IT pricing inquiry result: Australians are fools

At the end of last week, the IT pricing inquiry heard evidence from Apple, Adobe, and Microsoft — and the evidence is damning, especially for consumer behaviour.

Last Friday, the House of Representatives Standing Committee on Infrastructure and Communications finally managed to drag Apple, Adobe, and Microsoft from out under their industry rock, and made the three vendors face the music on their pricing structures in Australia.

The vendors didn't really face the music, though. What was revealed instead was a structure wherein the vendors are calling the tune, and Australian consumers will happily stump up the money needed to satisfy the American piper playing it.

To view the inquiry in its full glory, the transcipt of the day's proceedings (PDF) is now available.

Apple came out of the inquiry in the best shape. It could point to a global pricing structure that was broadly similar across multiple geographies for its Apple-branded hardware and software. And in the case of its iTunes store sales, it pointed the finger of price setting squarely at the record labels and movie studios. Not a bad performance out of Cupertino's local representative, Anthony King.

Attention then turned to Adobe: A company well known in local circles for overcharging on its boxed software, and a company that only lowered the price on its Creative Cloud offering after being summonsed to appear before the inquiry. Fronting the committee was Adobe's managing director for Australia and New Zealand, Paul Robson, who was there to tell all and sundry that the company's cloud pricing is on par with the US pricing, while trying to distract and dodge the obvious inequity in the boxed-derived pricing.

To the question that riles Australian users the most — why does it cost more in Australia to download a piece of software than in the US? — former government whip Ed Husic took the issue and ran with it.

Creative Suite 6 Master Collection, the US price is $2,645 and the Australian price is $4,035. For Photoshop CS6 Extended, the price is $1,115 in the US and $1,519 here. For Acrobat 10 Pro, the price is $458 in the US, $699.95 in Australia. It has been pointed out to me that the price today of the standard Adobe Acrobat Pro Version 11, online in Australian dollars, is $637, and $471 in Singapore — there is no freight involved because it is a download — so it is 26 percent cheaper in Singapore.

Here is the point I want to raise, and the thing that has got me about this whole issue of IT, because a lot of people in IT are going, "Why are you just picking on us?"

To which Robson stated:

All the products that you made mention of have a physical box product equivalent that is sold through a distribution channel in this marketplace that has ongoing costs. The cloud-based delivery of those technologies has pricing in line with the pricing you see around the world.

So there you have it. Adobe prices its downloads the same as its physical boxes of software. Robson stated later on that this is a measure to protect its channel partners.

Fortunately, the committee members were not put off by Robson's cloud jibe, and also zeroed in on the discount that Adobe is able to offer on its student edition of Photoshop CS6, compared to its "grown-up" version. For the student edition, it is priced 24 percent lower in Australian than in the US, but the non-student version is 47 percent more expensive than its US counterpart.

After establishing that a different box with a stamp on it is, in Adobe's view, "materially different", the following exchange occurred:

Stephen Jones: "I am trying to get to the nub of the issue, which is why there might be an enormous difference in what a consumer might pay for a product here and product in the United States. When I look at two products, which are very similar to put on the market, I see that Photoshop Student Edition is 24 percent less, and Photoshop for grown-ups edition is 41 percent more. If it is not the box, why is there a massive difference?"

Robson: "There is probably a third product to add to that: Photoshop via the cloud, which is, broadly speaking, the same price."

Jones: "I am going to get to the cloud stuff. I have to say: I think your evidence on this point is evasive, so I will move on."

By this point, you'd be excused for starting to think that Australian customers are being taken for a ride — and it was about to get worse.

Microsoft's local head, Pip Marlow, was next to face the committee, and often referred to local pricing as a method for managing its business.

"I think it is fair to say that we are using legitimate methods to manage our business and manage the differences in our business, and different locations around the world have a different environment," said Marlow.

Where Adobe was deflecting with cloud, Microsoft was brazen.

Neville: "You do not offer any justification other than that you do not accept an international model, you have the cost factors, and you will charge what the market will stand?"

Marlow: "In a market where there is supply and demand in a free economy, yes, absolutely."

Adam Smith would be proud of Microsoft Australia. Australians clearly do not actually want lower prices, because, if they did, they take their wallets elsewhere.

It's a nice idea in an even market that Australians are meant to take their cash to another OEM operating system provider, but we are not operating in an even market. This is a market where Microsoft still has over 90 percent desktop market share.

Supply and demand dictates that Microsoft is able to charge high pricing and get away with it, and so it does.

There is nothing unlawful about how Microsoft structures its pricing, as Marlow was at pains to point out, but it does leave a lingering aftertaste and makes Australians out to be a group of people that are being taken for mugs, have a problem with thriftily using money, or are suffering from an intense case of Stockholm Syndrome.

Far be it from me to make the final judgment on Microsoft; below is an email that Ed Husic read out from an anonymous "longstanding Australian Microsoft partner" that tells the story from the inside.

I have partner-only pricing sheets, which will show you that the price we have to pay for identical Microsoft software is 50 percent higher in Australia than in the US. This is downloaded software, same international version. There is no packaging, no freight, no support, no selling expense to my business, and this has to be passed on to our SME customers.

This represents an additional cost of approximately $33,000 per month, with growth approximately half a million over the next 12 months.

Not only does this have a negative effect on the economy, but it also stops my business and businesses like mine in Australia from competing on fair terms. I have learned not to ask Microsoft about this price difference.

Frankly, they all know it is a joke, but nothing will ever be done. I read Microsoft's late submissions to last year's inquiry, and at least in respect of downloaded software, their justifications are frankly rubbish.

In response, Marlow said, "Ultimately, our customers have choice, and, at the end of the day, if we price our products too high, our customers will vote with their wallets and we will see our sales decline."

I think the key words in that response are "too high"; and, in the distorted market that we have, that "too high" price is far above where consumers would normally expect to find it.

The committee should be applauded for trying to tackle the issues of "digital handcuffs" (vendor lock-in) and a possible legislative change to geo-blocking, but I fear that horse bolted on those issues quite a while back.

We live in a country, and work in an industry, that is heavily dependent on these vendors for their products, and they've spent years working out how to most efficiently take our money.

We are being taken for fools by these companies. And as an industry, I expect us to follow historical trends and do absolutely nothing about it. Long may we whine and moan about IT pricing extortion, because, as these vendors can tell you, that's all we ever do before renewing or updating to the latest product.

If you think that Adobe is right, and the cloud is going to come to the rescue of suffering consumers, think again.

What better place is there to jack up prices due to "supply and demand" than a place where a vendor has a significant number of users handcuffed to its cloud editing and storage solution? To violate the words of The Who: It's time to meet the cloud boss, same as the boxed boss.

The only way to change the behaviour of these vendors, as they admit themselves, is to take money away from them. If this day of evidence reinforced anything, it was that the only language these companies understand is the almighty buck.

Otherwise, we are just another bunch of fools who are all talk and no action; and, most damning, that we are happy with being treated with the utmost contempt, and often come back begging for more.


Some would say that it is a long way from software engineering to journalism, others would correctly argue that it is a mere 10 metres according to the floor plan.During his first five years with CBS Interactive, Chris started his journalistic advent...

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