Re: Re #3: Scale Economies at Microsoft?

[mj@creative.net]

  Jeffrey C. Ollie wrote:
  > 
  > This does not take into account the costs of technical support.
  
  I addressed that in my response to Pieter Nagal. I've included the
  relevant portion of the thread below. Basically, tech support is a
  comparatively linear expense, but is not the major part of the cost of
  production anyway. 
  
  Pieter Nagel wrote:
  > 
  > Development and distribution are not the only costs of software.
  > 
  > If you take into user support into acount, there would be a point at
  > which it would be less profitable to sell more copies of software
  > because you would not be able to deal with the volume of support
  > calls.
  
  Actually, that does not follow. If you assume that customer support
  increases in direct proportion to number of units sold, then this is a
  cost that remains constant per unit, but it does not increase. It is
  arguable that even conventional tech support cost decreases somewhat per
  unit with scale. For example, major player will have a great deal of
  third-party literature about their product marketed at no cost to them,
  and can have specialized tech support personnel who can operate more
  efficiently. While neither of these is the sort of devasting push
  towards monopoly that the zero marginal cost of production (MCOP) is, I
  see no significant forces pushing in the other direction.
  
  > 
  > (This presuposes that customer support is part of the product
  > delivered; if you discount that then monopoly is suddenly much more
  > profitable. Maybe that explains a lot about the current state of the
  > industry...)
  > 
  It does, and it explains why customer support is increasingly offered in
  the form of FAQs and searchable websites where the zero MCOP phenonmenon
  holds.
  
  
  
  
  > 
  > On Mon, 17 Nov 1997 mj@creative.net wrote:
  > 
  > > I'm afraid I was a little loose with the math when I responded to this
  > > before (at 2 am or so), so let me put it a little more formally.  Call
  > > the total cost of development of a software product dc, the number of
  > > units sold nu, and the selling price per unit sp. The cost per unit is:
  > >
  > > [...]
  > 
  > Jeff