Consent decree over, Microsoft goes back to monopoly forced bundling

That didn't take long now did it?

Remember that pesky monopoly verdict against Microsoft that ended in a toothless consent decree? Would it shock you to hear that the second the DOJ’s eyes are off, Microsoft jumped right back to forced bundling to stifle competition?

No, we are not talking about the locked bootloader that Microsoft is mandating its partners use on any WART (Windows ARM RT) device, this one is more devious. Remember how Microsoft bundled Internet Explorer with Windows 98 by force, making it non-removable and mandatory, in order to crush the life out of Netscape? They are doing it again with Office, but this time it isn’t ‘free’ you have to pay full price for it, and the target is iOS and Android. Luckily, the last vestiges of that pesky consent decree expired a few years ago, and at least in the US, government oversight is openly purchasable.

What am I talking about? When SemiAccurate was at Computex a few weeks ago, we confirmed the rumors that Microsoft is asking $80-90 for WART licenses from OEMs. That is a lot, infinitely more than what Apple and Android licensees pay. How can they justify this when a full blown copy of Windows 7 costs large OEMs only $35 or so? Two to three times that is a lot for a cut down version, especially in a market that is as price constrained as tablets. That kind of BoM premium makes a massive difference to end user pricing, rising yet farther when you have to pack more hardware in to support Microsoft code bloat.

For an end user, the MSRP of Windows 7 Home Premium OEM is $99 at many online stores. That means that if you are a Dell/HP/Lenovo class buyer, as any decent WART tablet maker would be, you pay about 1/3 of the retail price for the same sticker and OS license. Fair enough, that is about par for the course in OEM software volume sales. This means OEMs selling the x86 version of Surface will pay about 40% of the Microsoft tax that their ARM based brethren do for WART. Bear in mind that WART is a subset of Windows 8, it has only a fraction of the capabilities that the full Windows does, yet costs more than twice as much. That seems strange, very strange, but luckily, there is a good explanation for the difference.

That difference is Office, WART has it bundled for ‘free’, Windows 8 does not. It may seem like an odd choice, but Microsoft is indeed bundling Office Home & Student RT 2013 with every WART license. There is no other option, take both or nothing, even if you are a Tier 1 OEM. While Microsoft has not commented on the matter, anyone want to place bets on whether it is uninstallable or “integral to the functionality of WART”? Me neither, but even if it is, Microsoft still gets paid for a full Office license.

Currently, Office Home & Student 2010, the latest released version, costs $119 from multiple online vendors. This is for a one license downloadable version, the copy with CD and three licenses costs $129. If you take the same 1/3rd multiplier that retail buyers of Windows 7 OEM licenses have vs large Tier 1 vendors, that would price a volume key for Office Home & Student 2010 at about $40 for Dell et al. It may be off by a bit, but that is the right general ballpark according to SemiAccurate’s sources.

So, if you take $40 for volume Office Home & Student 2010 (OHS), add it to the $35 for Windows 7 Premium OEM volume license, you get $75. If Dell, Lenovo, HP, and other massive players pay $75 for the two separately, you can be damn sure that the smaller Taiwanese vendors, lets call them Tier 1.5s, pay a bit of a premium over that. Anyone think 10-20% would be out of line? While it is just speculation, that puts the two licenses dead on top of the rumored $80-90 cost for a WART license with the attendant forced OHS-RT 2013 bundle. What a strange coincidence, don’t you think?

So basically, Microsoft is at it again. They can’t compete on a fair playing field, so they are leveraging their monopoly to force vendors in to excluding, or at least paying ‘full’ price for their software. Anything the vendors want to include, should there be any left by the launch date, has to ride on top of that. Actually, it has to ride on top of the WART bundle AND can only be sold through Microsoft’s store, for which they get a 30% share, not to mention the ability to shut down competitive products on a whim. Monopolies are a nice job if you can get them, or is it keep them?

Why does Microsoft bother? Tablets are basically always online, either via 3/4G or WiFi, they are pretty close to doorstops without network connectivity. Once you have a network, services like Google Docs and other attendant office-suites-as-a-service options are quite compelling. Free vs paying $125 per device isn’t a tough choice for the overwhelming majority of mobile users. If you look at phones, the only ones that have Office, the Microsoft version of Office that is, are WinCE/Windows Phone 7. With their mobile OS sales in the low single digits and dropping rapidly, Microsoft can’t afford a repeat on tablets.

Because Office is Microsoft’s last remaining monopoly leverage point, they aren’t shy about abusing it. They won’t make Office for the iPad or Android because then there would be no reason for anyone to even consider buying a WART device. Instead, they are waging a massive PR war about how iPads and Android tablets are not suitable for business, only WART is. Or will be someday, but until then, don’t buy the competition if you even consider Office necessary. MS Office once again, not those pretenders that cost far less and don’t lock you in.

So they are once again abusing their monopoly to make sure that if you want Office, you HAVE to buy a Microsoft WART tablet. Only Microsoft controls what platforms Office goes on, and however much sense it makes to put it on OSes other than WART, and however much money that would bring in, there is no way they will allow it to happen. Monopolies are not only for shutting out potential competition, they are also about self-protection, and Microsoft is quite aware of this.

Convenient, eh? And don’t forget, the last time they tried this, quite illegal too. This time, it may or may not be legal, but the monopoly leveraging tactics have not changed a bit. Microsoft management may be incompetent and unable to comprehend the mobile space, but they sure don’t change. WART plus a forced Office bundle is nothing more than Windows 98 plus Internet Explorer, only this time you are paying full price for both. If you want proof that Microsoft is absolutely lost in the mobile space, now you have it.S|A

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 Consent decree over, Microsoft goes back to monopoly forced bundling

Charlie Demerjian

Roving engine of chaos and snide remarks at SemiAccurate
Charlie Demerjian is the founder of Stone Arch Networking Services and SemiAccurate.com. SemiAccurate.com is a technology news site; addressing hardware design, software selection, customization, securing and maintenance, with over one million views per month. He is a technologist and analyst specializing in semiconductors, system and network architecture. As head writer of SemiAccurate.com, he regularly advises writers, analysts, and industry executives on technical matters and long lead industry trends. Charlie is also a council member with Gerson Lehman Group.