This is a bit crazy, but an interesting idea. Over at the Seattle Weekly, Mark Fefer is arguing that a California law makes the way that Microsoft is going to handle WP7 illegal. Wait, what? Okay, here’s how it goes. In California, it is illegal “to sell any article or product at less than the cost…or to give away any article or product, for the purpose of injuring competitors or destroying competition.” This came about from a newspaper deliberately significantly undercutting an opponent, and taking a major loss, in order to damage them.
The logic is: Microsoft is spending a huge amount of money on marketing and development, and the licensing fee is so low, that they will have to sell tens of millions of units to make a profit. In other word, they’re selling products at less than cost in order to make in-roads on the market, and unseat Android and iOS from their comfortable positions. Seeing as Microsoft is inherently trying to defeat them, it’s possible that the whole situation is illegal.
I have no idea how accurate this is, or if it’s even the correct interpretation of the law, but it’s certainly an interesting thought experiment, as this type of marketing is extremely common in the tech world.
The iPhone sold at a loss when it first came out, and for some period after its release.
Andy Vulhop says
That’s pretty ridiculous. XBox 360 and PS3 are sold at a loss, and this law never applied to them. They weren’t trying to explicitly damage the Nintendo Wii, they are looking to make a profit, but have to take a loss to gain a market share. It’s strategic. They make their money on software.
Microsoft rakes something like 30% of any app purchase. That’s a considerable profit if they can make enough inroads into the market with a phone that is affordable enough to get people to buy it.
That’s not even counting anything they manage to make off of advertising on the phone. No idea what that will look like, or if that will even be a part of WP7, at least at launch.
It is almost impossible to sell any handheld device for cost and the strategy of underselling is very common. The PS3, for example, would actually loose money if people didn’t go out and buy some games shortly afterward.
I suspect the interpretation of the law is incorrect, but if it was that way it would compromise a companies ability to compete and nobody wants that to happen.
yet another example of knowing just enough law to get yourself in trouble. Laws like this target retailers. For example, Wal-Mart can’t move into a town, drastically undercut the MSRP on its products to drive local establishments out of business, and then hike prices after it’s the only game in town.
There’s no analogy for the producers of a product. WP7 isn’t a commodity that Microsoft’s competitors also sell. Google just sells a competing OS, not WP7.
Um… pretty much all cell phones are sold at a loss- especially pay-as-you-go phones. Carriers subsidize phones in order to bring in revenue through contract plans.
Hate msft much? Lol…If, “In other word, they’re selling products at less than cost in order to make in-roads on the market” how is it “that they will have to sell tens of millions of units to make a profit?” See, it is not the fact that is has become “fashionable” to hate on Microsoft, but the fact that people don’t even know what they hate. Let’s see, less than cost is a loss (negative). I don’t care if they sell ten BILLION units, they will never profit from the licenses itself. The profit will have to come from another revenue stream… app sells, ads, etc. And many companies practice this. Give an item away for free (or at less than cost) and charge for the disposable accessories. ie. Give away a Gilette Razor and charge for the Blades. It’s called Freebie Marketing.
Also, isn’t google giving away their android os for free? I’m sure free is less than the initial cost of purchasing Android, Inc. And don’t you think Android is Goole’s effort to defeat the iPhone and the BlackBerry?
Christopher Meinck says
Even if they sell at a loss, let’s remember there is some revenue that will come from having Bing installed on every WP7 device. Ads and such.
Anthony Lee says
Microsoft doesnt sell phones, they selling software licenses. And their licenses actually cost more than Googles not less.