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Despite MS dominance, prices fall

The aggressive sales tactics of Microsoft and Intel have actually driven prices down. The question is what happens to the competition.

Whose budget has been adversely affected by the allegedly unfair business practices of Microsoft and Intel? Most likely, it's not yours.

The aggressive marketing and Microscope on Microsoft sales tactics of both companies, which mostly involve drastic price cuts in the face of both real and anticipated competition, have actually conspired to drive computer prices generally down, not up, for consumers over time. Would the two companies behave differently if no competitors existed? Probably, many say, but with both companies bent on expansion, competition naturally crops up. New, budding companies may lose, but you win.

Price cuts by Intel, observers say, have been particularly influential in reducing the cost of systems.

"The big one is mostly the CPU price," said Kevin Hause, computer analyst at International Data Corporation. "If it's a 15 percent cut [on processors], prices will drop 15 percent."

Intel is an investor in CNET: The Computer Network.

The cost of the Microsoft operating system, meanwhile, has remained stable, yet nearly insignificant, per machine expense. It costs around $50 or less per machine, according to various estimates. Internet Explorer, of course, is and has been free.

Yet these business practices may have an adverse effect on consumers in terms of access. Unfettered, Intel and Microsoft could potentially make it more difficult for consumers to get alternative technology, various sources say. Currently, the Justice Department is investigating whether Microsoft has engaged in unfair business practices by forcing OEMs to bundle Internet Explorer as a condition for getting a license to Windows 95. Meanwhile, the Federal Trade Commission is examining a host of Intel activities, including charges of price gouging.

But, while the overall effects of any action by the Justice Department or the Federal Trade Commission remain uncertain, the cost of goods will likely be unchanged.

The downward pricing trend has mostly been fueled by the aggressive marketing strategies by both companies, according to Daniel Kunstler, technology analyst at J.P. Morgan.

Microsoft, on one hand, is focused on maintaining its products' status as the "gatekeeper" to personal computing. As a result, the cost of access technologies like the Windows operating system has remained low. "Currently, the actual price of the OS is extremely low. They [Microsoft] make a large portion of their profits from the applications."

Intel, on the other hand, has engaged in systematic price cutting to maintain its lead in the processor market and to stave off competition.

Because the majority of computer manufacturers use these core products, the price of systems has declined over time and in relative unison, he said. In fact, Kunstler postulated that action by the government against Microsoft is not likely to have an effect on computer prices.

The point where consumers may be affected, he said, lies in the realm of access to alternative technology. By foisting Internet Explorer onto consumers via bundling deals on the operating system, Microsoft renders the existence of alternative browsers largely irrelevant, he said.

Roger Kay, a corporate computer analyst at IDC, further said that Justice Department action may have little effect on what goes into a computer. The department, he noted, is seeking to stop Microsoft from forcing computer equipment manufacturers to take Internet Explorer. Microsoft can offer it voluntarily to them, however, and for free, which is just as compelling.

"People will say, 'I'll take the package because it's cheaper,'" he said. "The results of this settlement will be negligible economically."

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