Vista Production Cost Question

[Gibby82]

Does anyone know or have knowledge of where one could find the actual production cost of ONE Vista product. I'd like to see what kind of profit MS is making.

(What I'm looking for: one box-sold for $300-costs MS $XXX to produce)

[Catweazle]

If you are referring to the specific cost of manufacturing one Vista disk and its packaging then that isn't a valid comparison or indication of profit margin. The costs of years of development need to be factored in, as does advertising costs, distribution costs etc etc etc.....

I'd doubt if MS sees any 'profit' on Vista for quite some time yet!

[Grimlaking]

MS learn from Xbox.. licensing is the money!!! ;)

[bbz_Ghost]

It's simple:

Take $15 billion in 5 years of Research & Development costs, divide that by the sheer number of retail products being sold, work out the logistics and variables of the supply chains, etc...

Even simpler:

It's worth every penny if you're actually paying for it. If you get it free (legitimately), you're way ahead of the curve. :D

1) MAKE PRODUCT!!!

2) DISTRIBUTE PRODUCT!!!

3) ?????

4) PROFIT!!!

hehe

[Gibby82]

If you are referring to the specific cost of manufacturing one Vista disk and its packaging then that isn't a valid comparison or indication of profit margin. The costs of years of development need to be factored in, as does advertising costs, distribution costs etc etc etc.....

I'd doubt if MS sees any 'profit' on Vista for quite some time yet!

By production I meant all of that-from cradle to grave. I started to do some math with a friend last night and got something like 200 million a year income. That number was found by taking the number of PC's sold last year (at least what I could find) and multiplying it by the lowest costing product-Home Basic at $200 a full version. It was last night and I could be off, but my biggest question was if it was good data (pcs sold) to begin with. Of course I realize there are many other factors....just started there and wanted to keep it simple at the time.

[Gibby82]

I'm just wondering how MS sells it's bottom of the barrel OS at $200 while something like Linux is free. I want to see the numbers and see if MS is losing money or it's overpriced. And I think spending $15 billion on r&d is just plain BS-how much research do you need to do when you've produced the primary OS for a majority of the world for 20+ years. Especially when you steal or use existing ideas.

[bbz_Ghost]

Also figure in the cost of 30,000 copies of full retail editions of Vista Business that were given away for free recently from the PowerTogether promo, as well as another 30,000 copies of full retail editions of Office 2007 Professional in the same promotion, so that's...

30K x $299.99 retail + 30K x $499.99 = $23,999,400 sooo...

$24 million in product given away for free, and that's just counting those giveaways. On Launch night in NYC every participant got those nifty "goodie bags" with free copies of the retail boxed editions of Vista Ultimate at $399.99 a pop plus a horde of other stash for free, sooo...

Give or take $30 million so far in free stuff and who knows how much spent on the "WOW" advertising campaign and... well... it keeps right on adding up.

Overpriced? Like hell it is...

As far as Linux is concerned, there's no company willing to take a stand with any distro and just bet the farm on consumers and with good reason: it would fall flat on its face because of the complexity involved with using Linux distros for Joe Average.

No matter how many threads, no matter how many forums, no matter how many Internets protest it or try to deny the most basic truth of all, it doesn't change anything:

Linux is not for Joe Average.

Windows is, and Microsoft banks on that.

[Catweazle]

For goodness sake. The payroll costs alone during the Vista development cycle have been in excess of $US10 billion. The figure mentioned above of $15 billion is probably conservative. That's a helluva lot of units to be sold before any profit is realised, and people should remenber that most copies sold during its lifespan will be OEM and volume licenses!

[Gibby82]

Also figure in the cost of 30,000 copies of full retail editions of Vista Business that were given away for free recently from the PowerTogether promo, as well as another 30,000 copies of full retail editions of Office 2007 Professional in the same promotion, so that's...

30K x $299.99 retail + 30K x $499.99 = $23,999,400 sooo...

$24 million in product given away for free, and that's just counting those giveaways. On Launch night in NYC every participant got those nifty "goodie bags" with free copies of the retail boxed editions of Vista Ultimate at $399.99 a pop plus a horde of other stash for free, sooo...

Give or take $30 million so far in free stuff and who knows how much spent on the "WOW" advertising campaign and... well... it keeps right on adding up.

Overpriced? Like hell it is...

As far as Linux is concerned, there's no company willing to take a stand with any distro and just bet the farm on consumers and with good reason: it would fall flat on its face because of the complexity involved with using Linux distros for Joe Average.

No matter how many threads, no matter how many forums, no matter how many Internets protest it or try to deny the most basic truth of all, it doesn't change anything:

Linux is not for Joe Average.

Windows is, and Microsoft banks on that.

Ok, I realize they spend a TON of money. However, I highly doubt MS would create an OS and lose money. Here's the deal-they'll replace this in about 5 years right? Well, if we do the calculations I'm thinking there is no way they'd make the money back. So...what's the deal?

Secondly-I'm NOT a fan of Linux. However, it's FREE. That's my point. Two OS's-one costs hundreds of dollars-the other is free.

[Gibby82]

For goodness sake. The payroll costs alone during the Vista development cycle have been in excess of $US10 billion. The figure mentioned above of $15 billion is probably conservative. That's a helluva lot of units to be sold before any profit is realised, and people should remenber that most copies sold during its lifespan will be OEM and volume licenses!

Look-if this bothers you....go somewhere else. I'm just asking some simple questions. I realize all of that. But why in the hell would they spend this much to make something and not be able to recoup cost by the time it's replaced by the next product? Doesn't make any sense. Especially for a company as wealthy as MS.

[Catweazle]

At $200 per unit license they'd need to sell 75 million licenses to recoup $15 billion. At a guess I'd say that would be achieved by half-way through the Vista product lifespan.

[SuperSubZero]

I'm just wondering how MS sells it's bottom of the barrel OS at $200 while something like Linux is free. I want to see the numbers and see if MS is losing money or it's overpriced. And I think spending $15 billion on r&d is just plain BS-how much research do you need to do when you've produced the primary OS for a majority of the world for 20+ years. Especially when you steal or use existing ideas.
Because MS has a global employee force that is working for Microsoft for the purpose of being paid so they can pay bills and live. Microsoft operates under what could commonly be called "capitalism."

Linux however is absolutely free (https://www.redhat.com/wapps/store/catalog.html;jsessionid=1fP17ULEmc9ge7tePisLXiCfQLhYaXmITVh. www01). Nobody makes any money (http://www.ubuntu.com/support/paid) off Linux whatsoever. Linux has no activation nonsense (http://www.novell.com/products/server/eval.html) and has free support (https://orders.pantek.com/Merchant2/merchant.mvc?Screen=PROD&Product_Code=LTSUP1&Category_Code=). Obviously Linux isn't bound by capitalistic ideology.

Windows is worth what it costs because if I sat my computer-illiterate friend in front of it, he could figure out how to use it. If I sat him in front of Linux, he'd be completely lost.

[Catweazle]

That's my new favourite post ever, anywhere!

[bbz_Ghost]

If you think Linux is free on the overall scale of things, you (whoever is reading this) has a lot to learn about costs... and I don't mean a "dollar value." :)

Errrmmm... after hitting post I realized that SubZero's very last line there pretty much covered it just as well as I did, if not better. BRAVO!!!

[drizzt81]

It's worth every penny if you're actually paying for it. The worth of Vista is likely going to vary between individuals and organizations. As such, it is impossible to say that "vista is worth every penny" for everyone.

On topic: the cost of product is very low, provided that the company reports R&D and personnel costs separately.

[Gibby82]

Wow, thanks for nothing guys.

[der_jackal]

Wow, thanks for nothing guys.

Well seriously, what exactly are you looking for?

15,000 people w/ an average salary of 80k yr working for 40 hours a week for 5 years divided by the wholesale cost of one copy of Vista?

Well add the nebulous years of R&D and 'preabmle' that were spent on it prior to the Windows division even starting to work on the OS code amongst any number of other elements that are added in to the production cost. It's hard to quantify w/ a x+y*z = $$.

[Gibby82]

I found some information that looks a bit more realistic than what I'd previously found. According to this article: Link (http://www.netscape.com/viewstory/2006/09/20/2337-million-pcs-to-be-sold-in-2006/?url=http%3A%2F%2Fblogs.zdnet.com%2FITFacts%2F%3Fp%3D11750&frame=true)
There were 239,000,000 PC's sold in 2006. Now, taking the price of Home Basic:

239,000,000 X $200= 47,800,000,000

Obviously Home Basic is not the only one sold, so we can only assume that figure will rise. So, I'm sure within the first year MS can cover it's production costs and the rest (excluding cost for after launch support, patches, SPs etc.) is profit. The question is how much?

Oh and let's get something straight-
-I know there are versions of Linux that can be bought, mostly for the support and updates. However there are completely free versions that function just as well. Quit splitting hairs and pointing out things I know but haven't posted because I didn't think I'd be judged by the F***ing detail police.

And by free I mean you don't pay a developer for a copy. How hard is that to understand? I MEAN IT'S FREE-no money transacted for a copy. Beyond that I know it's a pain in the ass for "joe average", and I know it takes time to setup. However my point is someone else develops an OS and DOESN'T charge for it while on the other hand someone charges a LOT for one.

Oh BTW, I understand capitalism and know the MS employees have to live. But MS paying 15 billion on R&D is BS. Look at Vista and XP and tell me what they researched for 15 billion. Does their ISP charge by the hour so they can browse Google for what Widgets they can use in Vista?

At any rate you folks have turned what should been a relaxed conversation into lets make fun of this guy because we think we are SOOOO much better. Again, thanks for nothing.

[general]

Mate, you might want to read up on monopolies. Look at the revenues and profits for the 10 biggest corporations in the world. Microsoft makes massive profits but doesn't have the revenues of the biggest companies. The reason for this is that it is a monopoly. The development cost of Vista gets spread out across every single copy of it that is sold/licensed. The true cost of what you're buying in the store won't be able to be calculated until Vista is done and off of the market. It will be a very small percentage of the price.

[djnes]

At any rate you folks have turned what should been a relaxed conversation into lets make fun of this guy because we think we are SOOOO much better. Again, thanks for nothing.

Because you're asking a question without putting any type of thought into if it's even logically possible to answer? Why not ask the meaning of life, or if intelligent beings exist on other planets? general summed it up very well, in that it's impossible to figure out at this point.

As far as why MS spent the money they did, all you have to do is some simple reading on your part. Read up on the Software Design Life Cycle. See if some smaller projects have theirs detailed online. Then take anything you find and multiply it by about a million, considering this is an operating system and not a little application.

Ask an irrational question, and expect irrational answers. That's common sense. Does it matter how much profit Microsoft makes? If you do find this magically elusive number, do you get some sort of discount on their products?

[Gibby82]

Because you're asking a question without putting any type of thought into if it's even logically possible to answer? Why not ask the meaning of life, or if intelligent beings exist on other planets? general summed it up very well, in that it's impossible to figure out at this point.

As far as why MS spent the money they did, all you have to do is some simple reading on your part. Read up on the Software Design Life Cycle. See if some smaller projects have theirs detailed online. Then take anything you find and multiply it by about a million, considering this is an operating system and not a little application.

Ask an irrational question, and expect irrational answers. That's common sense. Does it matter how much profit Microsoft makes? If you do find this magically elusive number, do you get some sort of discount on their products?

So looking for the financial and numerical facts of what is sold to me is irrational? How does that even compare to the meaning of life....

And it is logically possible to answer. Will the answer be more accurate in time-yes. But you can arrive at a number now.

Just forget it. I thought I'd have some help here but obviously I was wrong.

[Catweazle]

...At any rate you folks have turned what should been a relaxed conversation into lets make fun of this guy because we think we are SOOOO much better. Again, thanks for nothing.


Your notion that the development costs must have been low because they searched Google for Gadgets is ridiculous, by the way, but....


I haven't noticed anybody except yourself who isn't 'relaxed' in this discussion. It's been civil, and hasn't been an exercise in making fun of another. You've put up a contention for discussion, others have disagreed with the contention and, basically, slammed it. You get that! It ain't personal!

[griffinhart]

There were 239,000,000 PC's sold in 2006. Now, taking the price of Home Basic:

239,000,000 X $200= 47,800,000,000


You are starting with a false assumtion here. The $200 cost is the suggested retail price. Not what MS is charging. A compUSA or Best Buy will charge that, and you can bet they are making a profit on it. System builders use OEM copies which are significantly cheaper and the more they buy the cheaper it is. I can buy a copy of Vista Home Basic (OEM) from NewEgg for $95 and they are probably making a profit on that as well.

MS probably sells licenses to a Dell or other PC company for closer to $50 a license. That would bring tyour Dollar figure down by 75%.

[sovs]

I would go about it from the other direction.

2006 revenue 44.2 billion
2006 net income 12.6billion (margin 31%)

so assume 31% of the trade price of vista is pure profit.

If you want to subtract marketing & admin expenses you would need to dig further..
http://www.microsoft.com/msft/earnings/FY06/earn_rel_q4_06.mspx

As you can see the R&D (6.5billion) is quite a small fraction of revenue. So a 'ballpark' cost of development might be $20 or so.. If you scroll right to the bottom of that link there is some interesting stuff about xbox losing $600million. Really though you need more detailed accounts (maybe in the shareholders letter?) to give a better estimation

[Catweazle]

^

That'd be my fault. I threw some arbitrary figures in earlier in the topic, to demonstrate that costs would be recovered and a profit would be made, and failed to indicate that they were arbitrary figures. Sorry about that. I'd intended to dig up some more realistic figures and didn't get around to doing so.

The actual average unit cost will be much lower, as most copies sold are to OEM assemblers and volume license customers.

[bbz_Ghost]

See, the problem here, as expected, is that the OP is looking for a dollar amount in revenue for Microsoft and, well, that's simply not something we can honestly know since, as someone just pointed out, the retailers selling Vista (in the various editions) is really impossible to know. You can't base their revenues off the retail cost of a product as it sits on the shelf at Best Buy, Circuit City, etc.

When you go and buy Vista off the shelf, for example, you're not buying it from Microsoft - you're buying it from the retailer who's already bought it from Microsoft, hence the name "reseller."

You're keeping Best Buy in business, Circuit City in business, CompUSA, etc., it doesn't matter really, but the point is: you're not dumping your cash into Microsoft's pocket. In the big scheme of things, yes, somewhere down the line you can say you are, but the reality of it is you're not.

As for the $15 billion I mentioned, it comes from discussions with people that work at Microsoft, that work in the tech sector, that know a helluva lot more about this stuff (meaning Microsoft's revenue streams) than anyone - like me, and like you meaning the OP and the other contributors - that's posting on some damned forum on the Internet could ever fathom.

It tries to encompass everything from the payroll of all the people involved (probably the biggest chunk of the total, regardless) and a lot of other stuff.

The demographics research alone is phenomenal.

Microsoft did more face-to-face research with customers in labs and even sometimes in their own homes by supplying them with computers in the Nielson Ratings vein and monitoring usage and asking even more questions, on the order of 75,000 participants worldwide so... take your average PC these days that can run Vista adequately with onboard Intel GMA950 video (I'm just guessing here, so bear with me) and a 15" LCD flat panel monitor coming it at around a $500 price point, multiply that out at least 75,000 times and then factor in payroll for those persons involved in doing the research for all those participants...

Bleh.

It's not a dollar figure you'll ever be able to figure out or comprehend, and Microsoft certainly isn't going to let you have a gander at their books anytime soon. There's entirely too many variables to even ballpark such figures, so, my $15 billion for 5 years of R&D tries to factor in as much as possible.

Besides, it's a nice round figure, doncha think? :)

[Aratech]

No matter how many threads, no matter how many forums, no matter how many Internets protest it or try to deny the most basic truth of all, it doesn't change anything:

Linux is not for Joe Average.

Windows is, and Microsoft banks on that.

Well said.

Ask an irrational question, and expect irrational answers. That's common sense. Does it matter how much profit Microsoft makes? If you do find this magically elusive number, do you get some sort of discount on their products?

Lol.

You guys are awesome.

[sovs]

well these things are interesting to know..

Ok from http://www.microsoft.com/msft/reports/ar06/downloads/MS_2006_AR.doc

go to page 70, note 18. it actually breaks down revenue by segment. the 'client' segment is actually the o/s, and pulled in a cool $13billion revenue. and it's income on that segment was $10billion.

so what does that mean? it means 10/13 or 76% of the cost of your o/s is profit. (yes thats after r&d and capitalised r&d and the cd and the box etc etc etc).

which I think everyone here knew anyway. the stuff that is actually interesting is the money that microsoft loses on xbox.:eek:

[drizzt81]

well these things are interesting to know..

Ok from http://www.microsoft.com/msft/reports/ar06/downloads/MS_2006_AR.doc

go to page 70, note 18. it actually breaks down revenue by segment. the 'client' segment is actually the o/s, and pulled in a cool $13billion revenue. and it's income on that segment was $10billion.

so what does that mean? it means 10/13 or 76% of the cost of your o/s is profit. (yes thats after r&d and capitalized r&d and the cd and the box etc etc etc).

Thanks for pointing that out. It may be noteworthy that a large amount of the expenses for Vista were incurred in the past. Spending $3 billion in 2002 requires a significantly greater income in 2007 in order for shareholders to be happy. But yes, MS makes a lot of profit on their product, though it's not really a secret, is it?

[sovs]

I'm no expert at financial statement analysis, but I think when you amortize r&d (as you would for vista development) you do it at the 'average cost of capital', which would be pretty low for microsoft (~4-5%), so the 2002 vs 2007 real cost would be similar, although as you quite rightly point out, the investors might be imagining (hoping) they'd get 10% yield on the r&d..

Anyway, there is one last number to plug in.

239million PCs (also in that link it states 60million new PCs had pirated windows), so we'll say 180million.

13,000/180 = $72 revenue per pc.

24% is actual cost to microsoft, so thats 0.24 * 72 = $17.28

really we are playing with 2006 numbers so that is a more realistic figure for XP. But I would stick with the $20 ballpark.

[Gibby82]

sovs-thank you for your time and efforts. I truly appreciate it. I was fully aware that they made a profit, I just wanted to see how much and what the actual figures are.

[Catweazle]

... and none of the above takes into account after sales product support which, by the way, includes such things as the maintenance of the 'Knowlege Base' etc etc etc....

I've a rudimentary understanding of accounting principles as well. Enough, anyway, to know that they're more applicable to the calculation of taxation obligations than to anything else.

The original topic question has, if not openly stated, inferred that it is seeking an explanation of whether or not customers are being charged too much for a specific product. It is thus realistically a query about 'value' rather than about any esoteric concept of 'profit'. Accounting practices and procedures are definitely not the be-all and end-all of answering the question.

[drizzt81]

sovs-thank you for your time and efforts. I truly appreciate it. I was fully aware that they made a profit, I just wanted to see how much and what the actual figures are.

You will not be able to compute the actual figures until Vista is gone and support has been dropped, because you would have to know how many copies of Vista are going to ship in the future, which is uncertain and how costly it is to support Vista. Of course, MS suggests that all the security improvements will greatly reduct support costs, but who really knows. Do support costs vary strongly with the number of deployed copies or not? I mean writing a patch costs -about- the same whether it's for 10k or 10M systems. On the other hand, if there are 100M Vista machines, maybe more people will want to write virii for it and more problems will be found?

I think the whole idea is nice, it's a brain teaser and well suited for a ``case interview'' like many consulting companies like to conduct. However, in such an interview it's the approach that matters, not the result. You seem to care strongly for the result and I don't understand why that is? Please enlighten me.

[Gibby82]

You will not be able to compute the actual figures until Vista is gone and support has been dropped, because you would have to know how many copies of Vista are going to ship in the future, which is uncertain and how costly it is to support Vista. Of course, MS suggests that all the security improvements will greatly reduct support costs, but who really knows. Do support costs vary strongly with the number of deployed copies or not? I mean writing a patch costs -about- the same whether it's for 10k or 10M systems. On the other hand, if there are 100M Vista machines, maybe more people will want to write virii for it and more problems will be found?

I think the whole idea is nice, it's a brain teaser and well suited for a ``case interview'' like many consulting companies like to conduct. However, in such an interview it's the approach that matters, not the result. You seem to care strongly for the result and I don't understand why that is? Please enlighten me.

I've always known/assumed that MS was making tons of money. But I never wondered about actual number until recently for whatever reason. Plus I saw the prices for OS's and was a bit surprised. Nearly $400 for Ultimate? That's about the price of a low end computer (yeah it'd be crappy, but it's still a WHOLE system). I also started working tech support recently and support Vista....let me tell you, it's not fun. I've also learned a bit about it and used it for a brief period in training. I'm really don't think MS did that great a job. I've also learned more about Linux and seen it's different applications (I've seen a vid of Aero like desktops running on 256MB of RAM). It all just sort of clicked, and I was very interested in seeing the numbers for myself. I wanted to quantify what MS is doing. Overall, to me, it's not a good picture. Sure there's a lot to it....but the initial numbers we have here...well it seems to me they could sell it for substantially less and still make profit. I know that sounds crazy from a business standpoint....but at the same time how many billionaire executives is the public supposed to create from one product?

Basically it's like this. I can say I don't like MS all day long. I can say the overprice their product. But it really doesn't hold much weight, even if it's just for my sake, if I don't have some kind of factual data. I just wanted to know how bad it really was. And IMO it's pretty bad.

And as far as how many Vista machines will come into play-I know most if not all major system builders are shipping with Vista. Some charge extra to load XP. So I predict the number of Vista machines rising very fast.

One thing I noticed tonight on Newegg was that a retail copy of XP Pro-which would be bought in stores by most folks-is still $279.

[Gibby82]

The original topic question has, if not openly stated, inferred that it is seeking an explanation of whether or not customers are being charged too much for a specific product. It is thus realistically a query about 'value' rather than about any esoteric concept of 'profit'. Accounting practices and procedures are definitely not the be-all and end-all of answering the question.

This is true. From my time supporting Vista so far-it's not very valuable. I can't go into too much detail, but from my experience most don't like it. However the side I hear is biased-if they talk to me usually there is a problem. I personally don't think much of it. I think XP is great, but then again I'm more of a standard user. Someone who does more might think differently.

As far as the profit side-it's more of a moral thing with me. I think it's wrong that they can make huge profits on this product. Not because I hate MS, but now it's harder for "Joe Average" to buy a copy. Let's face it, a large amount of enthusiasts and computer geeks don't make the money to buy a copy of Vista for the X number of PC's they have. One could argue "they had the money for the parts" but we all know how things are traded, bartered and obtained. And then MS wonders why piracy is such an issue. That's not to say it's the only reason, but I'd say it's a major contributing factor. I'd gladly buy multiple copies if I knew it wasn't going to cost hundreds or thousands of dollars (I have 4 systems).

[drizzt81]

I've always known/assumed that MS was making tons of money. But I never wondered about actual number until recently for whatever reason. Plus I saw the prices for OS's and was a bit surprised. Nearly $400 for Ultimate? That's about the price of a low end computer (yeah it'd be crappy, but it's still a WHOLE system...

Well, the problem is that you are asking for a single number, as if that number has any significance. If you ``really'' want to understand how much money MS is making, it is important to not only look at one of their products, but at the company as a whole. Additionally, you will need to compare their figures to a similar company. After all, who is to tell you that margins of 73% are not common in the software development industry? I am sure that quite a few clothing designers work with cost of revenue/ revenue margins that exceed this.

As such, even if you knew the cost of Vista, it does little to put it in relation. I won't argue that MS has engaged in anti-competitive behavior, but simple ``overpricing'' a product does not qualify for DoJ anti-trust action.

To make a long story short, merely having the cost of a single Vista copy and its relation to the price of a retail copy does little to improve your credibility. At best you can pull of a McCarthy and do a little ``Here in my hand...'' speech. ``Overpricing'' is a weird word anyway and I am not sure what it is supposed to mean.

I suggest you have a look at this (http://homepages.stmartin.edu/fac_staff/bglass/Chapter07.ppt) which does a nice job explaining which price MS will charge and which price would be charged in a perfectly competitive industry.