February 27, 2004 5:06 PM PST

Microsoft may bow to overseas price pressure

Microsoft indicated on Friday that it is developing ways to become more flexible about how it prices its software in overseas markets.

For years, the software giant has clung to a one-rate pricing system in which it charges the same for its software whether purchased in the United States, Brazil or anywhere else. However, that effort has come under increased pressure as countries explore Linux as a lower-cost alternative for the government and for populations as a whole.

In a conference call with analysts on Friday, Martin Taylor, Microsoft's general manager of platform strategy, said that the company plans to announce new options in the coming months to try and address some of the concerns from overseas governments. Taylor suggested that Microsoft may need to adjust its pricing to reflect a country's cost of living, or what he called the "Big Mac" index.

"How much does a Big Mac cost in India versus in New York versus in Taipei, and how do you map a similar Big Mac index to software?" Taylor said. "It's a very difficult problem. We do know that we need to work with these governments so we do have software and the right offerings priced in a way that's relevant to them and their consumers and their constituencies."

Taylor did not offer specifics on what Microsoft might do, but did say: "We have got quite a few different initiatives that we are beginning to work on, that we will be announcing over the next couple of months."

Microsoft has already made some concessions to a number of foreign governments. In addition, it has offered the Thai government cut-rate versions of its Windows and Office software that can be sold to citizens as part of a low-cost PC ownership program. In that case, Microsoft created a separate, entry-level version of Windows, thereby not officially departing from its one-rate policy.

Similarly, Intel is seriously contemplating coming out with a line of inexpensive chips for developing nations. To get market share in China, AMD resurrected its Duron chip in 2003.

When it comes to a government's own use of software, Microsoft is said to be increasingly flexible when it comes to price and licensing terms. The British government recently said in a report that it has saved millions of dollars by threatening to go to Linux, for example.

In the report, though, members of the British parliament said that the negotiations with the software maker were difficult because "Microsoft requires its customers not to reveal to third parties the level of discount they receive. Purchasers are therefore unable to determine whether the price being offered is better than those for other customers."

Other governments, such as the city of Munich, have rebuffed offers from Microsoft and gone with Linux anyway. The city voted to move 14,000 PCs from Windows to Linux despite an aggressive pitch from Microsoft. Governments from Austin, Texas, to Korea have also launched similar efforts.

Although government customers represent less than 10 percent of Microsoft's business, according to analyst estimates, they have emerged as a key battleground against Linux. Microsoft has stepped up its efforts to work with governments, significantly boosting its government relations staff in recent years.

 

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