Microsoft is the last today to face the House of Representatives Standing Committee on Infrastructure and Communications inquiry into IT pricing.
The computing giant has been summonsed to appear before the IT pricing inquiry public hearing today to explain its pricing to the House of Representatives. Microsoft followsand , which both gave evidence this morning.
Although Microsoft refused to appear before hearings last year, it had tendered a submission to the inquiry (PDF download) , stating that the retail price of its products was the purview of the retailers, since, while Microsoft offers "recommended retail price" guidance, it does not sell to customers directly, nor set the final price.
It also added, "The cost of doing business in Australia has a direct impact on prices recommended by Microsoft and ultimately charged to customers. The cost of doing business in Australia also obviously impacts on the 13,000 Australian technology companies and third-party retailers who make up the Microsoft partner network that ultimately set prices."
In a letter dated 2 October 2012 (PDF download) , Microsoft declined the committee's invitation to attend a hearing, saying that it felt it had no further information that would assist the committee in its inquiry.
1.06pm AEDST: Pip Marlow, MD of Microsoft Australia, introduces herself to Nick Champion and the House of Representatives. Microsoft has respect for parliamentary process, has 14,000 Microsoft partners across the country and donated over AU$4 million to charity last year. People, partners and innovation are the key areas of importance.
1.08pm AEDST: Nick Champion MP asks about the ethics. Marlow replies that Microsoft does not operate on a single global level; each country is unique and requires a separate strategy.
1.09pm AEDST: Ed Husic MP reads an anonymous email from a long-standing Microsoft business partner, with partner-only pricing sheets that show that downloaded Microsoft software costs 50 per cent more for the same product, or around AU$33,000 per month, which is around AU$500,000 per annum.
1.11pm AEDST: Marlow cites cost structure, customer perception (how a customer views Microsoft product vs. the competition), but most importantly market competition. Microsoft spends AU$10 billion per year on research and development, but most of that is overseas.
1.13pm AEDST: Ed Husic MP asks how the customer perceives a 60 per cent markup. Marlow replies that Microsoft is a competitive offering for customers through the product and support mechanisms. Husic asks if Microsoft has measured whether the pricing is fair; Marlow replies in the negative.
1.14pm AEDST: Husic asks after a specific suite of products that costs US$2324 in the US (and the same price in Singapore), but AU$4136 here; an 86 per cent differential. Marlow replies that she can't comment on the difference, merely confirm that there is one, because not every market is the same.
1.16pm AEDST: Most of Microsoft's business is conducted internationally; mainly sales and marketing in Australia, with some R&D. Most of the business is software. Microsoft works on a channel basis, that is, resellers sell volume licences and services; equipment; retail product, eg, boxed products that contain download product keys. Microsoft has no bricks-and-mortar stores in Australia.
1.18pm AEDST: Husic points out that the business partner pays 50 per cent more before it even gets to a reseller. Marlow replies that Microsoft competes for business partners, and that the company offers those partners value.
1.20pm AEDST: Paul Neville points out that not having a global price doesn't mean that Microsoft is operating fairly. Marlow points out that Microsoft is operating within the law.
1.24pm AEDST: Cost structures impact price; local law, supply and demand; customer perception. Neville reiterates that Microsoft is not operating fairly; Marlow again replies that it is operating legally.
1.28pm AEDST: Neville found that Amazon is 15 per cent above the US price, Apple 18, Adobe 42, Microsoft 66, with 47 products sampled. If Australia is such a competitive market, he asks, why is it higher?
Marlow responds that this has to do with Microsoft's pricing model; that Microsoft should be allowed to compete for customers' business. He reiterates that Microsoft competes with great products, and, if the prices are too high, customers will vote with their wallets.
1.30pm AEDST: Neville asks why Microsoft is so much higher than other companies. Marlow responds that she can't speak for other companies. It's a free market, and the global IT market is still developing.
1.31pm AEDST: Microsoft uses geo-blocking to ensure compliance with local games ratings; to manage licensing arrangements on content; to adapt business strategies; and to understand local markets. Neville asks if Australia is so different to the US, the UK, Singapore and Canada to warrant a mark up of 66 per cent. "We price to the market that we're in," Marlow replies.
1.35pm AEDST: "You haven't offered us any cogent reason, other than your company policy, why you're charging more in Australia," Neville says. There is no silver bullet, Marlow says. Office for Home and Office for Small Business are two products with similar pricing. Microsoft is winning customers' hearts and minds with its products.
1.38pm AEDST: Nick Champion brings the focus to games. "Companies should be able to lawfully set prices differently," Marlow replies, agreeing with Champion's query that companies should be able to set prices that the economy can bear.
1.40pm AEDST: Marlow states that Australia is 66 per cent more expensive to live in than the US when confronted with the Big Mac Index.
1.46pm AEDST: When asked if Microsoft products are used by the majority of small businesses in Australia, Marlow replies, "I can't speak for other businesses." Stephen Jones accuses Microsoft of running a "tax on small businesses", and interrupts Marlow's legality defence to reiterate that he's asking if it's fair.
Marlow once again responds that customers have a choice and could choose another product if Microsoft's prices are too high. Jones replies that it's not as simple as that, since Microsoft's customers are locked in by file formats. "Microsoft can charge what it wants and small businesses have to pay that price, since they have little alternative."
1.49pm AEDST: Husic asks how the US$10 billion spent on R&D is recovered, and how much of that is assigned to be recouped from Australian profits. Marlow doesn't know.
1.50pm AEDST: An estimated 17 million Australians (of 23 million) have used Microsoft products.
1.53pm AEDST: Husic argues that Microsoft is contributing to higher business costs in Australia, as its products are used by businesses. Windows Ultimate is US$326 in the US, AU$469 in Australia; Visual Studio is US$12,000 in the US, and US$20,000 here.
Marlow once again cites Office Home and Small Business prices and argues that Visual Studio is not a consumer retail product; it's for developers. Consumers can access them free via MSDN. He reiterates that if prices are too high, customers will cease to buy them.
1.56pm AEDST: Xbox Live Gold is AU$79.95 for 12 months here, but US$59.95 in the US. The differential could be attributed to support costs, content licensing, competition and customer perception.
Office Home and Student 2012 sells in the US for US$149.99, and here for AU$209 for a download product. Neville asks how a digital good needs to be $60 more. Office Home and Student 2013 is AU$169 here and US$139 excluding tax in the US. Marlow argues that there is nothing wrong or unusual with having different pricing strategies for different regions.
2.00pm AEDST: Mike Symon contends that there's no choice for the consumer when Microsoft is competing against itself. We can't purchase Microsoft for a cheaper price because of geo-location. There is no functional difference between the product available in the US and the product available in Australia.
"Microsoft is using different methods of managing the different philosophies and pricing structures that we have all over the world," Marlow replies.
2.04pm AEDST: Symon asks if cloud computing will contribute to bringing costs down. Marlow says, "It's hard to predict what will happen."
2.08pm AEDST: Husic comes back to the business partner who is paying 50 per cent more. Marlow returns to labour, rent, compliance with local laws, competition and consumer perception.
2.10pm AEDST: Neville asks for Microsoft's RRP lists for Australia, New Zealand, the US, Canada, Singapore and the UK. Marlow agrees to provide them.
2.11pm AEDST: Symon declares the hearing closed.