While I haven’t been able to find any hard and fast numbers regarding the total number of downloads for both the Beta and RC releases for Windows 7 it has been stated on numerous reputable Windows related sites that there have been more pre-sales for Windows 7 in eight hours it was first offered than the complete six weeks that Vista was available for pre-sales. There is no denying that excitement for this improved version of the Windows operating systems is anything less than surprising.
I know myself that would have been lining up for the presale of the Family Pack license deal if it had been available with PayPal payment supports – unfortunately it wasn’t so I will have to wait until it actually hits the retail channels – either as physical media or downloadable content. There in lies one of the things that a growing number of people are getting just a tad pissed about.
Much is being made about the soon to be released new version of Apple’s OS X operating system and how it’s upgrade price (the fine print apparently hides more than a few gotchas) of $29 is creating a rather high bar for Windows to match. Now just to clarify something here as well. OS X can be sold for cheap prices like this because it is a secondary product line for Apple who makes its lion hare of money from hardware sales that it controls.
Microsoft doesn’t have this option as software is its main business – software that has to work across an incredible spectrum of hardware configurations. It doesn’t make money from hardware that its operating system works on therefore it doesn’t have the same opportunity to offer its very bread and butter software as a lose leader like Apple does.
That said there are something things that do allow Microsoft to be able to sell it’s product at a much lower price that the current $149 it wants for the complete Home Premium. First though one has to realize that a larger portion of the cost of the retail release, in contrast to the OEM release, is due to the media creation, packaging and finally distribution. While it may not seem like a large cost once you take into account the sheer number of physical media that needs to be shipped it is easy to see how those cost increase.
The problem is that there is no need for the vast media printing and distribution channels that are really nothing more than a throwback to a pre-broadband Internet. During those times it made sense to have physical spread spread to all corners of the world as that was the only way the vast majority could get a copy of Windows. However that was then – this is now and downloading of a legitimate is a simple process – just as is getting any number of legal serial keys that might be needed.
We saw this with both the beta and Release Candidate versions of Windows 7. The popularity of getting our grubby little mitts on our very own copy forced Microsoft to extend the download period that had been set at a limit of 2.5 million – which was quickly surpassed.
So other than the broadband cost of delivering the operating system via the net – which if pro rated over the number of downloads would probably amount to less than a couple of bucks – what costs are incurred by Microsoft that even come close to justifying the US price of $149.00 for Home Premium. There is no printing of fancy ass boxes that irritate more than anything else. There is no more creating the install DVD’s as that can all be downloaded from the master copy. So once again where is the cost that justify the prices being asked?
Granted Microsoft couldn’t go to a strictly downloadable delivery method right across the board but they could do it enough that the price to the consumer could be cut in half – at least.
Microsoft, like a lot of old established software companies, continue to price their products based on an antiquated model that for the most part is fading away more each year. Interestingly enough there is antidotal that a lower price plus Internet delivery can actually make you more money.
Jeff Atwood provides some interesting numbers of an experiment that Valve, software game developer and through Steam an online game store
What I think isn’t well understood here is that low prices can be a force multiplier all out of proportion to the absolute reduction in price. Valve software has been aggressively experimenting in this area; consider the example of the game Left 4 Dead:
Valve co-founder Gabe Newell announced during a DICE keynote today that last weekend’s half-price sale of Left 4 Dead resulted in a 3000% increase in sales of the game, posting overall sales (in dollar amount) that beat the title’s original launch performance.
It’s sobering to think that cutting the price in half, months later, made more money for Valve in total than launching the game at its original $49.95 price point. (And, incidentally, that’s the price I paid for it. No worries, I got my fifty bucks worth of gameplay out of this excellent game months ago.)
The experiments didn’t end there. Observe the utterly non-linear scale at work as the price of software is experimentally reduced even further on their Steam network:
The massive Steam holiday sale was also a big win for Valve and its partners. The following holiday sales data was released, showing the sales breakdown organized by price reduction:
- 10% sale = 35% increase in sales (real dollars, not units shipped)
- 25% sale = 245% increase in sales
- 50% sale = 320% increase in sales
- 75% sale = 1470% increase in sales
Jeff goes on to use Microsoft itself; with its upcoming release of Windows 7 as an example
In particular, I’ve always felt that Microsoft has priced their operating system upgrades far, far too high — and would have sold a ton more licenses if they had sold them at the "heck, why not?" level. For example, take a look at these upgrade options:
Mac OS X 10.6 Upgrade – $29
Microsoft Windows 7 Home Premium Upgrade – $119
Putting aside schoolyard OS rivalries for a moment, which one of these would you be more likely to buy? I realize this isn’t entirely a fair comparison, so if $29 seems as bonkers to you as an application for 99 cents — which I’d argue is much less crazy than it sounds — then fine. Say the Windows 7 upgrade price was a more rational $49, or $69. I’m sure the thought of that drives the Redmond consumer surplus capturing marketing weasels apoplectic. But the Valve data — and my own gut intuition — leads me to believe that they’d actually make more money if they priced their software at the "why not?" level.
The fact is that the delivery cost of providing software is quickly approaching the below a buck price point and the creation of downloadable copies has already approached the price of $0.00 as only one original file is needed. During the promo period of pre-purchasing Windows 7 the price for Home Premium was $49 USD. There is no reason why a downloadable version of Windows 7 couldn’t be sold at the same price and with the likelihood that Microsoft could make even more money.
Just as all other industries are discovering that prices to the consumer has to change due to a world of next to no cost for delivering digital goods so to does Microsoft and Windows 7 could be the best starting point for them to join us in the real world of consumer goods.
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