IT Pricing Inquiry: A Recap Of Excuses

Apple, Adobe and Microsoft faced off against the IT Pricing Committee in parliament today to explain why they routinely overcharge Australians for products and services. Their litany of excuses makes for some amusing — and enraging — reading.

Laptop picture from Shutterstock

Last year, the IT Pricing Committee resolved to inquire into IT price discrimination in Australia in a bid to find out if consumers are being unfairly gouged on the prices they pay. After much toing and froing, the vendors involved have finally fronted up to a parliamentary committee to explain why they overcharge Australians. Here's a recap of the explanations made by each company: you be the judge.

Apple: Talk to the content owners

The first company to face Federal Parliament today was Apple. Apple’s local MD Tony King pointed the finger squarely at content owners for the pricing disparity of music and video downloads in Australia:

Apple must pay the rights holders to distribute content in each of the territories in which the iTunes store exist. The pricing of this digital content is based on the wholesale prices. They have often set a higher wholesale price than the price of similar content in the US . . . The retail pricing of digital content is based on many factors and foreign exchange is not a major factor. The main differentiator is the wholesale price.

“We would love to see lower prices for content on the Australian store, but we’d urge the community to talk to the folk who own the content to lower the price," he added.

When asked whether content owners should appear before the inquiry, King reluctantly agreed:

It’s difficult for me to walk in and talk on behalf of the labels, but a balance does need to be struck... Everyone should get their day in the sun, so to speak. If further questions come out of that, then we’ll be happy to reappear.

Apple was also questioned about its failure to appear before the Committee until now. King claimed the company's previous closed-door briefing to the inquiry had already been sufficiently productive.

On the hardware side of things, King pointed out that the price of its latest products in Australia were roughly comparable to the US (when factoring in US sales taxes which are not listed in the RRP). The physical size and shipping logistics of Australia also made it more expensive to transport products compared to other Asia-Pacific countries, King claimed.

King also noted that Apple doesn't actually set the price for its channel retailers — it only pushes a recommended retail price.

Interestingly, King also revealed that Apple's Australian business represents approximately three per cent of its worldwide revenue.

Adobe: Stiff prices translate to "personalised" experience

Next to face the question-firing squad was Adobe, which has arguably received the most heat from the media due to its massive pricing disparities. As noted by our colleagues at Gizmodo, it’s more expensive to buy certain pieces of Adobe software in Australia than it is to fly to the US and buy it there — return flight included.

Adobe Australia’s MD Paul Robson fronted the inquiry. According to Robson, Adobe has difficulty setting uniform pricing across the world due to the risks of developing software. The company's policy of restricting access to international online stores (AKA 'geoblocking') also came under the microscope. Somewhat weakly, Robson passed this off as an attempt to provide a "personalised" local experience.

At Adobe, we do redirect people to local sites to recover the cost of local operations and point them to information customised to their local market... The personalisation is relevant to the experience you get when online. One of our key interactions is to allow [customers] to talk among themselves and ask them to contribute to the future of our product.

Naturally, this excuse didn't fly too well with the Committee, which continued to grill Robson about the level of personalisation Adobe provides in its website and products. Robson added that the company does provide charity support and scholarship support to local communities.

More from Robson on forced website redirection:

If you purchase your Adobe product in the US, we’re not obligated to provide you a warranty. We want you to buy from us. The cost of running a business is high. That’s why we redirect customers to the local market page.

When asked whether the removal of geoblocking would have any affect on the company, Robson stated it would damage the contribution the ICT sector has on the local economy. Bold words.

Microsoft: If our product prices were unfair, people wouldn't buy them

The last cab off the rank was Microsoft, fronted by Australian managing director Pip Marlow.

Marlow acknowledged that the company had not polled Australian customers about the fairness of its local pricing, but went on to argue that different markets require different prices and the sales figures speak for themselves:

We don't set a global price for our products. We don’t believe that every market is the same. Emerging markets where the cost of living and the availability of technology is different has to be priced differently. At the end of the day, if we make a price too high in a particular market, customers will look elsewhere.

The Committee then confronted Marlow with a pricing sample of 47 Microsoft products, of which nearly 66 per cent are more expensive in Australia than the US.

Again, Marlow cited Microsoft's sales success in the country, claiming “if they don’t like it, they vote with their wallets”. Under repeated questioning, Marlow all but dismissed the main thrust of the inquiry, claiming: “You’re looking for one simple silver bullet. There isn’t one.”

The Committee then rattled off some Microsoft price comparisons between US and Australia. When lumped together, the evidence is pretty sobering:

  • Windows 7 Professional (US: $326, AU: $469)
  • Office 2010 (US: $356, AU: $499)
  • Word 2010 (US: $142, AU: $189)
  • Visio Pro (US: $570, AU: $900)
  • Visual Studio 2012 with MSDN membership (US: $12,000, AU: $21,000)

As the questions drew to a close, Marlow claimed Microsoft would "consider" using different pricing strategies as the company moves deeper into the cloud.

Closing thoughts

It doesn't appear much was resolved at today's hearing — but the Committee did drop some interesting hints as to what remedies they’re looking for when the inquiry concludes.

It's possible that the Committee may recommend a need for uniform prices for hardware and software by IT vendors, along with the prohibiting of geoblocking from online stores — though whether any of these recommendations will be picked up as legislation remains another story. Meanwhile, the Australian public continue to get rorted. Such is life.

Additional reporting by Luke Hopewell.


Comments

    Microsoft's excuse doesn't quite gel with me. Why don't they raise the price in the US using their logic? Being a bigger market (US), raising the prices there would mean more profit for MSFT. Why bother raising the price in a small market like Aus?

      It's based on competition. So the thinking is, there isn't as much competition from google and the many free office suits (Kingsoft Office make a great alternative to libreoffice in windows) for both desktop and mobile in Australia as what there is in the US.

      In the US things like wordperfect (or whatever the modern day equivalent of that is) still have some popularity and google has a stronger prescence there also.

      Because our median income and median income per household are both higher, and we have a lower proportion of non-sticky (read: casual users with highly elastic price-demand, so small changes in price will lead to large falls in quantity) to those who actually 'need' them (inelastic price-demand).

      Therefore, they rightly assume that we have a different shaped demand curve to US consumers, so they can choose a different price point to maximise revenue. Like every other business in existence.

      Or, I dunno, we could just cover our ears and shout AUSTRALIA TAX ZOMG and demand that the gub-ment 'does something'. Cause that's a sensible approach.

        Cheers for your explanation, that makes sense.

        How can we go forward and minimise Microsoft's monopoly then? Ban Microsoft products from being used in schools (even if they are free)? Then there will start to be graduates going into the work force with no Excel/Word/WIndows skills and the workplace will be forced to adapt?

          Well, that's the tricky part :) But, unlike most of the people bellowing for a legislative solution, you are on the right track there imho - you have to change people's behavior.

          There are plenty of alternatives to Word, but in many workplaces you have people that are so used to the Word workflow (particularly markup/comments/review) that it would be hard to move them away from it. But not impossible - once you get people used to a new package, they might gripe a bit but it will be business as usual.

          ...ironically, Apple and Adobe are probably the two leaders in moving people away from Word. Apple laptops (and now tablets) are quickly becoming standard for uni students (and college age students too), so new grads are going to be used to using other software platforms. And PDF helps ease many of the document compatibility issues.

          Google and their cloud doc authoring and collab solutions might also step in here, especially for students and small/medium businesses.

          I guess that's where the Government actually can have some impact, too. They are a *massive* part of MS's business. So they have some pretty hefty bargaining power (that they dont seem to use).

          Excel, on the other hand, is heavily entrenched for anyone beyond 'casual budget spreadsheet' level. And there are no real substitutes worth mentioning. There are *so* many soultions built on Excel and VBA that they aren't going anywhere.

          Last edited 25/03/13 1:34 pm

        Is it even important about the "reasons"? They are BS anyway.
        These companies can choose low profit or no-profit. That's what the gov should enforce.

    AU itunes cards always have 25+ % sale anyway...

    Let's just face it that in Americas eyes we are all rich and well off because apparently our government is doing well so they can inflate the hell out of the price so they can lower the price in the US. There was bound to be one country getting the shit end of the stick.

    I think Microsoft gave the best answer in many ways.. they didn't try to pass the buck or anything, just said if you don't like it, don't buy it.. Which is pretty fair in many ways.. Still their reasoning does still seem to be 'some people just should pay more' which is pretty bullshit.

      I agree it was the best answer because it was the most honest.

      The reality is nobody is expecting a reasonable answer except "we charge what we do because we can."

      This is process is all about putting these companies on notice. We may not be able to stop you gouging Australians but be aware we know you are doing it. And now consumers know you are doing it.

      Then the Federal Government can use other tools at its disposal like taxation and tenders to punish those that don't change and reward those that do.

      Not charging GST on imported goods under $1000 is another way of encouraging Australians to import directly from overseas rather than going through local suppliers.

      Anyway, I personally think this is great and will lead to improvements.

    I would happily pay more for adobe if there support was local. But they have the worst call centre staff I have ever spoken to. Couldn't understand my accent at all.

    I went through this at work.. I had to buy 15 licences of Creative Suite. $1900 compared to $750 from the US. After contacting Adobe US as to the legality of it, they said that it was against the EULA. I asked them to clarify which point exactly, and was quoted that the software cannot be exported to places like Iraq, Syria, etc. So I told him, are you having a laugh? They then told me that I cannot expect any support should I buy it from another country. Who has ever contact Adobe for 'support'?

    I then wrote a letter to BSAA and asked them if it was illegal to parallel import from another country, bearing in mind that we have laws that allow this. Their response was there was nothing that the could do and was legal.

    Needless to say, I purchased 15 copies from the US, and got them to ship to individual copies to each designer's home that needed it. No customs/duty/tax and $1200 cheaper than local pricing. In future I'll be buying direct from amazon as a digital download. And as someone who buys a lot of digital content, games, movies, mp3s, etc, I haven't bought ANY australian content in years and will continue to do so. I hope that the local distributors go to the wall, I have no sympathy whatsoever.

    Last edited 22/03/13 10:04 pm

    $9000 more for VS2010!? Holy crap am I glad work pays for it...

    adobe apparently personalizes our experience or whatever they call it, but they still spell colour wrong...

    "King also noted that Apple doesn’t actually set the price for its channel retailers — it only pushes a recommended retail price."

    Guffaw! Anybody who has seen the profit margin for third-party retailers for Apple products and the fact that a lot of resellers need to get a kind of 'license' to be an authorised Mac reseller, would know that they are very much encouraged to sell at the RRP.

      And forcing businesses to resell at the RRP - either overtly or not - is illegal. Including by threatening to remove supply.

    "Vote with your wallet"?? Did we just get permission to pirate microsoft software?

    Yes, Adobe, I love the personalised experience of downloading the software from the same server as the purchasers in the US while paying a heap more. What a laugh.

      Ooooo don't forget your download speed is probably a ton slower, surely that's got to be worth paying more for.

    If our product prices were unfair, people wouldn't buy them

    If that doesn't translate to permission to pirate Microsoft software, I don't know what else does...

    Didn't we sign a free trade agreement with the US? It sounds like the US aren't honouring their part of the agreement.

      On the internet, if you don't know what a law means, just take the ordinary english meaning of the words completely out of context and decide what you want them to mean!

      FTAs are about removing Government subsidies, quotas and protectionism. So, uh, kind of the exact opposite of forcing a company to sell their products for $x.

    In summary: "bend over and stop pretending you don't like it".

    The dollar used to be low so we've had historically higher prices.

    buy just the one copy and pirate the rest! these companies are ripping us off anyway!

    As a massage therapist I know that someone who does massage in Potts Point, Sydney and someone in Penrith will charge different prices for a one-hour massage, with similar training. Different SEO areas, different pricing. Aussies are charged more because we will pay it and can probably afford it. Simple. We're still getting ripped off any way you look at it.

      That is the worst example ever. There would be different costs of doing business in pott's point than there would be in penrith, which is one of the reasons why the service costs differently. For example, there's no parking in pott's point, so if the massage therapist doesn't already live there and/or have a clinic or whatever there, they'd have to travel with their table and that costs way more in pott's point than it would in penrith. Of course the people at pott's point would pay more just because that's what they're used to but they do so on the assumption that they are getting better service, that the people in their area trust this person and give them their business. As opposed to some bogan from penrith (not saying your mate is a bogan, but the mental image is there for most people) who other bogans give their business to. The trust and PERCIEVED level of professionalism and service is just not there.

      The point that is being made by most people here is that there isn't a significant increase in the cost of doing business between the US (UK, wherever else it's cheaper to buy stuff) and Australia, or at least not to the degree that the prices differ. The companies try to argue that it costs more to ship here for example, but what about the fact that some of these products are digital downloads? Or the fact that you can still buy a physical copy of the software in the US, get it shipped to Australia via whatever method you want and it's still cheaper than buying it retail in Aus. (Especially considering the fact that it costs a lot more for a private individual to ship one little DVD than it would for a company to send 1000s at a time). They then argue that oh they have to pay higher wages here, to who!? They have little to no staff here and those that they do are skilled persons or some sort of marketing randoms that would have been paid comparably in the US. We're not talking about the differences in minimum wages as the products aren't actually be made here. The call centres and support centres are all overseas as well.

      Yes I agree that there is the whole supply demand thing, but when a company has a monopoly whether on purpose or not, we still have the right to say, uh no, we don't like getting ripped off and trying to find alternatives. We also thankfully have a government who says, why are you ripping our people off, we want a legitimate answer and we want everyone to know that you're ripping people off for no good reason so that they are more educated and stop being fleeced by these companies.

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