Windows: What's The Real Cost?

Two groups blast Microsoft's image as benign monopolist

As the Justice Dept. and 20 states have gone after Microsoft Corp., consumers have remained on the sidelines. After all, the practices the prosecutors object to--such as bundling its Web browser with Windows--may hurt rivals, but not customers. Every year, PCs get cheaper and Windows gets more features. So what's not to like?

Plenty, according to a report released on Oct. 7 by two consumer groups, the Consumer Federation of America and the Media Access Project, a nonprofit public-interest law firm. The 115-page "The Consumer Case Against Microsoft" contends that Microsoft has cost consumers "hundreds of millions of dollars in excess charges" while denying them choice and stifling innovation. The report says that Microsoft's operating-system prices--both to PC makers and through retail--are more than double what they would be in a competitive market, assuming annual price declines of 3%.

In particular, the report attacks how Microsoft markets the combination of operating system and applications software to PC makers. Those deals, they say, force consumers to buy more than they need and mask true costs.

What's more, those costs have been going up. Drawing on a wide range of sources, the report shows that Microsoft prices have remained stable or risen as prices have tumbled elsewhere in the PC industry. The price Microsoft charges PC makers for operating systems, for instance, has doubled, from $21 to $24 in 1991 for Windows and MS-DOS--about 1% of a PC's total cost--to between $45 and $60 for Win98, or about 4% of a low-end PC.

The report also slams Microsoft's retail pricing. For example, the store price for Win98 is roughly twice that of Windows in '91--though to be fair, Win98 has many more features than DOS.

Microsoft spokesman Mark Murray disputes the groups' analysis and says their conclusions are incorrect. The report, he says, is the work of "anti-Microsoft" forces trying to whip up feeling against the company on the eve of the antitrust hearing. He adds that the brisk retail sales of Win98--2.5 million copies in three months--show that consumers approve of what the company is selling.

To be sure, it's tricky to compare prices for old programs with newer ones with more features. But research by PC Data Inc., which tracks such sales, seems to support the consumer advocates' findings: The average retail price of all Microsoft software went from $91.27 in 1996 to $106.17 now. In contrast, the average price for all software tracked by the firm was $44.08 in 1996, dropping to $41.70 in 1998.

Echoing the Justice Dept.'s claims, the consumer groups warn that, unchecked, Microsoft's dominance in software could extend to the Net and raise costs there, too. And they're asking Senator Orrin Hatch (R-Utah), head of the Senate Judiciary Committee, to consider oversight and possible legislation to rein in the software maker. So even if Microsoft beats Justice in court, it may still have trouble in Washington.

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