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The price of Vista in the UK - some really, really bad maths

OK, so this has really got my goat - I read that there is a £100 difference between the UK and US prices for Vista Premium Edition, so I thought I would add my PERSONAL view on this.

  • Microsoft does not set the prices, the resellers do - some offer products at a loss to bring you in, some add plenty of margin because they believe the market can bear it
  • When comparing prices we need to do so on as close to a level playing field as possible - so no VAT & state tax etc
  • There is some difference due to the unusually high exchange rate - and using the market exchange rate rather than a normal punter exchange rate does not reflect the man on the street pricing
  • The figures stated don't seem to bear out in reality in my opinion

I found a typical story here:

UK customers face disparity and confusion over the pricing of Microsoft Windows Vista, Computing Which? has discovered.

Windows Vista Home Premium has a recommended retail price of $240 (£125) in the US.

But to buy the same software in the UK would set consumers back £220 – almost twice as much.

The process I will use is very simple:

Lets take an example - Vista Home Premium - I'll use two retailers I know online (I found cheaper in both countries)

www.dabs.com price - £182.30 inc VAT, so £155.15 excl

www.bestbuy.com - $239 excl taxes

Thomas Cook currency rate 1.87 dollars to the pound.

This gives us numbers to put into our equation -

The Best Buy product converts to £127.80.  So there is a difference between the two products - £27.35.  Add shipping, local cost differences etc and all of a sudden it becomes a much less important question as to where the money goes - VAT and other local costs soon make the real difference.  The £100 becomes just £27 once tax and a real price is taken (since the RRP is not actually provided by Microsoft in either country).

The best prices I found in both countries (using Pricewatch and Kelkoo) led to just a £11.55 difference before VAT.  Shopping around can make the difference.

 

ttfn

 

David


Posted Wed, May 16 2007 11:10 AM by David Overton

Comments

Simon Mitchell wrote re: The price of Vista in the UK - some really, really bad maths
on Wed, May 16 2007 11:18 AM
Hi David I subscribe to your blog but I find it difficult to work out why they are nearly always two liners with a link back to the blog page if you wish to read further. This makes it very difficult to read off-line. Are you wanting hits on your web site? thanks regards Simon SBSC
David Overton wrote re: The price of Vista in the UK - some really, really bad maths
on Wed, May 16 2007 11:30 AM

Simon,

This appears to be a problem with the software update - I am fixing so you should get the whole thing again (or at least a lot more)

Tim Long wrote re: The price of Vista in the UK - some really, really bad maths
on Thu, May 17 2007 12:07 AM
I decided not to simply take your word for this - after all you're a Microsoft employee and therefore potentially biased. However, when checking my usual supplier's web site, the first price I found online for Windows Vista Home Premium was £152.35 (£179.02 inc VAT). So that's pretty much on par with what you've said. I see this kind of comparison all the time in my hobby of astronomy. Telescopes look like they cost about twice as much in the UK compared to the USA, but when you work out what it would cost to import one, shipping, taxes, import duties, exchange rates - it's generally not worth bothering.
Andrew Lloyd wrote re: The price of Vista in the UK - some really, really bad maths
on Sat, May 19 2007 8:59 AM

Your comments are disingenuous David. Microsoft may not set their resellers prices down to the last penny but they set their own. By far the most popular outlet for purchasing a Windows Anytime Upgrade, for example, is by clicking the WAU icon within Vista itself (nice retail opportunity right there in the OS Microsoft). This takes you through to the WAU Direct service provided by Microsoft itself and administered by a German company, Arvato. My own research tells me that they are not selling at a loss and are only providing a license for the money for product you can buy OEM for much much less. As to retail products, Microsoft always has the get out clause that it does not sell its products direct and so it's not their fault. Yet we all know that if Microsoft told its resellers to not go above a certain price they would have no choice but not to. Some simple comparisons from a popular retail outlet with outposts in the US and the UK, namely, amazon. The first price American and the second the UK equivalent given in dollars. I used XE.com for the conversion rate, currently given as 1USD = 50.62pence. So: Home Premium FPP 215.99USD, the UK 355.51USD, Ultimate FPP 358.99USD, the UK 582.68USD. You seem too intelligent to defend these discrepancies as due to either exchange rates or the choices of Microsoft's various merchants. In large part it's due to Microsoft's own choices. Across the board Microsoft products cost less in the US period. By the way, I'm not an anti-MS person. Believe it or not I actually directly support some of their services to end users in my day job. But I bought my Vista as an OEM version. Their UK and European FPP prices are indefensible.

David Overton wrote re: The price of Vista in the UK - some really, really bad maths
on Sat, May 19 2007 12:04 PM

Andrew,

To start with I looked at Amazon and I have to ask, did you check taxes?  The US price is tax free while the UK includes VAT - I did a test purchase at both sites to check this, so we have an immeidate 17.5% difference in the two prices sorted out right there.

Microsoft has a global price strategy with everything, even in the UK, internally based on a dollar price.  We have customers and partners who trade globally and we do not have a per country price, nor would they accept anything that was illegal in terms of price fixing.

On the currency question, we have to plan agianst the currency markets to give stability in our price for the supply chain which means we do get something more like the retail exchange rate, not the markets rate.  The retailers would not like a price that changed every week or month, so the prices do not fluctuate that often while the exchange rate does.  If I used an exchange rate like say 1.92 (which is the 200 day moving average) or 1.77 (the 200 day average exchange rate at the start of Microsofts financial year) we get FPP prices more reasonable in the UK.

So what does all this mean?

Amazon US (excl TAX) Amazon UK (inc Tax) Amazon UK (excl Tax) Difference (£) Difference (%)
                   215.00                179.97           153.17
Exchange Rates                     2.00           306.33                           45.67 42%
 200 day average today                      1.92           294.08                           41.19 37%
 200 day average at start of FY                      1.77           271.10                           31.70 26%

You can see from the table above that while the UK prices at Amazon are still higher when converted, we are not anywhere near the £100 value, more like £30-£40. Now go to your Amazon site and add shipping and it is not really worth it.  Personally I can accept that the costs of doing business in the UK are higher than the US - having done both. That is the price difference bit answered.

On the setting of the price - I can assure you 100% that some people sell way above our supply price and some people sell at a loss.  I can also assure you that some people only make a few % on one version, but for another version they might make many times more.  On the research I did with Dabs and Best buy the difference between the two markets varied by 20%-42% depending on the version of Vista.  We don't significantly change the ratio of our prices between editions so you need to look for others on that.  I have plugged in all the Amazon US/UK numbers with a 1.92 exchange rate and this is what you get, between 6-48% price difference between the US or UK numbers or £6-64:

  Home Basic   Home Premium   Business   Ultimate  
  Upgrade FPP Upgrade FPP Upgrade FPP Upgrade FPP
UK Amazon                  65.96           163.48                         119.97           179.97          129.96           202.97          187.97           294.97
US Amazon                  94.99           179.99                         149.99           215.99          199.99           269.99          238.99           358.99
Exchange Rate 1.92 1.92 1.92 1.92 1.92 1.92 1.92 1.92
UK price - VAT                  56.14           139.13                         102.10           153.17          110.60           172.74          159.97           251.04
US Amazon in (£)                  49.47             93.74                           78.12           112.49          104.16           140.62          124.47           186.97
Difference (£)                     6.66             45.39                           23.98             40.67               6.44             32.12             35.50             64.06
Difference (%) 13% 48% 31% 36% 6% 23% 29% 34%

OEM vs FPP is about the rights you get with those products (the ability to move the product from one machine to another, where the support responsibility lies, virtualisation options, what you can change in a PC etc etc). Our OEM business is very heavily regulated as is the FPP comparison to it.

All in all, yes I wish the UK price were a straight translation of US:UK at current day to day exchange rates, but that is not true in almost any product in the UK.  As I said, bad maths - such as forgetting the 17.5% (or 19% for the Anytime Upgrade German Site) is just bad.  Having these different costs of doing business in different countries is not new, otherwise manufacturing would not be moving to China and so on.  This is what a world economy means in my humble opinion.

ttfn

David

David Overton wrote re: The price of Vista in the UK - some really, really bad maths
on Sat, May 19 2007 1:31 PM

I should just add that telling a retailer to sell a product below or above a certain price is (I am 99.9% certain, but not a layer) illegal and I am sure that people would be more than happy to take us to court if we did that.

Alex wrote re: The price of Vista in the UK - some really, really bad maths
on Sun, May 27 2007 8:19 PM

Hello, as for selling below a certain price - this isn't illegal. If it was above yes that is (I'm pretty sure). For example, look at Apple's iPod - £99 for the 2GB iPod nano. No one will sell above that price as people won't buy it - they know it's over the top. The same with the rest of their iPod range, although I don't think they do it with os x or their Mac product lines. I would think that they sell os x to resellers, telling them that they have to sell it for under a certain price though. Ofcourse, they sell mac os x on their store for £89 and £139 for the family - This is quite a lot cheaper than what most people pay for windows though! When you go over to ebuyer.co.uk you can get an OEM (for system builders only) copy of Vista Home Premium (www.ebuyer.com/.../123052) for £65.79 including VAT (17.5%). You can also go through google checkout and save £10 on that, so it would cost £55.79. This is almost exactly the same price as Windows XP OEM is on there - so ebuyer are definitely keeping the price down!

Myself, I don't see the point in upgrading to vista yet as I'm happy with xp (and a wee ickle bit of linux (mandriva/ubuntu)). I tried vista when it was beta, and liked it although it didn't run very well on my hardware - probably as I only have 512MB memory at the moment....and not being silly, but if Microsoft don't get their act together and start having some new ideas rather than just ripoffs of iLife apps (Windows Photo Gallery / Windows Movie Maker / Windows Calendar etc...) then I'm going to be going mac the next time I get a new computer (only had this one 3 years so probably another 2 - 3 years with this and get a new one when I go to 6th form or university).

Alex

David Overton wrote re: The price of Vista in the UK - some really, really bad maths
on Sun, May 27 2007 9:51 PM

Alex, telling people what price to sell to is not allowed - what they do as a business is maximise their opportunity by selling at the highest price they think their customers will pay.  On the "rip-off" features - this is a very long debate - who had it in beta 1st, who brought it to market 1st etc.  Microsoft works closely to ensure that we have a thriving 3rd party ISV community that provide choice on our platform.  Everytime MS brings something else into the OS it appears that people like the EU suggest it should not be done :-(  I've never seen Apple get the same level of questioning aroudn adding new features to the OS.

However, as I have said many, many time - if your current version of WIndows does everything you need and is safe and secure, stick with it. If you find yourself wanting in some buy, upgrade or go new.  As for the OEM, it is meant for system builders to use to build new systems.

ttfn

David

David Overton's Blog wrote Microsoft drops the price of retail versions of Vista significantly all over the world, but plenty in the UK
on Tue, Mar 4 2008 8:35 PM

I saw some people talking about this on the Yahoo groups and on the blogs, so thought I would do some

David Overton's Blog wrote Microsoft drops the price of retail versions of Vista significantly all over the world, but plenty in the UK
on Tue, Mar 4 2008 8:37 PM

I saw some people talking about this on the Yahoo groups and on the blogs, so thought I would do some

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