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"Although about 3 million computers get sold every year in China, people don't pay for the software. Someday they will, though. And as long as they're going to

• jfoster 14y ago
  It's similar to many startups. Free initially to ensure growth, but always with eventual monetization in mind.
• ChuckMcM 14y ago
  Sadly that didn't stop them from claiming that piracy was a $1.5B$ problem because the retail price of Office was $495. Even though even a child would tell you that no sane individual would spend more than 1/2 their annual salary to buy a copy of a buggy, but ubiquitous, set of tools. In fact they were willing to pay $2 for a pirated CD on the streets so the actual "loss to piracy" was $6M ($2 per each of those 3M machines) but that sounds so much less of an actual problem.
  • ciniglio 14y ago
    So, by this logic, BitTorrent piracy is a $0 problem? Doesn't sound right to me. Not that I'm really pushing the $495 figure either, mind you.
    • huggah 14y ago
      If people were selling copies on the street for $2, that suggests that $2 was roughly the right price point (in that area) to maximize profit, and Microsoft couldn't have made more money by selling it for more. That argument ceases to hold in the case of BitTorrent, where the distributors aren't trying to maximize their profit (or make any at all).
      • ChuckMcM 14y ago
        See previous response, Microsoft actually did change their pricing and captured a huge chunk of value. It was significantly higher than $2/CD. When selling information there is a tail, a few people will pay whatever you ask, a few more will pay less than that, Etc, until you get to all of the people who would obtain a copy if it were zero cost. That defines the "value curve" of the information. It is not a straight line. Because it is "hard" to justify large differences in price for the same product, one of two strategies are used a "steadily decreasing price" or a "fixed but relatively low price". Depending on the product different things make more sense. Games for example benefit from the 'expensive at first but cheaper later' model, reference works benefit by capturing as much market as possible quickly.
    • ChuckMcM 14y ago
      Actually yes, well actually approaching zero, and I realize it doesn't sound right. The cognitive dissonance comes from the economics of information, they work differently than the economics of goods. Imagine this thought experiment. Imagine there was a 100% fool proof copy protection scheme in China, and the only way to acquire Microsoft Office would be to buy it. Try to imagine how many people, who make $1000 in a year would then cough up the $495 to buy it? Its not hard to imagine because there is no manufactured good in China that commands a 'half annual salary' value proposition that is not critical to a person's survival. And Microsoft Office isn't that item. There is an exemplar that there is a $6M value for Word based on the $2 CDs that sell, so its not 'valueless.' And there are benefits to owning a legitimate copy over a pirated copy. Further, the cost of producing a pirated product (box, CD, getting started guide, etc) is less than $2 so there actually a real-goods sort of economic value analysis possible as well. So all we really know is that the number is >= $2 and < $495. And in information economics this poses an interesting challenge. How do you capture the maximum value for your information? Microsoft later introduced a plan where Office for this market was significantly less expensive than it was for the US and European markets [1]. That increased the value they extracted for office out of those markets tremendously. It was more than 10x that $1.50 price at $29/CD. And they captured a lot of value for it, millions and millions of dollars. But not billions of dollars. Many have argued that much of NetFlix's streaming revenue has come from previous BitTorrent users [2]. Prior to NetFlix you could say BitTorrent was a "$xB" problem where $x is the money that has been re-captured by offering an alternative with an acceptable price. But to understand how that works you have to think about what gives information value, its much more market driven that fiat driven. Sony can say "Its worth $X to own this movie" but if nobody buys it and it is heavily pirated they guessed wrong. Since the replication cost is nearly $0 they really are guessing at consumer value. Lots of DVDs sell for $9.99 or $4.99. At that price I won't even bother looking for a torrent, I'll just get the DVD. Its a market, it has different mechanisms that drive it. [1] http://www.reuters.com/article/2008/09/23/microsoft-china-discount-idUSPEK1362420080923 http://www.reuters.com/article/2008/09/23/microsoft-china-di... [2] http://gigaom.com/2011/05/17/netflix-p2p-traffic/ http://gigaom.com/2011/05/17/netflix-p2p-traffic/
      • napoleond 14y ago
        This is really interesting, thank you. Could you recommend any good books about the economics of information as you've described it here?
• mappu 14y ago
  "Number two market share goes to Windows pirated, or unlicensed ... That's a competitor that's tough to beat, they've got a good price and a heck of a product, but we're working on it." -- Steve Ballmer, 2009 http://www.osnews.com/story/21035 http://www.osnews.com/story/21035
  • ihaveajob 14y ago
    Another quote by Ballmer, heard in person a couple of weeks ago: "In Russia, we have a great market share, but a bit of a problem collecting".