Price cuts with a Vista on emerging countries

Microsfot announced on February 29th a massive price slash on its Vista family of operating systems. The truth is, at 399$ (which converts to a whopping 500+ euros for us in Europe) for the Ultimate version, a full copy of Vista was massively overpriced especially considering how it expensively cripples the user experience to enforce DRM.

What attracts my attention, though, is not the price drop "per se", but the kind of fine print note that is just cursorily mentioned in the news for exemple here:

Elsewhere, price cuts will vary widely. Some developed countries will see cuts as small as three percent, while in other areas Vista's cost may be cut nearly in half. In addition, Microsoft is doing away with the upgrade versions of software in some markets. The company says this move has a lot to do with encouraging the use of genuine software in these countries. By making Vista more affordable, it hopes that the instances of pirated software will decrease.

and here:

In emerging markets, Microsoft will stop selling "upgrade" versions of Vista, because, for many customers, it will be the first purchase of a genuine copy of Windows. The company will instead sell Vista Home Premium and Home Basic, a stripped-down version, at the upgrade prices.

Read it again: price cuts will vary widely. And the most important price drops will take place in emerging markets.

Well, the emerging markets are the ones where Free Software is making large inroads in the low-end end-user market segment:

  • there are hundreds of thousands of PCs pre-installed with some GNU/Linux variants sold every year in South America alone; the cost of computer equipment is quite high with respect to the average income: if people have to choose between a 600$ PC with just some stripped down version of Windows (the ridiculous "Starter edition" sold in these countries limits the amount of memory and disk you can use, as well as the number of concurrent applications), and a 500$ PC with a fully functional GNU/Linux distribution coming with hundreds of useful free software packages, their choice is easily made;
  • there are millions of foreseen units of low-cost PCs (Intel Classmate, OLPC, etc.) specially targeted for education to be sold to governments around the world; these low cost PCs and/or laptops are in the 100$ to 200$ price-range, which is significantly less than the retail price of a Windows Vista pack.

These markets pose a real, tremendous threat to Microsoft's stronghold on the desktop, where it has up to now managed, via tying, market development agreements, price differenciation and various infamous practices, to marginalize the presence of competing software (in particular Free Software, but not only... remember Gassee's BeOS?).

My feeling is that, after playing with debatable techniques to stop end users in developing countries from seeing something else than Windows on their desktop, this announcement is the first of a next generation of dirty strategic moves from Seattle to avoid loosing its monopoly on the desktop: the key idea is simple, "slash the price where there is a local competitor, keep them high otherwise".

A casual reader might pretend that this is just business as usual, and would be right: indeed, MS has an impressive track record of using its marketing and financial power to squash competitors by underselling them or buying them out, and the current announce goes along that line too.

But in this specific case, there are human aspects into play that make me sick: keeping prices high in developed countries (some news report price drops of only a few percent in these countries) to fund much lower prices (50% or more of discount) in developing countries is like playing a deranged Robin Hood that steals from the rich to keep the poor in the dark prison of proprietary software.

I am very very curious to know if this course of action is actually legal: when the ratio in price drop of the very same product varies one order of magnitude across countries, is this still considered a fair business practice?