It depends what kind of a "problem" people have with this 85%. If it is just an opinion kind of thing, then have at it. I can easily understand an opinion that products such as Microsoft's don't deserve such a margin, if you take into account the quality of the software, bad implementation of protocols, etc... As always, my complaint with Microsoft is not about it being an evil beast, but simply the low quality of software that people have become conditioned to expect.
But if you mean is it wrong morally, then no: a company should be able to sell a product for whatever it decides. If people buy of their own free choice, then who is to blame? Don't give me the old tired argument that they have no choice. Alternatives have always been available. They just weren't as attractive to most purchasers, for whatever (uninformed) reason.
However, it does point out some very interesting things about Microsoft, and about the software industry in general. If I remember my basic economics right, the standard profit margin for large corporations is somewhere between 4% to 6%. This is for commodity goods, on a relatively open market, etc... Basically, if they fall below 4% for too long, they can't maintain the company, and if they go above 6%, another company undercuts the price, and forces them to lower their profit a little. Mind you, these are very generalized averages. Obviously these generalizations don't apply to startup companies and new technologies, because they might easily have many times this sort of profit margin for a short time, until the market reacts and competition steps in to stabilize things.
Now Microsoft may post an 85% margin on certain sections of the company, but what is more interesting is its total profit margin, which appears to be around 40%, if I correctly read the SEC filing at
This is an incredible profit margin for a company of its size. But then again, we are talking about the software industry, where all the old metrics don't apply. Companies much smaller than Microsoft regularly produce better, more complex software. This is a world where well-designed operating systems can be developed by few people (BEOS), or even by one person (
So the quality of the software has almost nothing to do with the number of people you throw at it. In fact, in "The Mythical Man-month", the author argues that throwing more people at a software problem usually makes it
worse. (Case in point, well... I'm not going to say.). Also, since the 'Net, the necessary cost of distributing software is almost nil in comparison to what it used to be. (it still costs something: the download itself burns up bandwidth). But Microsoft still makes its monely purely with prepackaged, physically shipped software.
Yet, even with all of the inefficiency these facts imply for Microsoft, they still manage to generate huge profits. This is because there is an absolute economy of scale on software. Write once, distribute many times. To me, it is actually amazing that Microsoft doesn't make
more profit. Here's one way to look at the inefficiency of Microsoft: if Microsoft lost 50% of its customer base, it would be no longer making a profit. This is in spite of the huge economies of scale available in software, and in spite the fact that 50% of its customers would still number in the billions!!! That's kind of an amazing fact, really. And remember this: even if that population continues to be loyal Microsoft users, there is NO profit for Microsoft unless they buy the next, latest and greatest from Redmond. Microsoft has no use for loyal Windows 95 users.
So, this is why Microsoft jumps like a scared rabbit at any sign of real competition. The threats are still very real, in spite of their preeminant position. IMHO, this is because while making good business choices, they have made comparitively poor technological ones. They are constantly having to "rework" some piece of software to make it handle a new situation. (Winsock anyone?)
Let's just do a mind game here: what if Microsoft disappeared, and we just "dropped in" a group of people providing replacement software for all Microsoft Windows client and Office products. This could be any company that provides a nicely tweaked combination of Linux or FreeBSD, with KDE as the desktop, Koffice, or Star Office/Openoffice as the business software, etc... The software could be sold en masse for a fraction of Microsoft costs, and could feasibly do (one way or another) everything that Microsoft's software does now. (Yes, I know about the migration costs, but let's leave those for a minute) The world would be billions of dollars richer, both in software costs, and in much lessened security costs (antivirus software, trojan cleanup costs, etc...). This could well offset the migration costs, which I think wouldn't have to be as great as most people make them out to be. After all, most companies have their corporate information systems hosted on Unix servers, anyway. Actually, I think the real savings would be in the trillions, because once companies realized the administrative savings involved, they would be able to use their computer personnel for
productive work, instead of the frantic running around that most have to do now.
Nah... I'm talking foolishness now. What major company would ever think this way? (The answer: Microsoft itself --
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Big Brother: "War is Peace" -- Big Business: "Suspicion is Trust"
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