Today, MICHAEL made these interesting comments ...
It certainly looks that way. If you look at technology over
the years, almost everything has gotten more powerful, with
more features, and and yet, the prices have fallen. Except
for Windows. It might take a little time for the newest things
to come down in price, but they do. Especially, in the
computer industry. Except for Windows.
Perhaps Economics 101 plays a big part here - supply and demand,
and old-fashioned competition. When there is true competition, as
in the hardware market for PCs, peripherals, the general
electronics industry, cars, washing machines, just about anything
manufactured, technological advances typically drive prices down
as manufacturers attempt to gain market share by using better
technology to improve their bottom line. And, when there is true
competition, manufacturers of both goods and services can afford
to take a smaller profit margin as a percent of revenue in the
hopes of increased sales, driving even higher revenues, in turn
increasing profits.
But, absent competition as in a monopoly or ologopoly, there is
no incentive to lower prices. With a bit of over simplification,
for the average personal computer buyer, there is Windows, Mac,
and Linux, that's about all. The PC vs. Mac debate has been going
on for a long time, with Mac prices stubbornly staying quite high
but the relative market shares are also pretty static.
Microsoft cuts the OEMs pretty good deals to attempt to keep
Linus off their boxes but for us retain folk, why should they
reduce prices? There is always a feeding frenzy to be the first
on your block to beta test any new version of any software with
one's Visa card, but ultimately, if you need or want a new PC and
aren't building your own, eventually you will be driven into MS's
playing field, again, no incentive to reduce prices.
Economists would call operating systems an inelastic commodity,
meaning that no matter the price, people will buy it because they
either feel they must have it or because there is no other game
in town. Really bad example: cigarettes. Example of an elastic
commodity, gasoline: when prices spike, as they have several
times in the last 18 months, people start to get religion and
think in terms of smaller cars or hybrids. But, as soon as prices
ease, they go right back to their big SUVs and high-performance
cars.
One other comment: budgets are a zero-sum game for
people/families, companies or governments, meaning there is only
so much money and compromises must be made. In order to spend
more on something you need or want, you must spend less on
something else. So, wrt operating systems, it would seem that for
the last couple of decades, people have voted with their wallets
- sales of Windows and Macs keep going up regardless of the price
and seemingly irregardless of the percent the O/S is of the
overall system price.
Technological advances , mass production, and competition have
created these market conditions. However, since Microsoft is
really a monopoly, they don't have to abide by these market
forces that have driven the prices of consumer goods down. It
is why they have such huge profit margins, spectacular profit
margins. Their last quarterly report was more than
impressive. Basically, it took them $3 in sales to make $1 in
profit. If, you were to count only the Client (OS) and Office
divisions, then it takes about $1 to make .80 cents... that's
incredible. There is a part of me that admires such a money
machine. But, there does come a point when a company really
starts to look like a bunch of greedy pigs. IMO, Microsoft
reached that point a long time ago. Or, they can see the light
and know their days are numbered, and are making sure they can
grab as much now as they can, before their bottom falls out.
Of course, if you owned stock in Microsoft such numbers would
make you giddy. Except, Microsoft's stock has been stuck for
years. There are a few bumps right after the quarterly
releases, the launch of something new, or when Microsoft takes
some of their ridiculous amount of stashed cash and starts
propping up the stock price by buying back their own stock.
A small bump up when Microsoft issued their *first ever*
dividend in *2003*. But, the stock then settles down to that
range it has been stuck in for about 8 years. I wonder why
that is? Perhaps, the stock was overbought in the mid to late
90s. Maybe, there are a lot of investors who just don't see
Microsoft being able to continue doing business as they do,
getting away with it, maintaining their monopoly, and
generating such huge profits. Monopolies don't last forever.
Competition, market forces will come to bare sooner or later,
and when they do, Microsoft better watch out...... the
shareholders, too.
I DID own MS stock thinking I could ride it up to riches as Bill
Gates became even more of a bazillionaire. But, the stock price
dropped in half a few years back and despite larger gains in
sales and revenues, and with compensating large gains in profits
from Steve Balmer's more efficient and effective management
structure, the stock market has decided not to value MS stock any
higher and it stays stubbornly stuck where it was years ago. It
isn't that earnings are low or getting lower; they're not, they
are rising. It isn't that MS is in a cyclical market like cars
where companies frequently tank to the point of red ink; they're
not. Yet, the market refuses to reward stockholders with higher
prices. This probably annoys the living hell out of Bill and his
buddies whose real wealth is in the stock they hold and the
options granted to them over the years, much of which is
underwater. But, being an optimist wrt to Vista's ability to
boost profits at MS, I bought back in at a moderate level. Only
time will tell if I did something smart or really dumb again.
Seems you and I at least partially share some "reasons" that
explain the high price of Windows and why the stock is stagnant.
I guess the only thing to do is stay out of the stock market and
give your O/S dollars to somebody else. Now, who?
