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Thursday, 02 August 2012 06:58

That all-important vendor performance

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This week we have witnessed the unedifying spectacle of the government’s software pricing inquiry.

The inquiry found what Australians had long suspected – that we are being charged much more for software, hardware and even music downloads than consumers in many other countries, especially the USA.

The industry (that is, the vendors) have defended their pricing practices. It seems the differences are explained by a range of factors, neatly summed up in the AIIA submission:

“Costs associated with product and service sales in this market such as GST, customs duty and regulatory requirements such as consumer guarantees under the Australian Consumer Law which impose strict warranty requirements on suppliers and … add cost to their business, all contribute to Australian based product pricing.

“More generally the cost of doing business in Australia are higher than in many other countries including more costly retail lease rents and a more costly labour market with high wages. Some vendors have calculated that business costs in Australia are between 5-10% higher than any other in which they do business and these costs are passed on to consumers.”

Ah, but the inquiry found that Australians are being charged up to 80% more for downloaded music, and 50% more for Microsoft Office, even when downloaded. The AIIA is dominated by large multinational vendors, whose imprint is all over the industry submission (which has many American spellings – someone did not sufficiently edit them out). The AIIA again:

“In terms of downloadable software it is important to understand that whilst transportation, distribution and manufacturing costs may be reduced, other costs such as advertising, marketing, administration and support still apply and will be based on that specific countries (sic) cost of doing business. The price of downloads will still reflect the margins required to ensure the locally based arm of the business is able to maintain its presence in that country.”

I had to laugh at Crikey’s take on this. Canberra correspondent Bernard Keane, one of the more incisive reptiles in the national capita, commented on the industry’s idea that “consistent” pricing was important.

“I think we all agree -- we'd much rather pay more than be upset by the horror of inconsistent prices. How often have you gone to buy an electronic product only to be sent reeling from the store by the fact that the price has dropped 5% since you were last there? You wouldn't be able to take the kids shopping for fear of them getting upset by the alarming volatility of prices.”

The AIIA submission contains one telling comment: “The practice of price differentiation is a common business strategy necessary to maximise performance in a specific high-cost market such as Australia.”

“Maximise performance”. Does that means “maximise profit?”

Over the last week the airwaves and letters pages have been full of examples of Australians paying more for all sorts of things, from chainsaws to restaurant meals. Yes, it appears we do in fact live in a high cost economy.

But nothing I have seen explains price differentials on downloaded software of 50% or more. So some of it is higher Australian costs – but let’s not forget about maximising vendor performance.

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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire. He is one of Australia’s longest serving and most experienced IT journalists. He is author of the only definitive history of the Australian IT industry, ‘A Vision Splendid: The History of Australian Computing.’

He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time weekly IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.

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