Microsoft Pricing: Going for Ubiquitous

Microsoft is continuing to move from a position of strength in Europe and the US to one of global dominance with a series of pricing and product moves which will support that end.   This Business Week article digs into a variety of their moves to show their real intent–and it’s a good one. 

Microsoft is not unique in the problems it has when it tries to move into lower value markets with a software product.  The real risk is that the lower price will undermine the value in the higher value markets–often causing high value software to become commoditized.  Those problems are greater when you look at countries like China where pirated software can count for up to “95%” of the use of the product.

Those problems can provide an entry point for companies like Google  that are trying to get their own global position in both office application software and operating systems.  A failure by Microsoft to deal with these types of threats can crumble the foundation of their highly successful software franchise.  It’s like being caught between the proverbial rock and the hard place.

To solve that problem, Microsoft is making some smart moves.  First, it has dropped the price of it’s Office by 33% to $100.  The resulting 175% increase in revenue has more than made up for that move.  It’s going to do the same thing with it’s Windows 7 operating system in the fall.

In China, Office is being sold for $29.  Sales is exploding but the question is whether it will a) limit the use of pirated software and b) provide an entry point users to adopt and then begin to upgrade to more feature rich versions.  Both of these issues are in doubt but it is better to do something than nothing in these cases.

That gets us to the lynchpin of Microsoft’s strategy–”lower value” versions of the product.  If you purchase the software for a low price, I would guess that would apply to both Office and Windows 7, not only will it have fewer features, but you can upgrade and pay for the upgrade using the same disk.  To provide further incentive to do that, the lower value versions will be loaded with advertising which will help offset the lower price with ad revenues for Microsoft.  This should help deal with the pirating, Google, and Linux problems all at the same time.  Good moves which should help Microsoft continue is dominance and make the software become ubiquitous on a global basis–a bit like air.  Maybe like clean air if it doesn’t work well in China.

It’s good to see a high technology company making smart moves in products and prices in the global marketplace.  These types of moves are not without peril but it’s a heck of a lot better than doing nothing and watching the decline of a once great franchise–think GM and Chrysler.