Microsoft has been very protective over its OEM pricing, and while various figures float around the web, the company has never really confirmed or denied any of them. At the Jefferies Annual Technology Conference, however, Charles Songhurst, general manager of Corporate Strategy, revealed some of the pricing details for OEMs.
According to Songhurst, the 1000 USD PC price point has been more or less the benchmark forthe past decade, and at that price point, Microsoft charges about 50 USD per Windows copy. “If you think of the $1,000 PC, which has kind of been the benchmark for the last decade or so, then we’ve always charged about $50 for the copy of Windows for that PC,” Songhurst revealed.
He further detailed that the 5% price point is what Microsoft is striving for. “So that’s five percent,” he states, “So if you think about charging $100, $200 or if you think about a super high-end PC, you know the Sony Vaios or anything that’s there for around the $1000 mark, or the Alienware PCs that are even higher, if we can get that constant percentage then we should be indifferent to the number five points in the market.”
If we look at the numbers, Windows PCs probably cover a price spectrum with 300 USD at the low end, and 3000 at the top end. This means that Microsoft charges anywhere between 15 and 150 USD for an OEM copy of Windows, and even with netbooks becoming more popular, this price range should cover the company well enough. More than 95% of Windows licenses come pre-installed, so they make up more than the bulk of Window sales.
It also reveals that Windows pricing is far less insane than we sometimes think it is. While I still believe that the retail pricing of Windows 7 is nothing short of insane, it is somewhat good to know that 95% of the people get Windows at a saner price point.
Songhurst specifically addressed netbooks too, and how they possibly impact Microsoft’s bottom line. He argues that netbooks are generally bought by people who already own other computers, and that people who only buy a netbook probably weren’t going to buy a “full” PC anyway. “So as long as they [cheap PCs] are not cannibalistic to the total PC demand. We don’t think they will be because we don’t think the value of the PC is decreasing. We think that the net’s beneficial to us,” he explains.
I’ve seen Windows sold in the OEM space for as little as $45, but no lower (not saying it doesn’t happen). Even on a few of the $400 machines, the cost of Windows did not change much, if at all, until more negotiating with Microsoft occurred.
Microsoft would dictate (somewhat reasonable) terms for an X-count order of X-priced licenses for X PC-configuration. When a key was issued, the hardware configuration was used to determine the charge for Windows based on agreements between the two companies, with Microsoft reserving the right to verify the configuration with Windows Update ( presumably AFTER the customer purchased the machine, probably just the first time would/could be used to assess a fine to the OEM ).
Of course… reserving a right isn’t the same as exploiting it… I doubt many, if any, OEMs with licenses would take the chance.
I may be getting something wrong, I wasn’t a part of the process – merely an occasional spectator. I just inferred most of the above given what I knew for certain versus what I overheard… but it seems about right.
—
And of course, the general market pricing then makes sense… if Microsoft can dictate some terms to the OEMs, they can control their income by just changing the price of Windows – they can also favor one OEM over the other to grow the market strategically.
The retail market price points are high enough that almost no OEM ( or small upstart ) can get very far without begging Microsoft for mercy. And then, of course, for the idiots that buy Windows at retail, Microsoft makes a killing! All the better 🙂
–The loon
I read elsewhere that $50 is the going rate when someone goes through the trouble to get their Microsoft tax back.
Edited 2009-09-16 18:50 UTC
Ah, the Microsoft tax: http://lucky13linux.wordpress.com/2009/04/13/there-is-no-microsoft-…
Well, that post just basically said that windows is good, not paying retail price for it is good, and you can buy some hardware without an OS, therefore a Microsoft tax is a myth.
I’ll be he doesn’t believe actual taxes exist as the government uses its revenue collected from citizens to do good things, other countries charge more, and you can move to your own private island to avoid them, therefore taxes are a myth.
I have never seen the price of OEM software fluctuate with the price of hardware before. Is this common?
I thought OEM software pricing was based on volume, not actual retail price. Although it must be elegant for MS to just say to OEM builders, ‘give me 5% of your PC hardware revenue’.
I actually find it a very elegant structure, if it really were as simple as that. I also find it perfectly valid: let’s face it, these large OEMs would not push as many machine if they could NOT ship Windows.
Windows is true value for these OEMs provided by Microsoft (from a business point of view), so seeing this as a sort of 5% “tax” doesn’t seem too weird to me.
Not to mention Windows (and/or OS X) is a true value for the person who wants a computer that works without having to recompile their kernel to enable an Nvidia driver, or dick around with software updates that break working configurations (wireless on ubuntu).
Which pretty much covers 98.99% of the computing public.
Exactly the opposite experience on my Lenovo S10e netbook. Wireless drivers still do not work correctly, yet Ubuntu 9.04 just works.
In general, now there is less hassle in Ubuntu about drivers than in Windows.
Cheesh.
Hope for as good luck after six months, if nothing else breaks in-between.
I think everyone has heard enough of these
JustWorks(tm)
WorksForMe(tm)
WorksInUbuntu(tm)
Off topic: it’s very annoying that people report success stories with ath5k driver, creating an illusion about it being a decent driver. It’s not, it’s a piece of cr*p that works quite unreliably (slow, flaky connection) for many users. Probably something to do with noise levels.
I still have to use ndiswrapper on my asus eee 900 / jaunty for this reason. It’s nowhere near close enough to motivate me to sell my soul and switch to windows though.
Yea well the wireless driver in my Vista laptop acts as an anti-virus agent and makes my computer 1000% faster.
Seriously enough with the WorksForME crap. Wireless support isn’t as good in Linux as it is in Windows. Unproven, anecdotal forum snipes are not going to change this.
Dell Mini 9 wireless broken from 9.04 update
http://ubuntuforums.org/showthread.php?t=1152063
On some machines that has proven to be very true.
My computer runs BeOS and Ubuntu flawlessly, but Windows XP or Vista have hell getting going ( Windows 7 works as well as Ubuntu, though ).
Haiku also runs very well – though not with my sound card ( without some effort, that is ).
–The loon
I’m sure we’ve all heard the OEM cost of Windows referred to as the “Microsoft Tax” but the statements of this guy really show that that’s exactly what it is. The price of a piece of software (or a condition of allowing it to run) should not be dependent on what kind of hardware it will be running on. As it is with other goods (which software is; it’s NOT a service unless it runs on someone else’s hardware), I could see volume being a factor for determining price. But show me another good where the manufacturer will give you a break (or jack up the price) if you’re using it for one purpose or another (other than charities/non-profits).
Agreed.
So the MSFT tax is 5%.
At first that does not sound like much, but when you consider to what length OEMs go to replace parts for other parts that cost like 5 cent less it is enormous.
With the new ARM 2GHz Cortex A9 coming I can see a net centric future were Linux (ChromeOS maybe) will be here to stay on devices.
Well that new ARM processor would be good, except for the fact that it wont stand up to the Atom 330. Even then, its not a matter of technical capability, its familiarity. People are going to buy what they know. If Harry Homeowner can’t find Internet Explorer on his new Ubuntu netbook, chances are, to him, it doesn’t have internet.
I’m sure the advertising will make it clear that you can, in fact, get online. It’ll probably say something along the lines of “Firefox for Web browsing.” It’ll likely have (*GASP!*) an instruction manual or quick-start guide. If Harry Homeowner is really that damn dumb, then hopefully he’s smart enough to use a phone and dial tech support, surely he’ll find his answer within a decent period of time and be happy.
I know people are idiotic when it comes to computers, but people like you who make a case about IE vs. alternative Web browsers make people look dumber than an old, weathered pile of bricks. In some cases it’s true; if so, those people shouldn’t even be *buying* a computer in the first place without at least learning the absolute basics. You don’t learn to drive a car without also learning such basics as checking/refilling your tires and putting your gas in your tank, do you?
However, when Ned Neighbour shows Harry Homeowner a website his new ARM Cortex A9 with Kubuntu bling, Harry will be a bit perplexed and ask … “but how did you get internet with that thing when it doesn’t have the blue e”?
Ned shows Harry the little firefox, and he tells Harry that his ARM Cortex A9 costs half the price, comes with all the software that Harry had to buy as extra, and the battery lasts twice as long per charge.
Harry says “Doh!”. Harry buys his wife Wilma a Cortex A9 for her birthday, and she has infintely less trouble with it.
Harry’s Windows 7 netbook gets a virus and everything goes wonky, and the store wants $200 to fix it. It was taking five minutes to boot anyway … so Harry instead buys himself a new ARM netbook with Kubuntu, and gets Wilma to teach him how to use it.
Edited 2009-09-16 23:08 UTC
Where did Kubuntu come from? Canonical has been pushing Ubuntu for netbooks.
So this is closer to reality:
Ned goes to Best Buy and sees 2 netbooks, one with the new Windows and one with an OS that looks like it is from 1998. And brown.
Ned decides that saving $50 is not worth picking the computer with the unfamiliar interface, especially since it looks dated. Ned decides that he won’t go to Chili’s later as a way of saving that $50.
Slashdot and OSNews forum posters all come up with theories as to how M|$ is at fault.
Edited 2009-09-16 23:58 UTC
Ned has already got Kubuntu, remember? He was the one who showed it to Harry HomeOwner.
Ned was just about to do as you say, and spend the extra $50 on the Windows 7 netbook, but luckily as he was just about to walk out the store he ran into his geeky friend Garry. Garry geek told him that watch out! that netbook you are about to buy doesn’t include any actual applications, its just a shell. It will cost you as much again to get software for it, it isn’t just a matter of $50 bucks at all. Garry said that in the little store down the road Ned could get the Cortex A9 with nice Kubuntu bling (not the horrible brown) for $50 bucks less but all software included!
Garry told Ned not to worry about the interface, it was all just clicking on menus and icons exactly like he was used to … although Ned would have to get used to the new names for things, but what they did was actually listed right there on the menu so it wasn’t hard.
Evil Eric, the store owner, wanted to kick geeky Garry out.
Edited 2009-09-17 00:41 UTC
It is quite ironic that even if the so-called “tax” would be 15 % or 30 %, people eager to leave Windows behind have money to buy thousand dollar Apples. For a normal customer, the so-called “tax” just adds value to the product.
And btw, it is not less ironic that first the devotees rallied for Linux Netbooks, and when consumers did not want those, people started to rally for ARM Netbooks, like those would be somehow more appealing to customers.
It should also be noted that the trialware installed on Windows PCs brings down the OEM license cost.
A lot of anti-virus companies make deals with OEMs whereby they get a cut of any future subscription fees that the customer purchases.
Yea I hate uninstalling all the junk but it does bring the cost down.
And sometimes the decisions are based purely on stupidity too – case in point, why do all the Netbooks either come with Atheros or Broadcom wireless? why isn’t there a complete Intel solution which includes Intel wireless which has the best support across the board when it comes to drivers and reliability? What I’d like to see from Intel is them pushing complete Intel solutions (chipset, graphics, wireless, ethernet, processor etc) to OEMs.
Maybe when it is Intel everything then Linux on the netbook will become viable – because right now the ath5k/ath9k are crap and the developers haven’t done a single damn thing in the last year to bring it to the same level of feature completeness as the old proprietary hybrid driver.
Er, why not?
As we say in Finland (and probably elsewhere too), the one who is selling and asking too much is not stupid; the the one who pays the asked price anyway is. Microsoft is not to blame for their pricing policy, it’s their software and it’s well within their right to charge $1000 for the license if they feel like it.
I don’t think that $50 or 5% is at all unreasonable.
What offends me is that the big boys pay so much less than the corner shops. XP Home costs me more than $100 CDN, and Vista Home Premium with a Windows 7 Upgrade is more than $145.
That is a huge competitive disadvantage for the little guys.
95% of Windows sales are bundles with new PCs. And Microsoft charges $50 for a $1000 PC bundle.
So why am I asked to pay $200 for the same Windows for my $1000 homebuilt PC?
This — not Linux being better (which, in some ways, it is, others not), not me railing against The Man (Ballmer) — is why I’m still running Linux and XP. And will be unless I can get Win7 Pro or better for <$100. I don’t like being overcharged.
Some of the other comments here are kind of interesting as well, if only for the reason they don’t reflect my experience:
Arch Linux, not Ubuntu (which I tolerated for all of a week), and not Windows XP, has the best out-of-the-box recognition of all kinds of hardware that I’ve experienced. When I have some random computer accessory I can’t get recognized, I plug it into an Arch box and it usually tells me whose guts are inside it and happily loads a module for it. I can then go to the guts maker’s web site and get the Windows driver. Windows wasn’t easier, but it did give me several nice dialog boxes to click through (the “Found New Hardware” ritual) before it told me I was screwed.
OpenBSD is the easiest-installing OS I’ve used (you _do_ have to know a little something about disk layouts, though).
For all the talk of Windows “familiarity”, I still see longtime users struggle with it. Someone really needs to completely rethink computer UIs if they really are to become anywhere near as easy to use as, say, microwave ovens. Maybe Macs are close to this ideal; I haven’t used one so I don’t know. Further, when it works, it works well, but when it breaks, it’s often harder than any Unix-ish OS to fix. This I do blame Microsoft for.
An intelligent, but not particularly computer-interested, friend did not want to pay for, nor try and load, MS Office, even though she used it some at work. When she needed a real spreadsheet for her business, though, I suggested OpenOffice, with all the caveats (menus not quite the same, performance sometimes requires patience, etc.). She downloaded it, installed it herself, and likes it. I don’t think she would have any real difficulty or dissatisfaction using a Linux (or FreeBSD) desktop. But for $50, she probably would not risk it
Edited 2009-09-17 05:54 UTC
I’m not sure how many people realize that. They are sold to system builders but literally anyone can be a system builder. The only difference is that there’s absolutely no end user support from Microsoft.
For example in single pack/license + media, Vista Home Premium is $99 at newegg.com and other places. Volume licensing pushes that down toward the cited $50 range. Most people I know and most users at hardware sites never buy the retail version (again, there’s no difference besides support). Windows 7 will be priced the same. So I myself will be paying that $100 for the OEM version rather than $200 – $250 for retail. Or opt in to a group buy or contact some local shops who purchase volume licenses for less.
And this funny pricing structure sometimes applies to other software as well. Walk into a retail store and you’d have a choice of a single user license MS Office 2007 Home for about $130 or Pro for about $300.
Yet, you can buy a 3 PC license version online for $109. This used to be relegated to the OEM version of Office but for some reason MS shifted it to the retail version now.
Edited 2009-09-17 12:40 UTC
50$ on a $1000 machine is nothing. But bear in mind small system builders pay significantly more than the big boys.
In the UK, prior to Vista’s release, a single OEM copy of XP Home was available from distributors at approx £43+VAT with XP Pro about £10-15 dearer. I think XP Home is currently about £53+VAT; it’s still available if you know where to look.
So add in your markup, and you probably want to sell it about £75, which on a £200-£250 base unit, makes it extremely hard to compete with the big boys.
Small wonder that so many rogue outfits existed loading PCs with one dodgy corporate licence.