$3.00 Windows and ad-supported product

George Ou spoke in a blog post last week about Microsoft's new $3.00 Windows / Office package targeted at the developing world.

George Ou spoke in a blog post last week about Microsoft's new $3.00 Windows / Office package targeted at the developing world. This is part of Microsoft's attempt to provide a legal alternative to piracy for people who can't afford developed world software prices. It is clearly designed to serve as a technology stake in the ground, placed with an eye towards yielding more revenue over time as these economies grow. There's nothing strange in that, and those opposed (mostly in the open source camp) do so mostly out of a desire for Microsoft not to do anything to whittle away their competitive advantages.

But the $3.00 price point got me thinking again about ad-supported Microsoft software, a topic I discussed here and here a year and a half ago (yes, I have been blogging that long). The big question mark was whether or not Microsoft could earn enough revenue to offset the loss from up-front sale of the software. I figured that it might be possible with Windows, given that OEMs tend to pay very little for the software, but they would have more difficulty with Office, given the higher margins they earn from that package (though, again, OEM prices are lower).

A $3.00 Windows / Office package is a different kettle of fish altogether. Surely Microsoft could sell enough ads to offset a $3.00 price point. When I suggested as much in a response to George's blog, however, one respondent thought I was nuts. What are we supposed to sell to consumers who barely have enough food to eat?

My response was that people who use computers in the developing world aren't hunter-gatherers living in grass huts with bones in their noses. Even if they don't own the computer they are using, most have more disposable income and more opportunity than is typical of people in the developing world.

Ads would surely be of a different variety in the developing world. There is little point in marketing McDonalds if the nearest franchise is 500 miles away. But, developing world customers have wants and needs, and there are things which might be marketed to them that would satisfy those desires. I'm not sure what those things are, but I'm sure companies that operate in those markets do. Possibilities yield opportunities, and a free Windows / Office package would surely be popular, spreading through the market like wildfire and providing a broad platform through which Microsoft could sell ads.

Others (Anton Philidor in particular) wondered if that might cheapen the Microsoft brand. The risk is that a free, ad-supported (and functionality limited) version of Microsoft's flagship products might lower its value in ways Gucci selling in Wal-Mart might cheapen its brand.

Besides the fact that Microsoft's current strategy is to sell the product almost free in developing-world markets (in other words, if cheapening is a risk, it is already going to happen), I question how much people view Windows as a luxury brand. I can buy Levis in K-Mart or I can buy them in Macy's. General-purpose products can sell at more price levels than a luxury brand (which suggests Apple might have difficulty serving developing world customers).

Even so, I don't think lower-priced sales of product in the developing world have much of an effect on sales in the developed world. Most people have no idea what the products they buy in Target would cost in India or parts of Africa.

Of course, would providing a free, but ad-supported, version of Windows train people to always expect Windows to be free? That, I think, might be the biggest reason Microsoft has not opted to create free versions of its products, even in markets where it sells the package for $3.00. Witness all the difficulties Internet-based businesses had trying to shift companies to a fee-based service once the Internet boom turned to bust. Habits are hard to break, and the last thing proprietary software companies want to do is cultivate habits that expect free product.

This may suggest that Microsoft will never offer a free version of any of its products. They might, however, offer lower-cost versions that run advertisements.