Why is Windows Priced So Low

I found this article quite interesting:

“At the time of the Justice Department's landmark antitrust case against Microsoft, the software maker was selling its Windows operating system to computer manufacturers for an extremely low price given the company's dominance in the market.

At the same time, it was charging significantly more for its Microsoft Office application suite. Given that both products had comparable market shares, why did Microsoft charge only about $60 for Windows--its "base" product--instead of the $1,800 that many estimate it could have demanded, and why did it choose to price Office--the "complementary" good--at nearly four times as much?

The question was key during the trial for understanding Microsoft's competitive position. Never answered to the satisfaction of many observers, the query launched Brian Viard, assistant professor of strategic management at Stanford, and Nicholas Economides, professor of economics at New York University's Stern School of Business and executive director of the Net Institute, to look for an answer. ” [1]

[1] http://news.com.com/2030-1012_3-5176062.html?part=rss&tag=feed&subj=news

2 Comments

  • Isn't this just complimentary selling (not sure of the correct term), a fairly common business practise...so comparables would be pay-as-you-go mobile phones - which are sold for very low cost with the expectation that you'll shell out money on additional top-up cards etc...Another would be Printers - cost next to nothing, the real money is made on the ink cartidges...games consoles...lots of examples.

  • Selling one thing below-cost in order to sell high-margin compimentary products is fairly common. But it's hard to believe the margins on Office are all that different from the margins on Windows (both quite good, but only because a huge number of copies are sold; the development and marketing costs are probably similar for both products).

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