Re: Some interesting economic facts

[Mitch Stone <mstone@vc.net>]

In reply to Katharine M.J. Osborne's message sent 4/22/98 5:24 PM:

>I've never bought such an application, but I assume that
>prices are either level or increasing. I would have to
>agree that since the relative added value in these types
>of products are negligible or even superfluous that the
>cost should be declining. However, one must take into
>account that people are willing to pay a certain price
>because that's what they expect to pay. After all, when
>new models of typewriters came out over the decades their
>prices did not decine.

Pardon me if I try your patience on this -- I'm not an economist, just an 
obsessive activist with a cause (the worst kind). 

What I'm driving at is this: given that the marginal costs of producing 
software is negligible, the "price people are willing to pay" has got to 
be based on something -- a something I presume (in theory) is "value 
added." Buyers must see, or somehow assume, that their productivity is 
increased by some margin, else they would not pay a nickel a new software 
product of the same type they already own.

Unlike software, typewriters are industrial products, the market for 
which is governed by relatively low margins and decreasing returns. I 
seriously doubt Smith-Corona ever witnessed Microsoft's ROI!

Now, I understand entirely that the software market has become impossibly 
distorted by the monopoly. But what I'm suggesting is that Microsoft must 
continually create the impression of improvements, if not the reality of 
improvements, otherwise stagnate. Or at the very least, they will begin 
to stagnate as the market saturates with their products, or competing 
product in the same class.

Microsoft has a huge incentive to obsolete its own products in order to 
keep us on the forced upgrade path, because in reality, the marginal 
value added of one version of Word over the previous version is 
essentially nil (and arguably negative!), and the price should begin to 
reflect this. They have the perfect vehicle for maintaining this forced 
march via the operating system tyranny and the OEM lock-in.

   Mitch Stone
   Editor, Boycott Microsoft
   http://www.vcnet.com/bms 
 +---
   The idea that people know what they want is wrong. 
   --- Laura Jennings, Vice President, Microsoft Network