Tuesday, December 19, 2006


PPI Malarchy, Iraq's Economy, MSFT Hates Open Source

Talk about making a big deal out of nothing... the Producer Price Index went up and everyone is having apoplexy. Yet, when you look at the real data, which no one seems to do, on a year over year basis, the PPI is up 0.8%. Ugh!

The PPI is an index, and November 2006 was 159.7. In August, the reading was 162.1. So, since then the PPI has dropped by -1.5%. Seven of the previous 10 months were higher than November's 159.7.

It's just another reminder of these headlines that you'll never see because they won't sell papers and won't get people to tune into the 11pm news:
All of them are true except the last one. And that would be a big story because the newspapers would consider it to be bad news. Because if it was true, they'd actually have to do some real journalism.

Iraq's economy is booming! Starting from nothing creates high growth rates, but it shows that even a smidgen of economic freedom can go a long way.

Microsoft identifies open source software as a significant business threat
Our business model has been based upon customers paying a fee to license software that we developed and distributed.
Very few people realize this, but when you buy WIndows or Office, you technically do not own it, and MSFT has every intent of reminding you of that as often as possible with Vista and Office 2007.
Under this license-based software model, software developers bear the costs of converting original ideas into software products through investments in research and development, offsetting these costs with the revenue received from the distribution of their products. We believe the license-based software model has had substantial benefits for users of software, allowing them to rely on our expertise and the expertise of other software developers that have powerful incentives to develop innovative software that is useful, reliable, andcompatible with other software and hardware.
Then why does my computer crash or software lock up so often? Is that a feature?
In recent years certain “open source” software business models have evolved into a growing challenge to our license-based software model. Open source commonly refers to software whose source code is subject to a license allowing it to be modified, combined with other software and redistributed, subject to restrictions set forth in the license. A number of commercial firms compete with us using an open source business model by modifying and then distributing open source software to end users at nominal cost and earning revenue on complementary services and products. These firms do not have to bear the full costs of research and development for the software.
Liar liar pants on fire. OpenOffice is a good example. Sun Microsystems has put big money behind OOo, and in return, gets to sell it as StarOffice. They have R&D costs. Just because they found a unique way to get more out of them, last I heard, was called "innovation."
A prominent example of open source software is the Linux operating system. While we believe our products provide customers with significant advantages in security and productivity, and generally have a lower total cost of ownership than open source software, the popularization of the open source software model continues to pose a significant challenge to our business model, including continuing efforts by proponents of open source software to convince governments worldwide to mandate the use of open source software in their purchase and deployment of software products. To the extent open source software gains increasing market acceptance, sales of our products may decline, we may have to reduce the prices we charge for our products, and revenue and operating margins may consequently decline.
Consumers have not really seen reduced prices unless they buy MSFT software as part of a new computer, where the OEM licenses are comparatively cheap. But there, there is no competition for that market. Just try to buy a Linux computer from a major PC manufacturer. You have to go to one of the small custom builders to get that. A consumer building a computer on their own will end up paying $700-800 for Vista and Office2007, often more than the components they will use to build a decent computer itself.
Buying software except for the most narrow of specialty applications is starting to become dumb.

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