Telstra Used Linux To Get Microsoft Discounts

awful writes "Last year Slashdot ran a story about Australia's largest telco moving to Linux desktops. Turns out it was all a way to get some tasty discounts from Microsoft. The Australian is reporting that Telstra just signed a four-year deal with MS for $AU15-20 million, for 40,000 users. No figures yet on how much of a discount Telstra got, but MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ..."

Go Back Three Spaces

[SYFer]

One small setback for Linux; one giant leap down the slippery slope for MS.

If this sort of thing isn't direct evidence of the sure eventual demise of the Business Model as Bill Knows It, then I don't know what is.

"Thank you for calling Microsoft Corporate Sales--in order to direct your call, please enter 1 on your touchtone phone if you are oblivious to Linux. Enter 2 if you have priced a Linux solution for your enterprise. Enter 3 if you have considered a Linux operating system..."

Re:Go Back Three Spaces

[chachob]

"...and press 4 if you are actually using linux in hopes of getting a discount."

seriously though, this is quite the dilemma for microsoft. on one hand, more companies might consider this method, and microsoft wins because of a larger userbase for its products. on the other, it has its investors whining because of these business methods that are losing profits. it'll be interesting to see how microsoft plays this to keep its investors happy while keeping linux pinned down (somewhat).

Re:Go Back Three Spaces - Or not

[Judg3]

I doubt it - this is the way business has always worked, it's only front page news because it's Linux vs MS.
If it was HP vs Cisco or any other 2 vendors which selling competing products it would have been rejected.
Hell, if you're in charge of buying product X for your company and DIDN'T try to lower the price buying shows quotes from companies Y and Z, I'd worry!

Re:Go Back Three Spaces - Or not - XOR not not

[rjamestaylor]

Wrong. It is fundamentally different because this time it ISN'T Microsoft in the spoiler's seat. Microsoft has been leveraging a lucky break (PC-DOS with rights to MS-DOS) with being the low-price leader. Now its competition is a no-license-price leader. Tables turned, MS floundering in its new role.

Re:Go Back Three Spaces - Or not

[timeOday]

I doubt it - this is the way business has always worked

But having competition is precisely "the demise of the Business Model as Bill Knows It"!

You don't rake in 80% profit margins year after year by undercutting the other guy, you do it by being the #1 and only.

But if too many of these "linux switches" turn out to be bluffs, MS won't be so generous with the discounts.

Re:Go Back Three Spaces - Or not

[Kenardy]

That's the magic of it all ... it's not a bluff. If Microsoft doesn't actually cough up the serious discounts, the Linux card gets played. Unless staying with Microsoft is significantly less expensive than changing to Linux, Linux gets installed over MSFT. The more security (and other) problems MSFT operating systems and application programming have, the greater the margin they have to beat Linux by.

Even with the discounts, the sales are still profitable (they have to get below ~15% profit before Bill starts looking for the exit) but the days of 'gag a maggot' margins are nearing their end. This leads, necessarily, to the question of how long MSFT stock will remain at its current levels.

And, if MSFT stock options become less attractive, will they be able to retain their programmers for the same cash wages?

A loss of profit margins leads to a loss of stock value which leads to a loss of programmer income which leads to a brain drain. Responding to the brain drain by upping the cash component of the wages narrows the profit margins even further.

This cannot be good for Microsoft.

Re:Go Back Three Spaces - Or not

[thoth]

And, if MSFT stock options become less attractive, will they be able to retain their programmers for the same cash wages?
We'll see... MSFT stopped stock options and replaced them with stock grants, last year. And the recent options grants, back to '99 or so, are all underwater. MSFT brought in another company (Goldman Sachs I believe) to offer a buyout plan for underwater options - pennies per option.

Re:Go Back Three Spaces - Or not

[antiMStroll]

You're absolutely right but neglect the important point, it hasn't been a a necessary desktop tactic for Microsoft for a very long time. Since the OS/2 days?

Re:Lack of Purchasing Ethics

[cos(0)]

Ethics? Proprietary information? Since when is pricing of products of a public company private by any means? Doesn't capitalism encourage us to shop around for the best deal, comparing companies and setting them to fight against one another in order to ultimately provide a better deal for the consumer?

I opened your link, and nowhere there does it mention anything about pricing combined with unethicalness or unprofessionalness of revealing it to anyone else.

demise?

[js3]

it only means they won't make as much money. Btw people have been predicting microsoft's demise since OS/2, I guess one more wouldn't hurt

Re:demise?

[SYFer]

Ha! I actually laughed aloud at the OS2 reference--and yeah, I predicted their demise then too and by all rights I should have been correct. I was an early and heavy user (through an employer), but that's another thread.

Having a sort of "dual" price structure though, I think, is a more serious crack in the dike even than making a foolish "vision" call (OS2).

I'm sure that MS will eventually shape-shift to fit a changing marketplace (MSLinux (TM) maybe), but clearly this kind of easy manipulation on the part of customers does not bode well for the status quo.

They're paying $500 per user.

[fname]

Unless my math is wrong, they're paying about $500/user. $125/year. But since most companies will not upgrade the OS or applications more often than every 4 years, they basically are paying $500 to Microsoft for each user. That's a ton of money-- maybe it's all worth it, but I guess this is what people are talking about when they mention the "Microsoft Tax."

Re:They're paying $500 per user.

[Anonymous Coward]

$125/year is about right for a corp, hardly a discount -- this isn't just Windows, but MS Office, Exchange CALs, etc. Probably a drop in the bucket compared to what they pay Oracle, IBM, SAP, etc for the backend stuff.

Also, a 4 year upgrade cycle is pretty normal nowdays, especially since Windows and MS Office are basically stable and feature-complete enough for most people.

Re:They're paying $500 per user.

[tonyr60]

"this isn't just Windows, but MS Office, Exchange CALs,"

Maybe windows and office, but likely not exchange. Telstra has bought Sun's Java Enterprise stack (unlike the Java Desktop System which they only talked about).

So it looks like Microsoft on the desktop, but Sun on the servers.

Re:They're paying $500 per user.

[challahc]

$500 AUD =~ $351 USD
$125 AUD =~ $87 USD

Re:They're paying $500 per user.

[Anonymous Coward]

Mod parent down he's claiming that microsoft doesn't cost a ton of money!

Re:They're paying $500 per user.

[SEWilco]

Mod parent down he's claiming that microsoft doesn't cost a ton of money!

That depends upon the weight of Australian Dollars and whether it is a metric ton.

Re:They're paying $500 per user.

[lazybeam]

Microsoft is getting 180 tonnes of dollars from Telstra, if they were to pay exclusively in one dollar coins. :) Thats 4.5 kg per user.

Reference: http://www.ramint.gov.au/making_coins/coin_designs .cfm [ramint.gov.au]. One dollar coins are 9.00 grams each.

Re:They're paying $500 per user.

[Servo]

Usually with these per-seat licensing deals, all the apps are thrown in with it. So each user gets OS, Office, and Exchange all paid for at that price. Which in MS terms, is a very good deal.

Re:They're paying $500 per user.

[Zak3056]

Unless my math is wrong, they're paying about $500/user. $125/year. But since most companies will not upgrade the OS or applications more often than every 4 years, they basically are paying $500 to Microsoft for each user. That's a ton of money-- maybe it's all worth it, but I guess this is what people are talking about when they mention the "Microsoft Tax."

Given that it's Australian dollars, and that it likely includes all the goodies (Exchange, SQL Server, etc) along with actual support, I'd say this is a hell of a good deal.

Ahh... competition

[oldosadmin]

Sounds like capitalism at work :)

I love linux, but, go Telstra :) Way to use the free market to your advantage.

Re:Ahh... competition

[kingbyu]

A lot of people tend to forget that Linux is good for people who use Windows because it forces Microsoft to be competitive in the market. Not only does it force Microsoft to continue to compete with their technology offerings, but also to compete with their prices. Even if Telstra didn't switch to Linux, its still a Linux victory because of the position it puts Microsoft in.

Its just too bad Linus won't be getting any thank you cards saying "Thanks Linus for making Microsoft better just to compete with your Linux." (Although they should send him cards like that).

Re:Ahh... competition

[Rotten168]

In reality all Linux is doing is putting the commercial Unices out of business... I mean Microsoft's pricing keeps getting more and more outrageous and Linux is *free* for Godsakes.

No, *Microsoft* is putting them out of business

[leonbrooks]

Linux just gives them a justifiable destination other than Microsoft.

Time to invent a new word: "linussend", as in "You mean we don't have to shift onto MS-Windows when our hardware becomes obsolete? Hurrah! What a linussend!"

Re:Ahh... competition

[Uncle Jimmy]

I love linux, but, go Telstra :) Way to use the free market to your advantage.

Wow. You obviously aren't from Australia.

Re:Maybe he _is_ from Oz?

[mcbridematt]

I wouldn't call the above statement pathetic. Ever heard of how hard Telstra makes it to put 3rd party DSLAM's in exchanges (remember: Telstra's wholesale DSL network is limited to 1500/236k)?

They literally force you to give them the equipment for free and pay the monthly maintenence charge for it.

Re:Ahh... competition

[Anonymous Coward]

Telstra should watch out. It can be a bad idea to fuck with a company with whom you are putting a lot of trust into. In the car repair bussiness I would give a lot lower quilty of service to those who tried to bring my price down by saying they would use one of the competetors otherwise. I gave them the competetors level of service. MicroSoft could even realy screw with you. If really needed tech support they could totally f you up.

Re:Ahh... competition

[useosx]

That the world operates under a free market is a myth [zmag.org] my friend.

Think: US taxpayers pay for the military budget. Military helps invent things for the tech industry (like the Internet). Tech industry uses this free R&D to profit. That is the government subsidizing businesses. Not strict free market.

Think: Import/export tariffs.

Think: The recent article [slashdot.org] on Slashdot describing public subsidies of football stadiums.

Way to do business

[usefool]

Maybe, just maybe, this is how Microsoft intends to do business in the future?

This kind of first-MS-then-Linux-finally-MS stunts by any company is going to give free publicity to Microsoft, and more and more companies will be attracted to buying MS products because they thought they're getting a discount now.

And frankly speaking, $375 per user is still better than $0 per user, and lose face to Linux.

Re:Way to do business

[Fished]

And frankly speaking, $375 per user is still better than $0 per user, and lose face to Linux.

Indeed. This is especially true since Microsoft's marginal cost on each of these licenses is more or less $0. They could sell license certificates for $5 apiece and still be better off than not making the sale (excepting possible market effects if they sell stuff too cheap too often.)

Re:Way to do business

[Firethorn]

Well, there would be a certain amount of support costs. But for any large company, you generally won't be getting the low level calls, as they'll have their own level 1/2 computer support people.

Re:Way to do business

[TeraCo]

Companies of this size generally make around 20-30 calls a year to Microsoft.. tops.

However, most of these are the sort of calls where the business is crumbling, while the best techs in the company all frantically try and recover an exchange server database where every second or third byte has been replaced with 00000000. [Replace with high severity scenario of your choice.]

Re:Way to do business

[tupps]

I beleive that once you get Telstra size you have MS people on site all the time, and they work with not only your current MS implemented solutions but also planning for any future roll outs etc.

If you listen to MS Marketing Speek when they release a major infrastructure product (SQL, NT etc) they always claim heaps of feedback from their top 500 customers. This is how they do it.

Re:Way to do business

[TeraCo]

Not quite, they are available, however Telstra/any other huge IT/IS company would have a dedicated architecture team which would be almost as good as anything MS have.

MS would still only be called out in exceptional circumstances.

The real benefits that you get involve your staff going to MS and getting access to all the secret MS seminars that they don't show everyone else.

Re:

[account_deleted]

Comment removed based on user account deletion

Well... not actually down, as such.

[leonbrooks]

It's more likely that their internal billing system screwed up again and disconnected them.

Re:Way to do business

[MBCook]

But there are two problems with that method. The first is that if MS gets used to this and starts calling people's bluffs, then one of two things will happen. They'll buy MS at MS prices, or they'll go Linux at the cheap price. I wonder which. That would be a blow for MS.

The second problem is even if MS doesn't call bluffs (and not all will be bluffs, of course) this will hurt MS's proffit margins. Without those amazing Windows and Office margins, they have less for everything else. That means either making Windows and Office and such better so they are worth that high price (great for consumers), or they have to stop branching out into everything and only do things they proffit at (not neccessarily bad for others).

So no matter what happens, MS could be facing some problems. The fact is MS isn't a total monopoly (like AT&T was, or the post office is for mail), they do have competition. And when you're not a total monopoly, you can lose that position. MS's reserves and such can only let them play bully so long before they start having to really compete on prices, features, and such. It may take years and years, but this is a crack in the damn of the monopoly. Eventually, MS will lose that position and be another business in free-market competition.

Also, "... be attracted to buying MS products because they THOUGHT they're getting a discount now." Huh? Why would anyone look at MS's software because they might get a discount? I would bet in at least 99% of the cases, they would have been looking at MS anyway. I don't think this really changes things for companies seeking MS, if anything they'll seek Linux.

And this is NOT good PR for MS. This is "they almost lost and had to dive to save face and get the account" publicity. That's not what you want. You want "they came in and even though they were more expensive, they blew away the competition" PR. These kind of reports (that MS dropped prices because of the threat of Linux/MacOS/anything) are BAD for MS any way you look at it.

Re:Way to do business

[16K Ram Pack]

The more the squeeze is put on Microsoft, the less the share price goes up, and the more chance that shareholders will demand more of that cash pile at Microsoft.

And yes, any story that basically says "large corporation A pushed a Linux threat on Microsoft" is another "Linux isn't a toy" message. And that is still one of the three big challenges along with applications and drivers to Linux acceptance (frankly, building an app that won't work x-platform now seems a bit short sighted).

"discount" ??

[Quixote]

Even taking the lower figure, Telstra paid A$ 375/license. This is no discount! Since Microsoft has huge profit margins, I'm sure they're making a tidy profit on this.

Wake me up when Microsoft beats Linux on pricing. ;-)

Re:"discount" ??

[sirsnork]

It depends what they got. If the got a SQL and Exchange CAL with that then it's not nearly so bad. If they got Office too then it's great

Re:"discount" ??

[tupps]

It used to be that Telstra had a yearly payment to MS and that was the last they thought about licensing, across the whole enterprise. I am not sure if the deal is still the same.

Re:"discount" ??

[asdfghjklqwertyuiop]

This is no discount! Since Microsoft has huge profit margins, I'm sure they're making a tidy profit on this.

Sure, close to 100%. I mean its not like it costs Microsoft all that much money to print up those license papers and make a few CDs.

Re:"discount" ??

[Draknor]

No, but it did cost Microsoft money to produce Windows & Office and to hire the lawyers to write up those EULA's.

Sure, the *marginal cost* of selling more licenses is about zero, but the true cost is not, since that factors in all of the fixed costs & R&D.

Just a little economics lesson :)

Re:"discount" ??

[asdfghjklqwertyuiop]

That's what I meant - the marginal costs are zero. They could sell this particular installation at $5 a copy and they would make a profit.

Linux devaluates Microsoft's golden eggs

[Alwin Henseler]

..Since Microsoft has huge profit margins..

I read somewhere that the Windoze family of OS'es, and the Office softwares are THE big money-makers for M$, and other products are just riding along on that capital.

A story like this just shows that from a customer's point of view, Windoze/Office have value (that M$ can cash in on), but having Free/OSS alternatives, lowers that value.

So making Linux a more attractive alternative, lowers the net value of Microsofts golden eggs. How nice...

Timothys biz advice to MS

[mr_z_beeblebrox]

MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ...

Microsoft might suck in terms of security. They might suck at guessing what users will want and innovating to it (they guess what users are using and make their own version). But I do not think that they will find value in business suggestions on /. even from an editor. Sorry, just felt compelled to say that.

Re:Timothys biz advice to MS

[Bull999999]

But I do not think that they will find value in business suggestions on /. even from an editor.

What do you mean? There are plenty of good business/financial suggestions on /. Here are some of the gems I found over the years.

"High income = being rich, no matter what."
"You shouldn't invest because you'll have to pay capital gains tax when the value goes up (and is realized)."
"Government should take over the health care becasue they did such a good job with Medicare and Social Security"
"You shouldn't have to put away money for the retirement because Medicare and Social Security is all you need"
"Buying an overpowered computer is a good investment. It's even better if you buy it using a credit card and make only the minimun payments on it."
"If your credit card company raises its rates, bitch on /. instead of calling the company to find out why."
"Businesses shouldn't lay people off no matter what because it's a bad thing."
"For-profit businesses should exist to serve the mankind, not for-profit."
"The due date on the credit card bill is only a suggestion."
"Pay your bills at the last moment because the postal service always delivers and the online payment system never fails."
"The financal experts recommend that you have 3-6 months worth of living expeses as an emergency fund only because those experts get paid alot."
"Don't budget for the emergency fund because it will cut into your cool gadets (and gaming computer) fund. Use the credit cards instead. And if you do use those credit cards, you'll somehow magically budget to pay off the cards AND the interest over time."
"Don't listen to the doctors who says you should eat healty and exercise. They work for the greedy health food stores and gyms (like you shouldn't listen to the economists because they work for the rich)."
"Don't wear seatbelts. The greedy cops work for the insurace companies (less injuries mean less payouts)."
"Put all your investments into the Linux companies because they'll crush MS, UNIX, and Apple. Don't invest in diverse stock funds, such as S&P 500 based index funds, because they are likely to contain shares of MS and owning shares of it will make you evil, no matter how small."
"It's easier to lobby the government to spread the wealth of the people who actually saved millions for their retirement instead of actually saving for yourselves"
"Best thing to do in a recession is to tax the hell out of those evil corporations to stimulate the job market."
"The rich are evil because majority of their wealth are in form of unrealized gains, which is not yet taxed. They should sell all their investment to buy usless things that they don't need in order to pay the fair share of taxes."
"Even though higher income usually means higher taxes, there's a cutoff point where you don't pay any taxes once you reach the 'rich' status"

Re:Timothys biz advice to MS

[Bull999999]

"I will be wealthy in six months, unless VA [Software] or the U.S. economy craters before then. I'll bet on VA; I'm not so sure about the U.S. economy :-)." -- Eric S. Raymond, December 10, 1999.

Most slashdotters think that great computer skills somehow equals great financial skills and that they can learn all about accounting and economics in CS classes (I only learn about computer stuff in my CS classes, so I guess I got ripped off).

Of Course

[pHatidic]

Naturally it follows since everyone thinks that linux is superior to windows in every possible way, the only possible reason a company could consider two options and then choose microsoft is if they were trying to play microsoft. Which of course also clearly justifies this article going into the linux section.

/sarcasm

Re:Of Course

[polin8]

The issue is that it appears MS is willing to undercut Linux, which they can only do because they have a monopoly pricing system.

Monopolists can lock competition out of a market because of their unaturally high marginal profits. This is why its illegal in the US (in theory).

Re:Of Course

[antiMStroll]

.....everyone thinks that linux is superior to windows in every possible way...."

. Strawman argument or anti-Linux user bigotry? Not a reflection of reality, piecework moderation to the contrary.

um.

[SinaSa]

Somehow I doubt this is the case.

Telstra's IT head wanted to run Linux to cut costs. In a business they figure things out using a cost-benefit ratio. In fact, most human beings do this.

Microsoft simply offered them a deal with better cost-benefit ratio. Telstra aren't going to be downloading ISO's, they would be buying something like SuSE or RedHat. So Microsoft simply discounts prices, and Telstra has cut costs, without needing to move everything across to a new system.

As an Aussie, it's my duty to hate Telstra, but the headline is so very wrong.

Re:um.

[elasticwings]

Hey, when you're that close to China, why not pick up your copies of Windows for 5$ each at a neighbor store? Sure, they all come with the same key, but you have all your copies right? Who needs licenses? :P

Re:um.

[YU Nicks NE Way]

Why is it underhanded? It forces Microsoft to show that it's worth the money. (Telstra's prices aren't out of line for a large customer. They're still paying $87(US)/seat-year. That's not to far from what an OEM pays for XP + OXP + W2k3 + E2k3.)

In fact, far from "bad news for M$", this is yet another instance of the problem Linux has been facing. The only major wins Linux has been getting against Microsoft have been political ones like Munich. They haven't won the business case for any large account.

This is not news and won't change

[tqft]

" In the end Telstra's customers are the ones who get screwed. "

It will be news when Telstra's customers don't get screwed

Telstra's commitment to Linux

[Anonymous Coward]

Before anyone starts bashing Telstra, let me point out that they've got a BIG linux grid running that they do their data processing on.

Re:Telstra's commitment to Linux

[TeraCo]

Um.. very little of their data processing is linux, most of the middleware is solaris, and the big iron runs whatever IBM puts on there.

Well true it's $500 per user...

[atezun]

But this isn't just covering Windows Liscenses, It also mentions they're getting exchange 2003 and office 2003 plus they're probably getting quite a nice support package from MS. A copy of windows and office alone is more than $500 in store in Canada which has relatively the same dollar value as the Australian Dollar right now. Make No mistake, they definately got a discount.

Re:CAD ~= USD???

[cbiltcliffe]

Sigh....RTFA.

There's nothing in the story about USD. This is Australian dollars we're talking about.

$1 CAD ~= $1.07 AUD

Pretty damned close if you ask me.

Badly Needed?

[lucaschan.com]

I seriously object to the first sentence of that article:

"TELSTRA has secured badly needed cost savings".

Ziggy's not exactly going hungry over there.

Re:Badly Needed?

[weighn]

Monster Telstra eats you [telstraexposed.com].

Re:Badly Needed?

[SlightOverdose]

They only made 3 kazillion dollars last year. Quick! Increase phone line extortion^w rental to $30/month!

Currency conversions

[mjtg]

For non-Australians in the audience, note that $1-AU ~= $0.70-US. So the cost estimates are around $10.5M - $14M US, or $265.50-$350 US per seat.

Re:Currency conversions

[Servo]

You got that backwards. If AUD $1 = US $.70, then AUD $10 Million = US $7 Million.

How deep a discount?

[danharan]

Does anyone have information on how deep a discount that is?

This is between USD 10.5 and 14 million for 4,000 seats for 4 years, or 656-875/seat/year for "Windows XP, Office 2003, Exchange 2003 and other collaborative Microsoft software products"

I wonder how long it will be until other companies use the same threat... and how long it will take MS shareholders to clue in that their margins are getting squeezed.

Re:How deep a discount?

[cbreaker]

.. or you could look at it as extra money, because it won't really cost MS much to hand the company some CD's. If the company was really serious about moving to Linux, then this is just extra money in MS's pocket that would have been used elsewhere.

Next time Gadget, I'll get you!

[mr i want to go home]

I've no love for Telstra, but it is good that they did at least consider Linux.

What this means is that in 4 years when their indenture to Microsoft is up they will likely consider an Open Source alternative again. If their IT budget is under the same pressure then and their alternatives are using Linux/OSS on existing machines or upgrading all their machines to Longhorn + required hardware, Microsoft may not be celebrating a win.

I think this is the best incentive for people not to add bloat and extraneous features to key OSS components (I'm looking at you Gnome guys and Kevelopers).

Re:Next time Gadget, I'll get you!

[zbaron]

In four years, are they going to be able to dig their data out of Microsofts closed formats to even think about a move to Open software?

The city of Munich said something along the lines of, that the biggest advantage of moving to an Open Standards based infrastructure and not leaving yourself at the mercy of one vendor by being locked into proprietary document and data formats.

Somehow, I do not think Microsoft will be so nice in four years time.

Re:Next time Gadget, I'll get you!

[Frogbert]

I've reciently acqured some refurbished Telstra harddisks, naturaly they were unformatted. There wasn't that much interesting information on the disks however I did notice that Telstra apps predominantly appear to be written entirely for MS Access or in Visual Basic. A linux OS would have to overcome these difficulties before it could be implemented.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:Ow the Irony

[Reivec]

wow you totally missed the spirit of the comment. /. tends to put MS in a bad light any chance they get (can't say I blame them). The comment was to point out that MS isn't going to get the profit margin they want anymore so maybe they should rethink giving even more of their profit away. Thus the comment was trying to question MS business decisions. NO WHERE in there does the fact that this is a aussie company come into play. It was not intended to make MS look like a victim I assure you.

Isn't that how competition is supposed to work?

[walterbyrd]

Give me a better price, or I'll go with the competition. I do that when I'm buying a refridgerator. What's the problem?

Frankly, I think we've grown so accustomed to msft's monopoly, that we've forgoting that competition is supposed to be a normal way to do business.

If msft want's to fight for their business that's fine. I'm just glad that there finally is a something that is real competition to msft's monopoly.

One of the primary difficulties

[Anonymous Coward]

In product pricing is trying to reclaim something called the "consumer surplus". The idea here is that the amount of money that each of your potential customers is willing to pay is different; vaguely speaking, you want to choose the price that balances out being low enough that you retain as many of your customers as possible, while being high enough that you make a lot of money on each unit. Still, there's always going to be that consumer surplus-- the amount of money lost to the fact that a subset of your customers would have been WILLING to pay much more, but because you have to charge them the same amount you charge everyone else you only got the same amount from them you got from everyone else.

This is why you're in very good shape if somehow you can work your way into a sales model where, as happens with an auction, or with car sales, you're somehow able to tailor your price to what exactly each individual customer is willing to pay. You maximize both the number of customers you get, and the amount of money you could get from each one.

This is where Microsoft's doing and it isn't a bad thing for them. Microsoft's prices are ridiculously high, and the market is beginning to realize this, but rather than actually correct for this and charge reasonable prices, they're simply continuing as they have and making special allowances for those customers who might be leaving.

Or, in other words: This shouldn't be seen as a victory for Microsoft's competitors because Microsoft's having to lower their prices for the customers who are threatening to leave. It's a victory for Microsoft, because Microsoft isn't having to lower their prices for everyone else.

Re:One of the primary difficulties

[danielsfca2]

if somehow you can work your way into a sales model where, as happens with an auction, or with car sales, you're somehow able to tailor your price to what exactly each individual customer is willing to pay.

This is known in the world of microeconomics as "perfect price discrimination" [revisionguru.co.uk] and is indeed a very good thing. Also in the "Price Discrimination" category are "student discounts," and those "travel discount guides" you see at every [US] fast food place, with coupons for motels at a few dollars below the normal rate. All firms would like to achieve perfect price discrimination, where each individual pays the maximum he's willing to pay for the good or service.

Re:One of the primary difficulties

[Tony-A]

It's a victory for Microsoft, because Microsoft isn't having to lower their prices for everyone else.

I wouldn't be too sure about that. Best delay any high-price committments and see what develops. Otherwise you risk buying it a week before it goes on sale.

Re:One of the primary difficulties

[beakburke]

Price discrimination only comes into play when a company has at least some pricing (monopoly) power. This is because the company faces a demand that is flexible with regards to price (as opposed to a competitive market where you sell at the going market price or lose all of your customers). This only works if Microsoft can keep the stong effects of its monopoly working for them. Basically, MS will have to lower prices for other customers, at least for those customers over whom it has less pricing power du

Not all that suprising....

[urbaer]

when you consider it is Telstra who we are talking about. Telstra seems to want to charge whatever it wants, however it can only increase it's charges in line with costs [theage.com.au]. So jumping on Linux would decrease thier costs and the ACCC [ninemsn.com.au] would jump all over them.

Maybe I'm just a cynic and my logic is flawed, but it doesn't suprise me that one monopoly should use get into bed with another monopoly.

MS will be using this now

[steveha]

MS will use this in ads, and MS sales folks will mention this. "Telstra looked into Linux, and they saw MS is a better deal."

There will also be some kind of press release, with quotes in it like:

Mr. I. T. Director of Telstra says, "Microsoft's TCO was compelling, yada yada yada."

Probably MS will write the quotes for Telstra.

None of this is shocking or new. This isn't even the first time I have read a story like this on Slashdot, let alone the first time it has ever happened. (Remember when Home Depot announced they would go to Linux [linuxdevices.com] for their POS terminals? Remember when they announced they would go to MS [homedepot.com]?)

steveha

Re:MS will be using this now

[dacarr]

It's funny that they didn't talk about all the companies that went the other way. Like these guys [ernieball.com], for a small example.

A few thoughts

[failedlogic]

Seeking a good deal is a smart business move for Telestra. That said, say Telestra bought licences @ $375/user. Some ppl here are saying that any sale evern if it were $5/user would be good. I disagree. MS has a huge install base. They don't have to worry about losing money on lots of users. If MS sold @ $5/user it would be a loss to the company. MS wants to make itself appear to be a premium brand. Selling low to anybody negatively affects their brand. If you're a Ferrari salesperson, even if you're desp

Re:A few thoughts

[OSgod]

How do you reconcile that view with Oracle? Oracle is the creme of the crop in relational DB's. Oracle is an aggressive marketer.

Oracle starts very expensive -- most expensive of any big relational DB vendor.

If you work with them at a sensitive period (end of a quarter, end of a year, etc.) you will get a large discount. Big customers can get huge discounts -- rumored to have been in some cases 95%. Most times we are talking less than 50% from what I've seen but remember -- with MSFT and Oracle list i

When I did work for the state we used this method

[isolation]

I was doing some security work for goverment agency in South Carolina and this was the method we used for getting better deals out of Microsoft.

MS Sales rep: "This is the best deal we can give you"
Client: "OK thats fine. Our IT staff is suggesting moving to Linux"
MS Sales rep: picks up a cell and calls the office....."uh-hu"..."linux"..."uh-hu"....hangs up phone. "Ok how about this deal on a Open License package. We can knock another 20% off."

The Microsoft sales team has been ordered to win over Linux at all costs and they mean it.

Re:When I did work for the state we used this meth

[Bull999999]

I guess we all know there MS gets it's sales force from!

Used car saleman: This is the best deal we can give you.
Buyer: OK, that's fine, I'm going to look around some more at the other dealerships.
Used car salesman: walks over to the sales manager's "office"....."uh-hu"..."other dealerships"..."uh-hu"....comes back. "Ok how about this "some made up discound bullshit" deal? We can knock another 20% off.

Why is this big news?

[calldown]

Honestly, doesn't every large store/business do this? Hell, even Best Buy or Future Shop have a 'price matching' scheme where they'll match the price of the competitors product - just to keep your business.

So again, is it just because it's Microsoft? "Oh no, Microsoft had to lower their revenues!" Guess what? Telstra's cost of switching is starting to rise slowly, as they keep with MSFT.

Jeez. "News."

-calldown

Re:Why is this big news?

[Stevyn]

I think this is big news here is because everyone's going to get angry that linux was never considered a serious choice.

Competition, and from two sides

[digitect]

MS might want to rethink handing back all its cash to investors if this is how they're going to do business from now on ...

But isn't this the only option they really have? This is what competition is all about!

Everyone knows Microsoft has been cleaning up because they are a monopoly. (Whether a good or bad monopoly is another subject.) With competition, everything changes. To keep up you have to make an offer to the market with some efficiency, service, feature, innovation or quality that no one else can provide.

But on the desktop, Microsoft is now being pinched from above (Apple) and below (Linux). Granted these competitors are not yet worthy to take the whole pie but I'm sure Redmond is beginning to understand that they are fighting a two front war. And their ability to attack one competitive front only exposes a weakness to the other. The article suggests to me that this reaction is against the bottom: Linux is simply cheaper, Microsoft has to respond with significantly better pricing to make the sale. (Maybe Longhorn is an effort to compete more with Apple by offering a competing design level or media friendly platform?)

Having been around a while, I find this all very facinating because I can see how fast the tables turn in this industry. What they once did to others is now being done unto them. :) The best part is that the market can now feign to either side and Microsoft has to respond. They can negotiate against price point or from design/usability.

During such an innovative time (historically speaking) many disruptions occur. It's nearly impossible to keep any ship afloat for more than a generation. As Microsoft enters its second one, I feel certain we'll see more of this type of behavior as they struggle to keep momentum. Sit back and watch the show!

Barely a dent

[HangingChad]

Cutting prices won't make all that big of a dent in MSFT profits. Okay, so they take a couple billion off the top, they still make something like 12 billion a quarter. And they have no factory to support, no parts to buy...they can afford to cut prices a long, long way.

Besides, with MSFT the nickle and dime treatment never ends. You pay, pay, pay. Not to mention all the other software you have to buy to keep their crap running right.

Personally, I think it was a bad choice. But if you're going to stay with MSFT, then that's the way to deal with them.

MS will still make a profit here

[EmbeddedJanitor]

In most corporate environments, most desktops are kept the same by the corporate IT Gestapo, with first-line support, installation etc done by the jackboots. This means that the effort involved for Microsoft to support those 40k desktops is way lower than, say, 1000 * 1-desktop companies. Therefore the actual cost of good sold to Microsoft is probably no more than 1000 licenses. They can therefore give huge volume discounts without making a loss.

Of course they are willing to burn a lot of cash to maintain market share. MS have yet to have a quarter that comes near to breaking even in their mobile biz. They can afford to wait their time and burn cash in the mobile sector to keep their hands on corporate business.

Not Surprising

[Esion Modnar]

I once pretended that I was considering moving to a different apartment complex to get a discount on my current rent. It was all a bluff, but it worked.

It's Still Pure Profit

[John Hasler]

> No figures yet on how much of a discount Telstra
> got, but MS might want to rethink handing back
> all its cash to investors if this is how they're
> going to do business from now on ..."

It's not as though they had any manufacturing costs.

Were I a MS investor I'd want the cash *now*, too

[Anonymous Coward]

It's kind of hard to make money in a commodity market when the competition is FREE .

And that's what Linux is: the commoditization of the consumer software market. And in a commodity market, the cost of a single unit is little more than the marginal cost to produce that one unit....

So I'd want all that cash M$ has before they piss it away to someone else.

The one million dollar coffee cup.

[HotNeedleOfInquiry]

This story reminds me of the one million dollar coffee cup legend.

The legend goes like this: A major company is negotiating with IBM for a new mainframe system. They've called in IBM and gotten a quote. Then they call in Amdahl and get a quote from them and a coffee cup. Next they call IBM back into the office with the Amdahl coffee cup in plain view. Legend has it that the coffee cup gets you an automatic 1 million dollar discount off the original quote.

Telstra are scum...

[Goonie]

For the benefit of our American readership, Telstra are Australia's local piece of evil incarnate. They're 51% government owned, so they combine the worst characteristics of rapacious private companies and pig-headed government bureacracy. They price-gouge to an incredible degree on access to the local loop, they deliberately delayed the introduction of DSL services so they could cream more money out of business clients using ISDN (at truly outrageous prices), and deliver shocking service to their customers (ask Bigpond broadband internet customers about the reliability).

Re:Telstra are scum...

[watsondk]

no way, tel$tra has a long way to rise to get to the level of scum .....

to see just how totally fscked internet access is here just look at this

http://australianit.news.com.au/articles/0,7204,10 273820%5E15318%5E%5Enbv%5E15306,00.html [news.com.au]

sure prices have finally started to drop but, as they drop so does the quality, and yes while it may be hard to believe, the "service" can get worse, although not sure how far it can fall

from personal pain, the tel$tra cable service is third rate, and thats on one of the

Re:Telstra are scum...

[Artega VH]

Perhaps I should elaborate..

Telstra (formerly Telecom) is THE tele-communications company in australia. It is a government owned monopoly, and doesn't hesitate to screw over the little guy to please the shareholders (like any big public company). On top of that it is bureacratic to the extreme(like anything governmental).

They provide shocking service [zdnet.com.au] for both wired telephone - dialup(particularly in regional areas), and for "broadband" - I'm not with Telstra and I still pay 70AU per month for 12gb on cable. Simply because Telstra can price fix the market. [itworld.com] The mobile phone market is slightly better, with 3 established companies and a few smaller but growing ones.

How Is This a Deal?

[rudy_wayne]

$20 million divided by 40,000 = $500 per user. That's a deal?

small math

[jdkane]

No figures yet on how much of a discount Telstra got,

Well, 40 000 users and $20 000 000 is 20 000 000 / 40 000 = $500/user over 4 years.

The full office Suite is ~ $599.00 by itself. And I'm sure the deal includes server and developer versions of software too ... maybe even subscriptions to MSDN. On the overview, it sounds like they have really received a sweet deal ... relatively speaking of course :)

Competion

[CDWalton]

The Telecom is doing the same type fo shit my company does with Intel, and that is cry "We aregoing to start a line of AMD servers/desktops to get a better price on chips. I am not allowed to mention the company (I could get fired), but I will say it has four letters begins with a D :), and dude your getting one......

The Truth

[Anonymous Coward]

The stories are bullshit.

The truth of the matter is that Sun (the chosen, and ONLY Linux vendor) couldn't deliver an acceptable alternative platform, and Telstra refused to consider the vendor which could - Novell.

There were two factors which prevented a Linux deployment, collaboration and existing applications. There is no Sun equivalent to a full Exchange/Outlook environment, particularly for calendaring and availability management. Add Live Communication Server to the mix, and Sun's offering looks path

More power to 'em!

[Ridgelift]

Great! Hopefully other companies will use Linux to leverage Microsoft into deeply discounting their overpriced software.

I don't like monopolies because they lead to unimaginative products with high price tags. Competition clears the stagnant air and fires the imagination of those who seek to build and compete.

Linux will never go away. Nor will Microsoft in all probability. It's an ecosystem that's not pretty, but it gives me lots of cheap hardware that's useless to bloated MScode. I like that. And I'm glad people will use Linux anyway they see fit, even if it's to negotiate a better deal.