Microsoft Corp's agreement to offer promotional prices to end a Fair Trade Commission investigation will lead other governments to press for lower prices, analysts said.
"This is very likely to snowball," said Rob Enderle, an analyst at market researcher Giga Information Group Inc. "Clearly other governments will look and say `we should do something similar.'"
Microsoft, the world's largest software maker, said yesterday it will begin offering the promotions in Taiwan on March 15.
Spokesman Jim Desler declined to comment on the specific price or the end date. The commission said in a statement that prices will be lower by an average of almost 27 percent.
Microsoft is under pressure to cut prices in Asia, where software piracy is rampant and corporations and governments are considering lower-priced programs based on the Linux operating system.
The trade commission started its investigation in May after local newspapers reported that local prices of Microsoft programs exceeded prices elsewhere.
It's rare for Microsoft to "back down" on pricing issues, and the changes could prompt requests for price cuts or promotions from countries such as China and India and in Eastern Europe, said Paul DeGroot, an analyst at Directions on Microsoft, a market research firm based in Kirkland, Washington.
The piracy rate is high in those regions, and software prices represent a significant portion of the average worker's salary, he said.
Compared with prices in May, new prices will be as much as 54.5 percent lower, the commission said in a press release. Desler said he wasn't sure whether those calculations were based on the promotional prices.
Desler said the agreement is "particular to Taiwan," and he declined to comment on whether it will lead to requests from other governments. Because the changes are a special promotion, they don't alter the company's worldwide pricing standards, Desler said.
While "we are going to take into account the views and sentiments of the community in setting our prices," the promotion won't be endless, Desler said.
Enderle said Microsoft has positioned the new prices as a temporary promotion because the company wants to avoid the appearance of having granted a price cut in one country.
"It sets a bad precedent," he said. "So they are trying to keep the details quiet and make it sound like a special arrangement." Christian Koch, an analyst at Trusco Capital Management, said lowering prices doesn't make sense at a time when Microsoft's sales growth is slowing.
"In the grand scheme of things it's probably not a big deal, but all of these little things will start to add up over time," said Koch. Trusco manages US$50 billion and has 6 million shares of Microsoft.
Facing competition from Linux and pirated copies of its own programs in Taiwan, Microsoft may not have had a better option, said DeGroot. If the agreement spurs the government to intensify a crackdown on software pirates, Microsoft could make up the revenue lost in the price cut.
"It may not be a bad tradeoff," he said. "The fact that the Taiwanese government is investing in local Linux programs, one has to think that's in the back of Microsoft's mind too."
Taiwan is an attractive market for Microsoft because fewer customers than in the US and Europe have Microsoft's most popular programs like Windows and Office, DeGroot said.
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