The Boston Diaries

The ongoing saga of a programmer who doesn't live in Boston, nor does he even like Boston, but yet named his weblog/journal “The Boston Diaries.”

Go figure.

Saturday, November 16, 2002

“Where I want you to be … ”

It's 1997. You call up the 800 number to order another computer, and after you've chosen between the Alpha-III and the Octium chip and the 15 and 30 gigabyte hard drive, the salesperson tells you that the machine comes with the “Basic Package” of Windows NT, Word, Excel, Access, Money, and Multimedia Producer, and asks if you'd like to turn on any additional software at the time. You request Project, Designer, and Visual C++, and they're enabled also. In any case, you're told, “it's all on the CD-ROM, so you don't have to decide right now”.

Now let's look into the other end of the binoculars; from Bill Gates' chair rather than his customers'. Today, there more than 125 million MS-DOS personal computers installed. Given the rapid adoption of Windows and sustained high sales rate of new machines driven by price performance improvements in new chips, I believe it conservative to expect that 100 million Windows NT machines will be installed 4 years from today, most equipped with CD-ROM, multimedia accessories, and contemporary peripherals; some upgraded from current high-end MS-DOS machines, but most new machines of the Pentium/Alpha generation and their successors. Further, let us assume that Microsoft is unsuccessful in selling any software other than the Basic set (I'm sure you'll concede, based on Microsoft's new product success rate, this assumption is conservative). Well, multiply it out. That's 100 million machines times US$10 per month times 12 months per year, and the answer is: US$12 Billion-with-a-B-like-Bill per year of automatic recurring revenue for which the marketing costs are essentially nil and distribution margin is nonexistent since fulfillment is direct.

Programs Are Programs

Microsoft in the past year or so has been pushing for software subscription, much like we do now with cable TV (as pointed out in the article). After all, programs are programs.

Also mentioned in the article is Bill Gates wanting to shift to software subscription in 1992!

And to think that there actually does exist an American company that can think more than two quarters out.

While consumer reaction to Microsoft's attempts to shift to a subscription base have been negative, Microsoft also realizes that it's not the end user that pays its bills—it's the corporate accounts that do, and selling a subscription to corporations is probably an easier sell there. Predictable billing cycles and an easier amorization schedule will do that. And as the article states:

I think the answer lies in the observation that most companies who succeed in building self-sustaining subscription-based businesses start from a position of effective monopoly of their sector. In the case of AT&T, it was a combination of technology, patents, and government grants which conferred the monopoly. IBM built its first monopoly in tabulating equipment on the patent of the Hollerith card, then clawed its way to an effective monopoly in computers by out marketing and out-customer-servicing Remington Rand, Burroughs, and others. Xerox derived its monopoly from the patent on xerography.

The article itself is dated from 1993 (the last update reported by the webserver is 1998, but that may be when the page was uploaded to the server) which may have been around the time the first real mumblings of Microsoft being a “monopoly” at the DOJ were being heard but I think that even back then in 1993 it was a forgone conclusion that Micosoft was indeed a monopoly, and thus had the power to switch to a subscription base for its software offerings.

Not that Microsoft has actually done that. Yet.

Okay, excluding the Microsoft Developer Network, it hasn't done that.


And if Bill Gates was thinking of this in 1992 I have to wonder what he's got in store for 2012 … then again, the world is expected to end in 2012 … hmmmmmm …

Obligatory Picture

[It's the most wonderful time of the year!]

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