dell attributes part of the Linux growth to competitive pricing on the Ubuntu SKUs. “When you look at the sweet spot for this category it is price sensitivity, and Linux enabled us to offer a lower price entry point,” added Dell senior product manager John New.
According to Dell, the the return rate of Ubuntu running Mini 9s are comparable to the XP rate…very low..”
Go Dell, Go!
* I’d thought the laptop hunter ads were remarkable back then for the very unsubtle class awareness, and their directness of attack on Apple. Totally unexpected from Microsoft. But they’ve moved back to form by pulling away from an excellent strategy.