January 24, 2007

Dollars and Euros: Here comes the IT Dollar

US software company have a strange concept of the currency. If Borland often used a 1:1 ratio, Microsoft is reaching new heights with Vista.

10 years ago, to explain why a book published in the US would cost twice as much when reaching Europe (while authors used to get a much smaller stake in royalties) people in the business referred to the "booksellers dollar", a currency only vaguely related with the actual US dollar and its rate exchange. The bookseller dollar was generally worth 1.5 times the US dollar.

Now we can probably use a new term, the software dollar or IT dollar. Over the last 5 years, while you needed one dollars and 20 to 30 cents to buy a Euro, most software companies used a 1:1 ratio. A recent case was InterBase 2007. I saw a slide with the US pricing and one with the Euro pricing, and they were identical, but the currency symbol. This means InterBase 2007 is 30% more expensive in Europe than in the US. But Delphi pricing is based on a similar rate: if you open shop.borland.com and (for example) shop.borland.it, you can see for yourself that prices are identical but the currency. Again, Delphi is 30% more expensive in Europe than in the US. Can someone explain me why? Of course there is no shipping, as Delphi boxes are produced in Europe as well.

Apple is another company well known for using the same 1:1 rate exchange for its iPods, iTunes songs, Macs, but many other follow the same nonsense rule.

This is nothing, however, compared to what Microsoft is doing (or trying to do?) with Windows Vista. If you look at this US page you can see that the suggested retail price for Vista Business is $299.00 USD, with the upgrade at $199.00 USD. Now if you go to the Italian page (but I guess this is the same all over Europe) you can find out that Vista Business street price is expected to be 499.99 Euro with the upgrade at 299.99 Euro. At the current exchange rate, for the full version this means paying 650 dollars instead of 299, more than twice as much. The next time Microsoft complains about software piracy in Italy, I know who is to blame...





 

11 Comments

Dollars and Euros: Here comes the IT Dollar 

Well said Marco. The same thing has applied in Europe 
for years to thing like CDs and DVDs as well. 

Only the dawn of the internet, and shops like CD-WOW, 
who reduced prices dramatically, saw the prices of 
these goods come down at other internet retailers 
(such as Amazon). The high-street has only cottoned 
on within the last couple of years.

It needs someone to do the same with software.
Comment by Jason Sweby [http://www.carval.co.uk] on January 24, 13:00

Dollars and Euros: Here comes the IT Dollar 

They know Europeans are used to pay more for some 
goods. 

Maybe the EU should give a deeper look at it, 
instead of playing with Windows Media Player. But 
more expensive products mean more VAT... and I guess 
no government would like a price reduction.

Moreover in the US they are "suggested" retail 
prices, it will be easy to find rebates, while in 
Europe rebates are rarer.

Maybe MS does not feel open source pressure in 
Italy? At €600, Vista Ultimate cost as much as a 
PC...
Comment by Kent Morwath on January 24, 13:18

Dollars and Euros: Here comes the IT Dollar 

>Can someone explain?

Importtaxes
VAT
Exclusive importcontracts
Ancient Europe habbits
...


TDaniel



Comment by on January 24, 15:17

Dollars and Euros: Here comes the IT Dollar 

TDaniel,

  I actually failed to notice that VAT is included in
the Microsoft prices I quoted for Italy, but even
deducting the 20% VAT, the price for Business Vista
becomes 415 Euros (or 534 US dollars) against 299 US
dollars. Still very unfair. I think "Ancient Europe
Habit" explains more...
Comment by Marco Cantù [http://www.marcocantu.com] on January 24, 15:43

Dollars and Euros: Here comes the IT Dollar 

There definitely may be some local government 
influences.

Why does milk cost twice as much in Hawaii as it does 
in California?  Shipping you say?  That accounts for 
maybe 2 cents.  The rest of the mark-up goes to local 
Hawaiian governments.  Hawaiians gouging Hawaiians.
Comment by Steve on January 24, 20:23

Dollars and Euros: Here comes the IT Dollar 

Probably Microsoft thinks that our europeans have to 
entirely pay the anti-trust sanction. That's not my 
case, as I will not upgrade for sure. 

The IT dollar really exists, even if you try to buy 
small components in internet you find 99% the 
exchange EUR-US$ is 1... and it's even worse, because 
there are no localization expenses, and the software 
is downloaded, you phisically don't receive nothing.
Comment by Roberto Icardi on January 25, 12:14

Dollars and Euros: Here comes the IT Dollar 

Hey Marco

"The Economist" magazine has long kept track of what 
they call the "Big Mac Index", which they use as a 
measure of purchasing ability. Similarly I saw a note 
somewhere the other day talking about the "iPod 
Index" which is the same idea but for iPods.

Which illustrates what this is really about: 
companies will charge what the market will stand. So, 
in theory, when deciding on a price for a product, a 
company will weigh their ability to increase the 
price against the ability and inclination of 
customers to go elsewhere to puchase it.

The Big Mac is a good example of a product that has 
lots of local competition from other local vendors, 
so you'll find that prices will change from burger 
bar to burger bar.

On the other hand, the option for Vista or CodeGear 
customers is to purchase their product from abroad.

In the case of Vista, there's a catch: I suspect that 
it's quite tricky to find a retail boxed version of 
Vista in Italian outside of Italy. So Microsoft 
Italia are in the useful situation of being able to 
charge pretty much what they like: and it sounds like 
they are, too. 

This should more than make up for the additional 
costs in localization, higher salary / company tax / 
employer taxes in Europe, which is the usual red 
herring trotted out as an excuse. Sure, for a 
relatively low volume product such as Delphi these 
costs do add to the cost-of-goods significantly; but 
for Vista? I don't think so.

CodeGear, however, haven't localised into Italian for 
a while now. So they use a "region coding" trick 
instead.

CodeGear product is generally marked in such a way 
that there is a "worldwide" version of a product and 
a "US" version. If you call for support on a US 
product in Europe, it used to be the case that 
support wouldn't be given. You'll also find it tricky 
to upgrade a US product to a world-wide upgrade 
version.

So I'm afraid the simple answer to your question "why 
is CodeGear software 30% more expensive in Europe" 
is "because it can be". At the end of the day 
there'll have been a business decision taken (most 
likely with lots of arguments internally) to price 
the product in Europe at the point where maximum 
profit would be reached, without too much cannibalism 
from US grey imports but with a markup on US prices 
as "that's what the market will stand". 

Ah, capitalism. It's a fine thing.

- J
Comment by Jeremy McGee on January 25, 15:07

Dollars and Euros: Here comes the IT Dollar 

 Hi, 

is it just me or the price has changed ? 
the euro price is only 450 Euro and not 500 euro as 
claimed ;-)

LOL
Yaron.
Comment by Yaron nahum on January 25, 16:50

Dollars and Euros: Here comes the IT Dollar 

Yaron, 
  yes, it seems they changed the page. Maybe it was
wrong. Most of the prices remain the same, though. the
problem is still there.

Jeremy,
  interesting analysis; in case of CodeGear, there is
no  localization, but they might keep prices higher to
account for higher distribution costs. And it is
probably true the market can stand these prices...
although I wonder how many more copies they'll sell at
a US-like price. Coupled with very limited volume
licensing options, current Delphi prices are
refraining many companies from upgrading all of their
developers. Same will be probably true for Vista, as well.
Comment by Marco Cantù [http://www.marcocantu.com] on January 25, 17:01

Dollars and Euros: Here comes the IT Dollar 

BTW. I recall a post of a codegear manager who 
explained to the German customers why they can't buy 
Explorer Upgrade: Stock issues at the German Borland 
office made Borland Germany decide not to sell the 
upgrades. So what happens often is this: Main office 
dictates a local office to buy their products (build 
stock) to increase revenue. Stock means extra costs 
and who is going to pay? 
An other aspect of course is the extra costs of 
maintaining a local office (staff, buildings, stock 
etc) in all those countries.
Comment by TDaniel on January 26, 12:26

Dollars and Euros Here comes the IT Dollar 

 This is not a real post. 
I am not able to find any clue how to localize a form
wich contains a  TFrame. Could anybody help me?
Comment by Erika on October 1, 15:31


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