How Much Microsoft Tax Do You Pay?
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News Commentary Last week's Microsoft guerrilla-marketing campaign accused Apple of premium pricing—a tax—on new Macs. Oh? Isn't there also a Microsoft Tax? |
[Editor's Note: This is the second of two posts looking at what Microsoft can offer cash-strapped businesses during the economic downturn.]
Marketing is all about managing perceptions, or creating them. Microsoft's Apple Tax pitch was reasonable enough. The entry level to buying a Windows PC is whole lots less than for Macintosh. During the holidays, my local Costco sold for about $400 the HP mini 1000 I tested in late December. Apple doesn't even compete in the category, called mininotebook by some and netbook by others. The cheapest of Apple's newest aluminum MacBooks is $1,299 direct from the company.
Several Microsoft Watch commenters have asked about the Microsoft Tax. Yes, there is one, or so I say. Actually there are several worth calling out as global economies weaken and IT organizations pull back technology spending. But any tax, whether from Apple or Microsoft, is one of perception, too. Some people spend more on a Mac because they see more value there. The previous post looked at how Microsoft offers value to enterprises. There's a case to be made there. But looked at another way, perceived differently, there are several Microsoft taxes. They are:
Client-Access Licenses. The CAL Tax has got to be the best bit of software profiteering going. I liken the CAL Tax this way: Local electric company sells power and devices, like the toaster and refrigerator. I pay a fee for the electricity to my home and another for the appliance. But that's not enough. There's a third fee for connecting the appliance to the outlet, which changes depending on the number of devices drawing current. That's the CAL Tax. Enterprises pay for client and server software, plus extra fees to connect one to the other. What a racket!
Businesses have paid the CAL Tax for so long, I expect some Microsoft Watch commenters will balk at it making my list. The justification: Everybody does it. Do they now? They are no CAL fees for Linux. Apple offers Mac OS X Server with unlimited CALs for $999. I chuckle when thinking about Microsoft's Apple Tax pitch. If there's a desktop Mac tax, then there's one on servers, then, where Microsoft customers pay a price premium for CALs. Example: Reseller CDW offers Windows Server 2008 Standard with five CALs for $959.99. For $40 more, Apple offers unlimited CALs.
CAL defenders will argue that prices go down depending on volume and other factors. All true. But no matter how seemingly little the fee, it is something. CALs multiply across multiple products. So the tax adds up fast. If I were Apple, the CAL Tax would be the rebuttal to Microsoft's Apple Tax assertions.
Software Assurance. Microsoft announced this tax in May 2001 and to great criticism. The majority of businesses bought upgrades when they needed them. The "when" would determine how much of a discount they would receive. Microsoft saw some competitors reaping huge benefits through annuity licensing, including smoother revenue over time. So Microsoft took away the right to buy upgrades anytime. In its place, Microsoft instituted an annual tax, Software Assurance, of 25 percent of server software cost and 29 percent for desktop software paid out over two- or three-year periods.
The Software Assurance Tax assured customers of paying more upfront when renewing volume-licensing contracts but no assurance that Microsoft would release upgrades during the contract period. Now there's something for Mr. or Ms. CIO to explain to the chief executive: How the company spent extra for rights to the next Office version, but, whoops, it shipped late so there's no upgrade coming for the upgrade price.
Software Assurance puts greater burden on smaller businesses, which typically only buy software when they need it, than enterprises. Many small businesses either pay Microsoft's upgrade tax or higher upgrade fees. Either way, if the business wants to pay for discounted upgrades at time of purchase, tough luck. Microsoft offers no option.
Versioning. Microsoft isn't satisfied with the revenue reaped from the CAL and Software Assurance taxes. Why make businesses pay more when they'll pay even more. Starting with the 2003 release cycle, Microsoft fundamentally changed its product strategy by:
- Pulling features out of existing software to make new products. Sure, the new software would extend functionality, but with customers paying for the additional product and another separate set of CALs. Example: Office Communications Server, whose core features started from Exchange Server.
- Putting more server-dependent features into desktop software. Microsoft touts a certain set of enterprise features in, say, Office Professional. But many new features require the purchase of another, or even another and another, piece of server software. Instead of feature-complete Office, the business would need extra server software and more sets of CALs.
- Expanding the number of product versions. Where once there was one Visual Studio version there are now five, when including the free Express and Tools for Office Editions. Today, Microsoft sells eight different Office 2008 versions. Differences are often subtle but significant among versions. It's not unusual for Microsoft to take features previously available in one version and move them elsewhere when adding new editions. The result is a hidden cost increase, or tax, for some customers.
There's a question of perception. Microsoft's business objective is making money, which is tougher when businesses upgrade less often. The Versioning Tax keeps the cash coming in, and Microsoft justifies the strategy by offering customers more. Yes, but many of them would be happy paying less for not as many features.
MDOP and Windows Vista Enterprise. The Vista Tax is one of Microsoft's most enterprising. Windows Vista brought more than just new features: Software Assurance requirements. Businesses that want the Microsoft Deployment Optimization Pack and/or Windows Vista Enterprise must subscribe to Software Assurance. Most businesses deploying Vista would want the MDOP tools and the Enterprise edition.
The Vista Tax is a variation on the Software Assurance and Versioning taxes. Microsoft moved the most desirable large-business features to Vista Enterprise, tacking on the Software Assurance requirement. That makes the requirement a price increase, or tax, for businesses without Software Assurance coverage for Windows, which is the majority. OEM sales account for more than 80 percent of Windows revenue, which means most businesses get the operating system on new PCs.
I could go on. There are plenty more Microsoft taxes out there. But these are more than enough to fuss over.
A note to Microsoft PR: You wouldn't be reading this post if not for your Apple Tax anti-Mac campaign. You say Apple demands a premium price for Macs compared with Windows PCs, but Microsoft charges one, too. The real debate should be about perceived value. There are some businesses happy to pay more for the value they get from the products or services, and they wouldn't see Microsoft taxes here. Instead, they would see software that still costs less to deploy and manage than many competing options. It's about perception. Where some people perceive a tax, others perceive better ROI or TCO.
Likewise, plenty of consumers happily pay the so-called Apple Tax because they see more value in Macs than Windows PCs. Apple Tax campaigning isn't the way to change perceptions about the value of Microsoft products or services. That task belongs to Azure, Live, Windows 7 and WorldWide Telescope, among many other Microsoft software or services. The "plus" in "software plus services" should be better perceived value.
[Please send your tips or rumors to watchtips at live.com].
Comments (21)
Only Steve Jobs can sell high-priced, full-hyped gadgets to poor people.
Posted by Rod Trent | January 12, 2009 5:31 PM
"The plus in software plus services should be better perceived value. "
Unfortunately, and as you so thoroughly pointed out, the plus in "software plus services" will, if history is our guide, be "plus another revenue stream for Microsoft" and not "plus better value" for the customer.
Posted by Phil | January 12, 2009 5:32 PM
Quote:
Businesses have paid the CAL Tax for so long, I expect some Microsoft Watch commenters will balk at it making my list. The justification: Everybody does it. Do they now? They are no CAL fees for Linux. Apple offers Mac OS X Server with unlimited CALs for $999.
##End Quote
Well the difference between Mac OS X Server and Windows Server is people actually use Window Server. If Apple actually thought there was a market there they would be charging an arm and a leg.
Basically Apple iCrap is cashing in on popularity like Britney Spear cashes in to support her dysfuncational life style. It is hype and in the end all phone will have the same functionality. Its all about looking cool for those who were first to pay 400 dollars for an IPhone. Apple later dropped the price to 200 dollar range while laughing all the way to the bank.
Posted by Josh | January 12, 2009 5:50 PM
@Josh.
$999 for unlimited connections is pretty sweet though. Thing is what do you get for it? Rock solid web services? You can get apache running on any Linux server for zilch. Of course IIS gives you .Net and ease of management.
And of course IIS comes on windows. And along with that you get Hyper-V, active directory, etcetra... etcetra. See X-Servers offer nothing you can't get in Windows or Linux. Redhat, Server 2003, and 2008 more than fill our needs. So to apple? Very good workstations and toys. But servers? Meh.
Posted by NKnow | January 12, 2009 6:10 PM
This is true. Microsoft definitely CALs you to death. At the very least, the software should be free and charge only for the CALs. No. Corporate won't here of it.
At some point, CIOs simply aren't going to bite anymore. But it isn't just the CAL tax, they went too far with the radical changes made in Vista that even Intel decided not to upgrade. (That must have hurt.)
I've been saying that "I'm a PC" from before Microsoft ruined that phrase with its ads. Microsoft should be capable of fixing these problems. I hope they do. But Microsoft is not listening to its customers -- home, small business or corporate. They simply aren't listening.
Posted by Albert | January 12, 2009 6:14 PM
Joe, you still left out one of the most ubiquitous Microsoft taxes:
The bundling of Windows with PCs at nearly all big box/office stores and major PC vendors. While these aren't the only places in the world to get computers, they do represent the biggest and most well known sector. And they all sell PCs that come preloaded with a copy of Windows that is well nigh unrefundable. A user could buy one of those machines, not agree to the Windows EULA, install Linux immediately, and still it would count as a sale of Windows for Microsoft and some of that user's money would have gone to pay for a software license that they will never use and did not agree to. And there is no way to get a refund for the license, either though the store, the PC manufacturer, or Microsoft.
One of two things is necessary to make things right:
1.) Have in place an easy, clear method of obtaining a full refund on an OEM Windows license at the time of purchase that {Microsoft|PC manufacturer|store} will honor and be legally bound by.
2.) Simply offer any and every PC configuration in the {store's|PC manufacturer's} inventory with the option of having no OS preloaded, and therefore no Windows tax. That way, the user is free to buy and/or download the OS of their choice and pay only for the cost of the hardware.
Posted by Will | January 12, 2009 8:18 PM
@Rod
To be fair those are some damn nice gadgets.
Posted by NKnow | January 12, 2009 8:23 PM
Yes, there is a Microsoft tax and, no, we do not need to keep paying it. However, it's not ALL bad. A good chunk of the profit goes straight to the Gates Foundation (via Bill and Melinda) for research into curing tropical diseases and international development. On top of which Warrent Buffet is, effectively, contributing matching funds. Apart from Microsoft Inc. SHAFTING not for profit organizations working on hunger and poverty it's the fairest and most productive global tax there's ever been.
But all good things come to an end. They did for Rockefeller, Morgan, Vanderbilt, Carnegie and more, and they will for Gates too.
Meanwhile, I'm passing on Windows7 in favour of Ubuntu.
Posted by Eats Wombats | January 12, 2009 9:31 PM
I'm not sure I buy it about CIO's not biting anymore. It's true that there are many great products out there to replace much of what Microsoft does... the carrot of MS at this point is that all of their products tie together. You hate them, but they make life easy. Windows, easy ties in with the Active Directory. Sharepoint, easily ties in with Office. All of their products can be extended by .Net. Need a database, got SQL Server to be the backend for all of these. They're running products most people haven't heard of, they're hands are in everything (every heard of FRX for example?). So much time is lost trying to string together 40 third party apps that I don't foresee a downfall of Microsoft just yet.
Posted by John | January 12, 2009 9:34 PM
@Will: Actually when people buy the computer they essentially agree to the tax you say they don't agree to. Consumers DO have a choice, they can go to a store that offers computers without Windows. They exist, just not at big box stores.
Tax is an incorrect word. A tax would tax all computers. This only comes into play when you buy from certain stores. You don't have to pay it, simply don't buy from those vendors. This is no more a tax than Apple's forcing you to use Apple hardware is a tax. Should Apple be forced to allow you to run their OS on other Intel based computers? They essentially are doing the same thing only with hardware instead of software.
Posted by Robert | January 12, 2009 9:42 PM
@Robert:
Well, you are correct in saying that not _all_ computers force a Windows license on consumers, but a rather large percentage of PCs do. As far as the Mac,OSX bundle goes, I'm not about to go the Psystar route on that one. I don't really have a problem with Apple restricting the use of OSX to Macs. Apple makes both OSX and the Mac, they don't force either down anyone's throat, and they don't go out of their way to make sure that no PCs are seen within 100 meters of any Apple Store.
And if Microsoft made their own, MS-branded PCs, I'd have no problems at all with them bundling Windows on those.
Here is where I tend to see a little bit of difference:
Let's say I purchase a copy of OSX. I'm not very familiar with the license in detail, but the gist of it is that I can only run that software on a Mac, right? So in order for the software to have any legal use to me, I need to have Mac hardware Now let's flip this around and say I purchase a PC. No where does it say that I am only allowed to run Windows on that PC. So there is no need for me to pay for Windows if I won't use it. I don't view a PC as a complete, closed package the way I do the OSX + Mac combo. I see the PC more as a generic piece of hardware to run whatever software the user wants to run on it.
"So just don't buy a Windows-preloaded computer", you say. And right you are. Within the last year or two I've found a couple of places where I can do just that. But most places do not allow such a thing, and most customers wouldn't know that such stores/websites even exist. But forget about that last statement, since it could be argued that those sites also have a responsibility for their own advertising.
I guess what irks me a bit is seeing cases like one I encountered a few months back where an order for some laptops was required. The laptops were intended to run only Linux, and I found an excellent deal with a Linux PC supplier, offering better hardware at lower cost than any of the alternatives. But, the purchase had to be through one of the major PC vendors; not my decision on that. And of course that vendor had no non-Windows PCs to speak of. So basically what happened was a bunch of money was spent on non-refundable Vista licenses that never saw the light of day, in addition to the time spent installing Linux on those laptops after they arrived.
So, while you are right that it is not an absolute tax, the fact remains that, while there are non-Windows PC sellers out there, it is more difficult than it should be to avoid paying for a product that some might not want or have any intention of using.
But, now that I've said this much, I might as well relate an interesting conversation I had with a store salesman the other day. I was looking at the HP mini 1000 (it was an XP edition) that they had on display, and I asked the salesman if the store would ever carry the Mi edition (the one with a customized Ubuntu OS). Without even pausing, the salesman frankly told me that, while there had been some interest in Linux PCs, due to the way Microsoft was pushing Vista so hard, the store was afraid of what Microsoft might do to that chain if they tried to carry a computer preloaded with Linux. I just found it interesting to hear something like that coming from a salesman there.
Posted by Will | January 12, 2009 10:47 PM
The difference lies in whom is taxed.
Apple taxes the consumers.
Microsoft taxes the business.
Businesses makes money, so it's just a value proposition. At home it's more of an emotional thing.
The value proposition is going to be a tougher one for Microsoft to pull off during a depression, although if you have a proper business case (which you should have anyways) you will be fine. Will we profit?
Yes -> buy it
No -> leave it
It's as simple as that..
Apple, during a depression, will add the value proposition to the emotional proposition making it probably harder for them. Mainly because there is no business case at home.
Posted by Charlie | January 13, 2009 1:56 AM
@Eats Wombats
"it's the fairest and most productive global tax there's ever been."
You have an interesting point here, yet nobody voted for Bill and Warren to be the global Government, free to spend their ill earned money on their friend's special projects abroad (Africa must be a nice tax haven).
I would rather have the option to donate that $60 to a charity of my choice than letting Bill and Melinda use it, instead I am forced to pay it when I buy a PC. Last time Bill and Melinda worked together we got MS Bob and Clippy as the result. I am not exactly excited about their ability to cure aids.
It all reminds me of Al Capone and the soup kitchens. The Mafia was probably one of the most productive social welfare schemes ever.
Another tax which we do not see is the loss of productivity by the rest of the industry. For example the web has been stagnant for 10 years whilst we wait for IE to catch up. Don't let web 2.0 hype fool you, its all 10 year old technology that we are using here. The reason is IE 6 - 100%.
Posted by billybob | January 13, 2009 7:32 AM
A comment about the comments.
Writer writes negative story about company X. Fanbois trash talk company Y. X and Y can be either Microsoft or Apple, it works both ways.
Business continues to be CAL'ed to death. The money is only part of it. Accurate records, paying for only what you use, is a nightmare. The Windows on every box tax definitely needs to be added to your list. I would add the pay for your own security tax. Time and/or money, ya gotta do it.
Charlie makes an interesting point that Apple taxes consumers, and Microsoft taxes business. However, I'm left to believe that both groups want to pay additional taxes.
Rob and Josh are trying to protect their livelihood. Go ahead guys, keep saying it long enough, and somebody might just start to believe you.
John makes the best case for a Microsoft tax. Product integration has provided the corporate lock Microsoft now enjoys. Personally, I've never been a fan of monolithic solutions, but it has obviously worked in this case. Microsoft faces increasing competition as the industry matures. At the point that the Microsoft tax exceeds the cost to roll your own, the shift will begin to occur. I think that shift has started.
Posted by Dave Lindhout | January 13, 2009 8:32 AM
Mac hardware is nothing but hype [and overpriced]. You're paying an extra 25%+ for the same hardware in a PC. So where does that go to? Apple's coffers.
You can't call CALs as a "tax" because Apple has no networking software. This is comparing apples and oranges.
And you are mentioning "tax" or business server software? Apple has nothing. Apple machines are meant for home usage or workgroup networking. Only in the last few years has Apple made attempts to bring interopability between Macs and AD.
Don't like Microsoft's business server software (SQL, Exchange)? There is always MySQL and others.
The "tax" campaign is also aimed at the typical home user who buys a PC or a Mac. You thing the childish Mac Vs PC was aimed at businesses? Nope.
Posted by Gis Bun | January 13, 2009 8:39 AM
As per usual definitions are being twisted by everyone to fit the point. Just because Macs are expensive, or MS CAL licensing is a nightmare, they are not taxes because you do not have to pay them if you do not want.
The original definition of the Microsoft Tax was that you cannot buy a PC without buying a copy of Windows too. People will always point to the few exceptions these days, but the market is largely the same.
A tax must be something you would rather not pay, but are forced to. Nobody is forcing you to buy a Mac or even sign your entire business up to Microsoft. If you want a laptop and do not intend to run Windows then you are forced to pay the tax, its very difficult to get a refund.
Posted by billybob | January 13, 2009 8:46 AM
@Gis Bun :
You're either ignorant or a liar.
So which is it?
Posted by Anonymous | January 13, 2009 6:11 PM
I don't understand why some folks are getting their panties in a twist about Mac OSX licensing. Apple modified the Darwin kernel with their own enhancements, so they have the right to license it as they wish, just like M$. Conversely, consumers have the right not to run the software. If you want to run a Mac OSX-type OS on your machine, then you're free to take OpenDarwin and modify it to your heart's content. That's what Psystar should be doing, instead of bundling Mac OSX with their systems. In terms of paying a Windows "tax", there are more people that benefit from the apparent "tax" than those who do not. Granted, "majority rule" shouldn't apply and shouldn't be advocated for consumer products, but Windows has done something for computers that has benefitted the masses, despite its shortcomings. Windows has allowed people to buy and use computers who otherwise wouldn't, simply because it provides a standard and also because there is a significant majority who aren't willing to pay Apple prices to get ease-of-use. Regarding OEMs who bundle Windows with their systems, the onus is on them to renegotiate with M$ to be able to ship "bare" PCs too, if they're prevented from doing such by the terms of the Windows license. We consumers just haven't given them reason enough for them to do so.
Posted by Isma'il | January 16, 2009 11:38 AM
Compare Apple to a Windows PC:
Both are using the same commodity hardware at the core. The same guts, right?
I will not pay to hear my neighbor play a tune on a Stradivarius. I WILL pay alot of money to hear Itzak Perlman play a tune on the same hardware.
The experience of using Apple's hardware-software combo is much more than the sum of its parts. Apple can never compete on price because . . . Apple will never compete on price. Otherwise Apple becomes simply another commodity hardware company, one which would not be successful in the way Apple is now.
One thing that many people do not understand is the way users feel about their devices. (geeks included. They traditionally don't care about such things. Funny though, they would understand why someone would want a Porsche instead of a Ford.) One look at the way Apple's hardware is designed and you would be a fool to think that they are selling a processor, ram, hard disk, et. al.. They are selling a design. (And a damn good one, if you ask me.) A design which makes people feel good about using a computer.
But beyond that, using the software that runs on Apple's fancy expensive hardware is an experience which keeps people paying the "Apple Tax." An experience which many people (such as myself) find much better (remember that is relative to each user) than Windows.
In fact, I make my living on Apple's premium hardware. Before I was using an Avid on Windows. Nothing but trouble, mostly from Windows. Rebuilt that machine three times in 18 months. Never could update the machine unless Avid said it was o.k. to do so. Lost several projects to the abyss. Now I use FCP and Apple.
Call me a fool for paying the "Apple Tax." That's ok. I gladly pay the "Apple Tax."
And you can listen to my neighbor play the violin.
Posted by bob | January 17, 2009 4:19 PM
Apple has a good deal for education customers with iWork. A site licence for 500 seats is $249.
Posted by Partners in Grime | January 19, 2009 11:18 PM
Pay the MS tax why not.
CALS for ms literally mean nothing more than for corp auditing unless you're using one of it's enterprise products. It's a way to legalize proof of your purchase.
otherwise there is no magical switch that will disallow you to connect to one of it's built in services. Don't try to add fuel to the fire.
Secondly, I have the option to buy the OS seperately and repurpose any system I like, with any os I like, unlike APPLE. Which I would need to literally purchase a new system for with, apple tax included whether I like it or not.
Lastly third party vendors, acer, voodoo, extreme, sager, shuttle, etc... of those type pay no - I'll say it again, PAY NO MS TAX, because their systems are categorized as being specialized not mainstream like the Dells, Gateway, HP, etc... However they are just as worth as they counterparts and approximately the same in cost.
So to try to paint this picture of calling microsoft out on their mention of Apple is simply fluff.
Do the math again.
-Nuph Said
Posted by Nuph Said | January 30, 2009 4:55 PM