The price of the operating system portion of the total cost of a personal computer rose dramatically between 1990 and 1996, government witness Frederick Warren-Boulton told the antitrust court in Washington yesterday – an indication that Microsoft Corp does hold a monopoly position in the marketplace, he said. Warren-Boulton, an economist, finished five days of testimony by discussing documents from Microsoft itself that showed the price of operating system software rising from 0.5% of the total cost of a PC system in 1990, up to 2.5% in 1996. He also cited evidence than in the two years since 1996 the cost had again doubled to 5%. Only last week in court, testimony from Microsoft’s senior vice president for sales to PC makers, Joachim Kempin appeared to show that Microsoft anticipated that the price might eventually double once again, to as high as 10% of the total system costs (CI No 3,546). In 1990, the figures showed, the average cost of a PC was $3,000 and the cost of Windows within that price was $19. By 1996, average PC prices had dropped to $2,000, which the operating system price had risen to $49. This is a really dramatic increase in the cost off the operating system compared to the PC as a whole, said Warren- Boulton. He said that the figures took increased quality into account to the extent that the entire PC has improved in quality over that time. Warren-Boulton said that in sales to OEMs, Microsoft could effectively increase its prices and see no effect on end-user sales, because the price was hidden within the total cost of the PC. At the same time OEMs viewed the operating system software as an essential component and had no choice but to pay. Microsoft spokesperson Mark Murray disputed the figures, saying the Government was flat wrong in its accusations, and that it was the product mix which had changed. Pricing between Windows 95 and Windows 98 had remained relatively flat he said. Murray also pointed out that Intel Corp’s portion of the total cost of a PC had quadrupled between 1990 and 1996 from 3% to 12%. Intel is also facing antitrust charges. It makes sense for these components to become a larger cost of the total price, said Murray, Microsoft is the central nervous system and Intel the brains of the PC. How much innovation is there in keyboards, or in the metal box enclosure of a PC? Leaked memos suggest that Microsoft is worried by its OEMs rebelling against higher prices. One suggested alternative was to begin charging users an annual rental fee for using Microsoft operating systems once the next major release of Windows ships.
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