Monday Grok: We are being royally corn holed on pricing, so let’s stop pretending

Industry charges what the market will bear so it’s up to the market to fix it

Australians pay too much for software and the industry is lying through its teeth to try and protect this most profitable grift.

There, we said it — no point in being polite when everyone knows it’s true... when everyone totally groks it.

Grok has written before how the current government enquiry into the unforgivable gouging of local consumers by transnational suppliers won’t make a jot’s worth of difference. After all, governments can’t and shouldn’t have the right to set prices. But that doesn’t stop us enjoying the spectacle.

A submission to the enquiry by consumer advocacy group Choice has punctured much of the nonsense peddled by the sector in its various submissions defending its pricing. And it is pricing which at times produces extraordinary differentials.

According to Choice, “We found that Australians are paying on average 34 per cent more for software, 51 per cent more for iTunes music, 88 per cent more for Wii games and 41 per cent more for computer hardware than US consumers.”

It noted, “With one Microsoft software product, it would be cheaper to pay someone’s wage and fly them to the US and back twice, and get them to buy the software while overseas.”

That was a point picked up by The Register in the UK which is following the enquiry courtesy of long-time local scribbler Richard Chirgwin.

Chirgwin has that rare gift of being able to deploy facts were most of us deploy vitriol. He goes one step further than the Choice piece by actually listing the prices — Visual Studio 2010 Ultimate costs $US 11,899 in the US and $AU20,000 down under.

At current conversion rates this is a price gap of $8752. So in fact, you could actually take your whole family with you, buy the software, and still have money left over to pick up some cheap Xbox games on the way back through Honkers.

Choice, as The Register noted, also skewered one key argument of the transnational suppliers — the cost of floor space in Australia vis-a-vis the overseas experience is a big driver of the discrepancy. “Choice tested the widespread argument that Australian retail rents account for the price difference by looking at the differentials for software products, and found that the price differentials for online stores with no shop fronts (48 per cent) were nearly identical to the recommended retail price differences for the physical products (49 per cent).”

It’s worth remembering at this stage the arguments are mounted by the sector, and for this we refer you to the report in <i>ZDNet</i> of July 17. In addition to the marginal argument about rents (that’s a polite way of calling bullsh*t about the impact of rents), ZDNet also noted that Microsoft’s defence of the indefensible included, “...the higher costs of marketing, training and advertising; supply chain costs, including transport, distribution and exchange rates”.

Let’s pick on just one: It’s funny how exchange rates are still part of the problem even though the Aussie currently buys you $US1.03. Grok remembers how exchange rates where part of the problem when the Pacific Peso only ponied up for a lousy $US0.49. So either the industry was lying then, or the industry is lying now.

At this point let’s be careful not to lay all this at the feet of Microsoft. It just happens to be the example in the media at the moment. In fact, the whole industry peddles this specious garbage.

Here’s how they really set their prices in Australia: They charge what the market will bear. Therefore, the way to lower the prices is to engage the power of the market. As Choice says, consumers should take advantage of alternative parallel channels. These are the channels which the industry likes to besmirch as Grey Marketing — you know, as opposed to Unconscionable Black Hat Jolly Roger marketing.

And a final irony — the media refers to the disparity in prices as the Aussie Tax. It’s appropriate, but it’s also kind of funny in the way a toothache is funny. That’s because for a lot of these companies (due to the way they structure their finances) it’s the only time they will ever see the words Aussie and Tax appear in the same sentence.

Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham.