Microsoft’s Dilemma: The Real Piracy Solution
By Joel Hruska
Date: September 11, 2001
In just over six weeks, Microsoft will
launch WindowsXP -- an event the Redmond software company hopes will
rejuvenate flagging PC sales and give flagging PC manufacturers a much-needed
shot in the arm.
A key part of WindowsXP and one of its most controversial features has been its
Product Activation system, which, according to Microsoft, is designed to combat
OS piracy.
Microsoft’s Misplaced Agenda
Clearly, Microsoft is taking piracy of its products seriously (a similar
activation system is built into OfficeXP). Piracy is a major problem for MS.
As a premier provider of professional-level operating systems and office
productivity software, the company has a huge investment in its product base
and, therefore, in protecting that product base from theft.
Windows Product Activation (WPA), however, is a fatally flawed system that will
fail to accomplish Microsoft’s goals. It will most likely only inconvenience and
annoy the legitimate user of MS software, while failing to prevent the continued
theft of MS products.
Product Activation has already been broken. Warez designers have cracked the
Product Activation on the latest builds (2600) of WindowsXP and discovered how
to turn the time-sensitive beta builds into fully-functional Corporate Edition
builds.
When bypassing Product Activation is as simple as downloading a ‘patch’ to
disable the feature, its highly doubtful that the system will greatly help
reduce piracy.
In fact, the Redmond, Washington-based software giant admits
as much -- WPA is to prevent "casual" piracy -- family sharing for instance --
but this elaborate and invasive mechanism leaves the real problem -- the one
that is demonstrably costing the company big bucks untouched. [ed: We will
outline what the likely true goal of WPA is in an upcoming article.]
Failing to Ask the Right Questions
Microsoft has identified the problem of piracy, but failed to identify a primary
cause -- or, out of greed -- has simply ignored it.
The problem here is price.
A new Professional Edition of WindowsXP is $300. The Upgrade (and we all know
how well Upgrades work, don’t we?) is $200.
Home Edition weighs in at $200, while an upgrade is just $100.
Now, let’s consider these prices in relation to the computer market itself. For
$300 I can currently buy a motherboard, an Athlon processor, 256 meg of DDR RAM,
and a GeForce2 GTS. Granted, the OS is a very important part of a computer, but
is it more important than the processor? Or, say, the RAM? Frankly, with MS
dead-set on forcing OS upgrades every two years or so, my RAM may well last
longer than my OS -- and for only 10% the cost.
If we look at Microsoft Office, the prices get even more disgusting. The
OfficeXP Standard Upgrade weighs in at $240, while the OfficeXP Professional is
$580. The Standard package is $480.
So, if I wanted to build a computer using XP Home Edition and Office XP
Standard, it’ll cost me $679 for the software. In today’s computer market, its
possible to build an entire system (most likely minus monitor) for that cost.
Anyone else find that slightly ridiculous? An OS and Office programs are
certainly important and valuable, but do they equal the cost of the entire
machine?
The smartest thing Microsoft could do to prevent piracy of its products is to
lower the price of those products. Most people, I believe, would honestly rather
own the product legitimately -- if they could afford to purchase it to begin
with.
With its pricing scheme, Microsoft is actually the biggest
contributor to piracy by making their products prohibitively expensive to many
who might desire or even need these software packages.
Greed Trumps Intelligence
Microsoft, however, has not pursued the path of lower prices. Rather than offer
a reasonably priced product, they’ve chosen a sales plan that absolutely
maximizes profit, but at the cost of consumer goodwill. AnandTech
recently published a very interesting
story about one
business’s transfer from Microsoft to Linux mainly because of the software
peddler's own mistakes.
In the short-run, for a company with monopoly power, this makes sense. However,
the Redmond software giant, in its arrogance has forgotten history. Monopolies
don’t last. Standard Oil once controlled 95% of the entire US oil industry in an
age when government was far less involved in business affairs than today, yet
its monopoly failed. Ford Motor Company failed to keep its monopoly on the
automobile. 3Dfx failed to keep its control of the video card industry, and went
from market leader to bankrupt in less than two years.
A word to the wise at Redmond: Your most important asset is not your
programmers, your buildings, or Bill Gates -- it’s the goodwill of your
customers. Don’t confuse loyal customers with those who use your products
because they have no other choice. Huge product margins may make the
stockholders happy in the short-term, but draconian product activation and the
assumed criminal intent that it implies coupled with price gouging does not make
for friendly customers.
Cutting prices won’t fix the entire piracy problem by any means, but it would
certainly help. And it’s a solution that would win MS major points with
customer’s and OEM’s alike.
Both choices carry a penalty. Dropping Windows and Office to prices that more
reasonably reflect the current computer market would certainly make the
stockholders unhappy, but it would build long-term goodwill towards MS. Or, MS
can continue to exploit their customer base, release buggy products (Windows ME,
anyone?) and abuse their market position.
If you’d like a nice example of what happens when modern-day tech companies
ignore the wants and needs of their customers to satisfy their own high
margins…just ask Intel. AMD has more than tripled their share of the PC
processor market in the last two years—and that’s money out of Intel’s pocket.
Learn a lesson, Microsoft—or you might as well start writing checks to your
competitors now for the business you’re going to be handing them, and save
yourself the trouble.
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