Consumers forced to buy new Windows licenses

[James Love <love@cptech.org>]

I received several notes regarding the question of why consumers can't buy
computers from major OEMs without purchasing a Windows license, even when
consumers are buying a replacement machine, and they already have a Windows
license, or if they want to install a different operating system, like Linux or
FreeBSD.  One person suggested I look at Microsoft CFO Greg Maffei's 1997
comments at a "summit" of stock analysts.  One can read into the comments
Microsoft's incentives to "force" or "induce" OEMs to sign contracts that
require the OEMs to ship a new OS license with every new computer.  Whether or
not such contracts are technical violations of the 1995 consent order is one
question.  Another question is whether or not the 1995 consent order has
effectively changed anything, given Microsoft's considerable power in
negotiating contract terms.
 
   Jamie

Here are some relevant quotes:

http://www.microsoft.com/corpinfo/speeches/greg/finsummit97.htm

The Microsoft Analysts Summit 1997, Remarks by Greg Maffei, Microsoft Chief
Financial Officer Microsoft Corporation, Thursday, July 24, 1997, Seattle, WA 

   [snip]

But the trend overall is down. And you know, when you look at that on a
worldwide basis, it's very logical. Basically, in the United States, we begin to
see what we believe is saturation in PC desktops, and I'm going to talk about
that a little more. And it's important, obviously, in the United States because
it's both the precursor of other markets, and it is in effect where we get the
bulk of our revenue. It's the single largest subsidiary we have.

    [snip]


If you go to the lead case, you can see some trends in general in PC shipments,
which can be viewed in our minds surely as disturbing. The first is, the bulk of
PCs today, the majority of PCs today in the United States market are replacement
PCs and not new PCs. So what does this mean? I think you can point to a couple
of things.

First, when people replace their PCs, they do not necessarily upgrade their
applications. We are fortunate that in many cases, because they are buying an
operating system which comes pre-installed from the OEM, that we do get
incremental revenue even on replacement PCs for our operating systems. But it is
far from clear that we have a direct correlation in applications. In many cases,
they're quite happy with the application running on the old PC, and we do not
get the same incremental revenue as we would with a new PC. The trend certainly
has been disturbing in that replacement PCs are growing.

   [snip]


I think longer term you can ask the question of, if replacement PCs are the bulk
of the market, how fast is the overall growth rate? It certainly would seem
logical that people will not -- that if you don't have new PCs entering the
market, the growth rate will slow, even below what perhaps are these optimistic
forecasts. And these are not necessarily our forecasts for how the market will
grow. These are more our summation of analysts' forecasts and our sense of how
replacements and new PCs will split.
 
  [snip]

-- 
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
love@cptech.org | http://www.cptech.org
voice 202.387.8030, fax 202.234.5176