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I read this week that Steve Ballmer, CEO of Microsoft, is calling for a
$100 personal computer. This is a remarkable turnaround for a guy who,
when
we started selling a $199 computer at Walmart.com, criticized
us. Some of you may recall that he said a $199 computer wouldn't sell well
enough to even be in retail stores. Does this represent a shift in
thinking by Microsoft who now sees the value that affordable computing
can bring to the world? I don't think so. Mr. Ballmer's comments are
double-speak, reminiscent of the best politicians who make promises they
know cannot humanly come to pass but sound good in the interview. It's
even worse because Microsoft has a strategy to keep software costs
artificially high by exacting patent
duties on Linux companies, making a
$100
PC unattainable.
It's quite hypocritical of Microsoft to call for a $100 PC, when what we
really need is $10 software. By far the largest cost of the PC is
Microsoft's software, and their
profits dwarf those made by the hardware
manufacturers in the PC
business. It's no secret that the PC hardware business is a very tough, low-profit business. Many computer
manufacturers operate with a 10%
margin or less. That means that on a $500
computer, the manufacturer will make
$50 or less over their cost. PC companies regularly go out of business
or turn in money-losing quarters.
Meanwhile, Microsoft charges about
$100 for Microsoft Windows XP and $200 for Office XP to those same computer
manufacturers. Because there is no direct cost to copy software,
Microsoft's gross margins are around 90%. PC vendors should be calling
on Microsoft for $10 software if they want to bring PCs to the mass
market. It's also the only variable cost. A computer manufacturer has
real parts he must pay for (processors, memory, hard disk, etc.), but
Microsoft is free to charge an arbitrary price for their software. They
long ago covered their initial research and development costs, and now use
excess profits to fuel and subsidize other
business ideas like the video game
business, TV news, or watch
computers.
Despite Microsoft's public proclamations of finding the religion of
low-cost computing, they do not
want a $100 PC because the software
would be a fraction of the price that it is today, which would signal an end to their
monopoly pricing power. Behind the scenes, their plan is to make it impossible,
yes impossible, to make a $100 computer. Ramping up their patent team
and armed with nearly 10,000 patents
granted or pending, Microsoft is hoping to saddle companies with patent
fees. Their hope is to make money on every copy of Linux and every
office
suite through patent fees, keeping the cost of software artificially
high. How much per copy of desktop Linux? How much per office suite shipped? How would it be possible to make a $100 computer if Microsoft expected such patent fees? These would be great
questions to ask Mr. "$100 PC" to see if he is genuinely interested in
making a $100 machine. (Remember these would be JUST for the patent
rights, not the actual software.)
As for Microsoft offering a
less-expensive, stripped-down version of XP, I wrote about the
fallacy of that idea in August. Today, desktop Linux already offers an excellent, feature-for-feature
experience compared to the full XP, so it makes no sense for
someone to pay more for an operating system that has been intentionally
crippled, just so Microsoft can protect their massive profits.
Besides, no emerging country trying to compete on a global scale should
be saddled with crippled software.
When the world sees a $100 PC, it will be running Linux, not
Windows XP, just as the first ready-to-use $200 PC was running Linux.
It will be a few years before this becomes an economic reality, but to get
there
the software must get down to the sub-$10 range. If it comes about, it
will be in spite of Microsoft, not because of them.
-- Michael
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