Microsoft Rethinks Pricing Plans

Microsoft is studying ways to offer its software at different price points around the world, signaling a possible departure from its unified global pricing practice.

Although it has already made pricing concessions in some isolated cases, such as Thailand, where competitive pressure from open source products had been mounting, the Redmond, Washington-based vendor has generally stuck to a system where its products are priced the same around the world.

Now, facing pressure for change from some customers, particularly in emerging markets, Microsoft is working with governments in those countries to price its software in a way that is relevant to that market, Martin Taylor, general manager of platform strategy at Microsoft, said during recent a conference call with financial analysts.

The Big Mac Index

"From a pricing perspective, I think one of the most difficult challenges that we work on is to really understand, let's call it this 'Big Mac' index, in terms of how much does a Big Mac cost in India versus in New York versus in Taipei, and how do you map a similar Big Mac index to software? It's a very difficult problem," Taylor said, according to a transcript of the call.

The Big Mac index is an annual listing of prices for Big Mac hamburgers in several countries compiled by The Economist magazine.

One problem for Microsoft is that, unlike hamburgers, software doesn't spoil, which makes it easier for buyers to shop around for a better deal and buy their software from another country. To address this, Taylor suggested that Microsoft could offer different prices for the different language editions of its products.

"English speaking is an area that we have to really think about," he said. "When you have markets where you have specific languages [then] it's a little bit easier to do."

Microsoft is working with several unspecified governments to tailor its offerings, Taylor said. "We've got quite a few different initiatives that we're beginning to work on that we'll be announcing in the coming months," he said. Taylor didn't provide specifics.

Possible Solutions

The problem Taylor and his company are facing is a tough one, says Laura DiDio, a senior analyst at Boston-based The Yankee Group.

"I can absolutely see and sympathize with what he is grappling with. What can you do? You want to make your products affordable, particularly to companies in the Pacific Rim, because they just don't have the money, and then what do you say to your customers in established markets such as North America and Western Europe?" DiDio says.

DiDio expects Microsoft to come up with a solution for its woes. Not only will it negotiate on pricing or offer tailored version of its software for various countries, it will also talk to governments about jobs the company has created in their region, bring in Chairman and Chief Software Architect Bill Gates for some star power, and the Bill and Melinda Gates Foundation may even contribute to a local cause, she says.

"I don't want to suggest that Bill Gates is using his charity as leverage to get Windows in anywhere, but it certainly does help," she says.

Paul DeGroot, an analyst at Directions on Microsoft in Kirkland, Washington, doesn't expect Microsoft to change its global pricing strategy overnight, but does see some changes happening at the local level.

"They are probably going to make these choices on a country-by-country basis. They will look at their situation relative to their competitors. If Linux doesn't represent a big threat, they will feel under less pressure to make any moves," he says.