Software Development

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.

About

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...

22 comments
weemooseus
weemooseus

Vote with your feet, Linux is free and there are plenty of free tools to go with it.

HypnoToad72
HypnoToad72

So, for one thing, these companies are not "American", even if they take subsidies/handouts/bailouts funded by American taxpayers. And since it is a free market, they can charge what they like, add value to what they like, devalue what they like, etc. If other countries, like Australia, add too much tax, they will just price themselves out of the market. Gotta love competition, right? Especially as they do what it takes to remove themselves from the playing field by taxing too much... Always use "Charge what the market will bear" and the other feel-good/do-nothing one-liners and never think into the paradigm, but if the market destabilizes, force the tax money to prop 'em up at every turn... then continue the one-liiners. People will fall for it time and time again.

boomchuck1
boomchuck1

The pricing difference between a boxed version of the software and a downloaded edition is ridiculous. What do you really get with the box? A DVD or 2 or 3. Nobody packs in a manual anymore. So what does the cardboard and a DVD cost the company? Probably a few cents. Just download the software and burn your own DVD. As for the price difference in different countries... I assume the exchange rate is taken into account so you really can't look at this as anything more than price gouging. Folks in Australia can't easily cross the border to another country and buy the product at a cheaper price so folks like MS, Adobe, and Apple figure they have them by the short hairs. Charge whatever the market will bear. Don't like it? Buy something else. Except that logic doesn't even hold here in the US where the software may be cheaper but is still obscenely expensive. People complain about the price of Office but go ahead and buy it rather than using LibreOffice or any of the other free or very cheap products that will probably do everything they need to do.

Slayer_
Slayer_

Arctic Cat did the same thing to us. In America, you could buy the sled for 6k, the same sled 100km north across the border was 14k. It was actually more profitable to go south, and buy from another dealer at full retail, then bring them north and sell them. As a result, many cat dealers have closed, and Arctic Can had to merge with Yamaha. Arctic Cat was losing money like crazy.

lastchip
lastchip

They are the same as the Brits, the French, the Germans and whoever else you like to name outside of the US. Microsoft and others, abuse their prominence and rip off every country they can. In the UK, we pay (roughly) the same in UK pounds, as the Americans do in dollars. At the moment at current rates, that's about a 50% premium. Continued requests for an explanation by various UK based magazines have resulted in being blanked. So one can conclude, they do it because they can get away with it. It's human phenomenon that says "stay with what you know". It's also as a previous contributor pointed out, virtually impossible to buy a pre-built machine without Windows installed. In my own little way, I've broken the mould. I will no longer supply any machine with Windows and now only supply Linux machines and have stopped all support for Windows. My clients (so far) love it and I've managed to create a nice little niche in the marketplace. The downside is, there's virtually zero maintenance! Though some opt for the safety of a managed contract. The answer is, if it's possible (and I know it's not for everyone), just say no and opt out. In reality, for most small businesses, there is no good reason to stay with Windows. Larger organisations with bespoke software, may be in a different place, but still need to evaluate whether the cost savings over time, outweigh the short term cost of retooling. For most, the FUD perpetrated about the cost of training is nonsense. For those using Office applications (read Libre Office) it's virtually non-existent. However, if you're a heavy user of macros, then you're probably going to have to think carefully about how you're going to change your work practices, or even whether you want to change at all. At the very least, you're likely to have to recreate them. That is a small cost, to break out of captivity!

jdm
jdm

I live in the US and have traveled to Australia a number of times on business. My overall impression is that almost EVERYTHING in Australia is more expensive. My best guess for that was freight costs for products made elsewhere, like cars, but also the fairly hefty VAT they pay there.Was VAT factored into the cost comparison?

mckinnej
mckinnej

Get a VPN account with an exit point in a cheaper country and download away. I doubt it is illegal, but certainly not above board. Then again, these companies aren't playing fair either, so why fight with one arm tied behind your back?

kferraro
kferraro

we get hit on prescription drugs. And don't think that anyone in the US thinks this isn't a blatant case of the manufacturers paying off the legislators that write laws to protect them. Don't forget that, especially in Microsoft's case, they have to pay a LOT of lawyers to fight all the antitrust suits they get pulled into around the world, just so they can maintain that monopoly. There are costs associated with preventing consumers from having an option.

rjwinslow
rjwinslow

How they can sell anything when Ubuntu is available amazes me every day. Even my 88 year old mother uses an iPad and has never touched Windows. I need to get computer based work done, so an iPad won't do, but Ubuntu works (easily) for that, so I too have only touched Windows when trying to assist the poor devils who pay (heavily) for that abuse.

peterm
peterm

It doesn't yet seem to get through the heads of these corporate apologists that all their bleatings about market forces and supply and demand are absolute crap. 1. Can I compete in selling a copy of Windows to all and sundry ? No! 2. Why not ? Because:the monopoly on selling Windows belongs to Microsoft. That means the supply side is inelastic. Market forces don't apply. They're not allowed to. It's not a question of supply and demand -- they get control of supply by way of laws. 3. Where does that monopoly come from ? Oh, wait a minute, yes ! Legislation on patents and copyrights etc. 4, Who were they talking to on this committee ? Legislators who pass those laws and can amend them. 5. Is it a good idea to look arrogant in front of legislators who can change laws ? Maybe not. 6. Have they just made out a good case for those who complain about "piracy" and seek extra protection from the law makers to change the law to modify monopoly powers ? You bet! This is called smart management and smart representation of your company? Economics 101 is too advanced for this mob.

Jonno-the-First
Jonno-the-First

The question I ask is this. Have these opportunistic manufacturers considered how much money they have lost due to unaffordable prices? Many people I know would have paid for the software to be legitimate, but have 1) opted for freeware 2) Pirated the software. I would say they almost have legitimate reason to pirate this software. Then there is also the matter of becoming conversant with the software if not able to purchase it, with companies not finding anyone able to use software properly.

homesjc
homesjc

In the days when Japanese TV's were undercutting French products, the French in true fashion did not prohibit or tax these products, but forced importers to transport the items to a single customs office, away from the the ports to have them checked. It also had restricted opening hours. Surely, just a comment that any attempt by these companies to restrict Australians from downloading or parallel importing would result in fines for restrictive practices. Yet we have no guts to protect our selves from the new self appointed Emperors who would impose taxes on us..

david.harbour
david.harbour

Companies are worried about risk. All of these predatory companies are seen as having the market share and therefore have been assessed as having a low risk. Alternatives have a lesser market share and are seen as high risk. Though as has been pointed out the reality is that the support we a supposedly payiong for is not very good. Whilst the accountants hold sway the immediate loss to productivity for changing a complete company over, the long term benifits do not enter the equation being used. It is a shame because the alternative are able to do just as much as the predatory ones. And as the WHO said in song "I won't be fooled again", I will continue to use the alternative. Dave

bwallan
bwallan

The main reason piracy is so profitable!

moldor
moldor

Leaving aside, for the moment, the arrogance of Robson and Marlow, one primary reason put forward for pricing disparity is the running of the Support infrastructure in Australia vs the rest of the world - only they don't tell you that it is outsourced to India/Malaysia/Philipines the same as everyone else. So there is NO additional infrastructure in the majority of cases. All these predatory pricing policies are doing is; 1. Increasing Piracy - people will pirate a piece of software that is ridiculously overpriced, and damn the support. 2. Force people to make their online electronic purchases from overseas They are probably the wrong way around, as denial of 2 will inevitably lead to 1. Personally, I will purchase from the overseas suppliers every time, based on price alone, for the same product. Support doesn't figure in the equation as most of the support infrastructure (if any) in Australia is sub-standard anyway.

Robynsveil
Robynsveil

... for the macros or whatever, there's always virtual machines. This is indeed a good solution for an industry that has an investment in Windows licences and solutions developed in Windows software. Nothing will happen in April 2014 that will cause the software to stop functioning: the so-called support (plugging holes in swiss cheese) was never that effective (recently a doctor's surgery was hacked and their data held to ransom not far from here, evidence that all the MS Windows updates in the world couldn't protect that business). Keeping XP running in a Linux-hosted virtual machine would extend those licences indefinitely and create an infinitely safer, more secure environment to conduct your business in.

Robynsveil
Robynsveil

I don't think so. This is not a VAT issue, mate... this is the Apple/MS/Adobe triumvirate gouging us, laughing about how foolish we are as they cart off our hard-earned to the bank. I had a patient yesterday to whom I mentioned I refuse to use Microsoft products, to which he gave me a quizzical look. "Is there any other choice?" Most Aussies don't realise there are choices. I'm doing my bit to further FOSS by "fixing" older (1-2 years old) laptops by making them dual-boot, much to the delight of the owners who thought the laptop had already reached its use-by date. I'm doing this on my own time, for free. This is my contribution to the community. For the OS, yes, there is an excellent alternative. Unfortunately, there is no such alternative for Photoshop. I use and know the FOSS answers to PS... there is no alternative to Photoshop. Yet.

HAL 9000
HAL 9000

The difference is that as a 1 off you are likely to get away with it but if it's a business you are in a world of hurt. One company here in AU bought OEM Product from Microsoft in Singapore imported it into Au and sold it cheaper than the same product could be sourced in AU. The result they where issued a Cease & Desist Notice from Microsoft and when the ignored it they where taken to court and found guilty of Piracy. Apparently selling product that the company willingly sells you is not allowed unless the Originating Company is happy with you on selling it. ;) Col

Burnsie61
Burnsie61

Selling Windows cheaper than Microsoft is not the correct approach, MS own and develop their products, so you have to go to them for their products, either directly or via a reseller. Comparing this to cars, if you don't like Ford, or Ford's cars then don't but a Ford, go to another car manufacturer. So, if you don’t like Microsoft, or its products, for whatever reason, don’t buy Microsoft. This is easy in their software products, such as Office, where there are many alternatives, some free, but not so with Windows, but who actually buys windows? Perhaps it’s different in Aus, but when we buy a PC, laptop or tablet we get the OEM version of Windows bundled in. I have never upgraded a personal machine for 2 reasons; cost, and the inability of older machines to run newer versions of Windows effectively. I have installed various flavours of Linux on an old machine to give it a new boost of life, and even my IT illiterate wife managed to use Linux with very little help. It is, however, very difficult to buy a machine without Windows on it, unless you buy an Apple. But with Chromebooks and even Android notebooks appearing on the market now I would expect that to change over the next few years. Now that may force Microsoft to drop its prices.

HAL 9000
HAL 9000

So in the case of Adobe it doesn't matter where you buy it from you still pay AU Prices that was exactly why the inquiry was started. I also notice that none of the TV Stations telecast the appearances live and even though the participants from Industry where Subpoenaed to appear as they didn't want to be involved to begin with. The reality is that in many cases it's cheaper to fly to the US 1st Class buy the software and return to AU than to buy it on line. Col

Editor's Picks