Home of The Tiny Guide to

Monopolies and Market Shifts

A Computerworld article about Novell suing Microsoft brings to light the text of a 1997 email from Microsoft Office division chief Jeff Raikes to investor Warren Buffet.

Raikes wrote, “If we own the key ‘franchises’ built on top of the operating system, we dramatically widen the ‘moat’ that protects the operating system business. We hope to make a lot of money off these franchises, but even more important is that they should protect our Windows royalty per PC. … And success in those businesses will help increase the opportunity for future pricing discretion.”

Pricing discretion, of course, means price increases with the end goal of ‘monopoly rents,’ which explains why Windows and MS Office cost so much today.

Fortunately, these prices will be brought back to earth because of the competition provided by Linux, OpenOffice, et al. When the market switches from one software to another, it can happen very fast. Novell’s experience from 1994 to 1996 (quote below) will be Microsoft’s experience in the near future.

“Novell merged with WordPerfect Corp. in June 1994. In a related transaction at the same time, Novell purchased Quattro Pro from Borland International. The combined value of WordPerfect and Quattro Pro at the time of the transactions was more than $1 billion, according to Novell. Less than two years later, Novell sold WordPerfect and Quattro Pro to Corel for approximately $170 million.”

Warren Buffet was investing in Microsoft in 1997, but it’s unlikely that he’s doing so now!

Comments are closed.