Thursday, July 26, 2001

Bundling and anti-trust In Craig Mundie's infamous anti-open source rant, he claimed that the Internet has made people used to getting things for free. And as the online advertising market withers away, publishers are moaning that people are used to getting stuff for free because of the Internet.

This is false. Microsoft accustomed people to getting stuff for free long before the Internet. When I buy my computer, it comes with an operating system, a browser, a word processor, an email client, a spread sheet etc. etc. etc. Through bundling, the "price" of the software is hidden from the consumer, and so experientially speaking, the software is free. (Why experientially? Well, the price of the software is built into the price of the machine, and I never had to evaluate whether I want something or not, never compare different products to see which one is best value for money, etc. etc. Essentially, as far as the purchase experience goes, the software comes free with the computer).

Microsoft bundles software to maintain its monopoly. Even though their software is pretty bad, it isn't bad enough to be worth replacing for the home user (this is not true for the business user, but most businesses are clueless about how to use computers). Hal Varian describes the economics of bundling in this article (NYTimes subscription needed)

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