MS gambles on software splurge with price hike

Microsoft's recently announced 10 per cent price hike on its software has been blamed on the poor performance of theAustralian dollar, but the bottom line is that head office is doing anything to generate revenues in a slumberingsoftware market.

The price adjustment, which is due to come into effect from October 1, will see an overall jump of between 20 to 28per cent on Microsoft software since December 2000.

According to Natasha David, senior analyst at IDC, the slowing software market is forcing Microsoft and othervendors to focus on their emerging markets, such as Asia-Pacific and Latin America, in an attempt to cultivaterevenues. The trouble with this however, is that although growth rates in these markets are high, the revenuesraised from their small customer bases aren't as significant.

Economic factors, combined with targets set in US dollars, have meant that the screws have been tightened onMicrosoft's regional subsidiaries.

Locally, Microsoft is coming off the back of slowing software spend, courtesy of Y2K, GST and the Olympics. Added tothis is the current economic climate that has dissuaded people from spending on upgrades. While ramping up pricesdoesn't sound like the best way to stimulate spending, David says that "the fact of the matter is that they've gotto make these budgets any way they can".

The price increase could be timed nicely, with an expectation that software sales will re-emerge from their lull;David predicted that there will be quite a big "pull-through for demand" for Microsoft's wares soon.

"I would say that Microsoft would be betting that people are going to be wanting to upgrade to Windows 2000 becausethere was a big gap where they weren't updating last year," she said.

According to Greta James, research director with Gartner, the impact of the price changes will be difficult forcustomers and resellers to absorb. For organisations looking to avoid the price change, they have until October 1 toenter into enterprise or select agreements, but James said that this would present problems for companies backing upfrom the previous adjustment.

"For large organisations, that will involve a significant amount of money and so they need to put together abusiness case, and this will be unbudgeted," she said.

In an attempt to smooth the jolt of price hikes, Microsoft has announced that it will now review its US dollarexchange rate each month, making incremental adjustments to its pricing either upwards or downwards as the dollarfluctuates.

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