BUBBLING OVER

Dick Pountain/25 August 1998/Idealog 49

Question: how many Microsoft programmers would it have taken to write War and Peace? It would be nice to have a hilarious (or even informative) answer to that but the bathetic, nay pathetic, truth is that I don't have clue. All I do know is that it only took one Tolstoy. Why raise the question at all then? In short, because software pricing is a subject that's intrigued me since my earliest days in this business. I've written several previous columns about free software, shareware and other matters relating, but I've always skirted around actually spelling out explicitly what I believe to be true, which is that most computer software is grotesquely overpriced.

Overpriced compared to what, you might ask? Well, compared to all the other forms of software that we consume regularly. Take music for example: a CD containing an hour or so of music costs me around £10, and half that in a discount store. You might protest that a music CD won't do my accounts for me, and you'd be quite right. I'm happy to admit that I'm comparing apples to oranges, but only because I'm trying to get some feel for the overall price of fruit-like objects. So let's keep going. A book (which might indeed help you to do your accounts) is likely to cost between £10 and £30 - though admittedly some technical titles do sell for more. Broadcast television programs cost you a £90 licence for a whole year's worth, while videos cost around £10 to £20, or a couple of quid to rent. A visit to the cinema costs around £5, and to the theatre from £20 upwards. And so on, and so on.

So why do commercial software products typically cost over £100, and often more than £500? Is it that the cost of goods is so much greater than for music, books, and movies? Clearly not: most software nowadays comes on a CD which costs precisely the same to press as a music CD does, and if it has a paper manual with it that costs no more than a similarly sized book would to print. What about the cost of reproducing the software. The most unique, glorious, and surreal property of software is precisely that it costs almost nothing, a few milliwatts, to copy, which is why it's so easy to steal. Paperback book piracy is not entirely unknown, but it has never been something that ordinary citizens did, because even with a Xerox machine it is too damn expensive.

So is it, as Karl Marx thought, the amount of labour that goes into writing software that justifies its price? Yes, to some extent, in that a software company's primary expense is the cost of employing programmers, but that still isn't the whole truth. Tolstoy put a fair bit of work into War and Peace too, but I can buy that in Penguin for £7.99. Sure, it hasn't been upgraded since Tolstoy wrote it - it's still version 1.00 - but I can live with that. Could it be that book authors and publishers get by on smaller profit margins than software companies can command? Let's look the world's most profitable companies and observe the relative rankings of book and software companies: what's this, Microsoft right up there at the top! Hmmm...  

The dedicated free marketeer has an irrefutable answer, namely that the price of software (like every other price) is what the market will bear, and there is a sort of tautological truth to that since clearly Microsoft Office couldn't be sold for £180 unless people were prepared to fork out that sum for it. My interest (which a free marketeer would consider irrelevant) lies in just what makes Office seem worth 20 times more than War and Peace. The most promising answer to that lies in its use-value; installing Office onto a PC is perceived as making the PC more useful.

Where computer business software differs from those other forms of software that I compared earlier, is that it's not just 'content', to be passively played like a record or a video, but actually alters the function of the PC, turning it into a writing machine, or a drawing machine, or a data storage machine. That being so, maybe the price of software should be compared with typewriters, filing cabinets, drawing boards and other office equipment. Actually that still doesn't answer the question though, because you must then ask why people tolerate the fact that such functions are not included in the original purchase price of a PC. Certainly many naive, first-time users I meet are shocked on discovering how much extra they are expected to spend on software.

In the end, the current pricing of commercial software is a bubble, created by imperfect competition and inadequate consumer information (for which we journalists cannot avoid some blame). And it has only been sustainable because we've been living at the tail end of a period of inflationary economic expectations, where people expect prices to continually rise (and their incomes to rise even faster) and so spend freely showing little price resistance. There are now ominous signs that - triggered by the Far East crisis - we may  for the first time in 30 years be entering a period of genuine deflation, with real prices in the shops falling (indeed the PC hardware industry has been into deflation for some time, with scary results on  profit margins). If that comes to pass, inflated software prices cannot stand for very long, which might go some way to explaining why certain Microsoft directors have been selling their stock recently (only a billion or so you understand).