I’ve referred to Microsoft pricing a number of times in my newsletter. They practice great segmentation, they create new markets by lowering price points, and of course, they get in trouble through aggressive discounting and bundling practices.

One issue they’re facing now is the sheer complexity of their licensing models and segmentation methods. An advantage of pricing at Microsoft is that you have a very healthy business with huge cash reserves, low incremental costs, and a very effective distribution ecosystem. The downside is that whatever decision you make, even if it pleases 90% of your market (which probably isn’t your goal in the first place), means making literally millions of people upset. People who tend to raise their voice publicly. To a press that loves stories on Microsoft being mean.

The latest example is the revised pricing for the Redmond giant’s development tools suite, Visual Studio. With the 2005 version, Microsoft is attempting to provide powerful “server” tools for larger projects– areas it has not traditionally entered. It has made pricing for these tools quite expensive, relative to the “client” seats. Small businesses have kicked up a firestorm on the internet (see Eric Bowen’s blog entry, with numerous comments from developers and a Microsoft PM, and this discussion in one of Microsoft’s own product feedback forums).

Some of the poster’s on Eric’s blog actually have some good ideas for Microsoft’s pricing people (do they really need 3 separate types of licenses depending on what tasks a person might be doing?). Others mention that the retail pricing is just the tip of the iceberg. There are many other layers of licensing and discounts available to parters.

I don’t know if Microsoft did an optimal job on this one or not, but one things for sure– any decision they made would be instantly criticized by millions of vocal, internet-connected people. Even if you don’t work at Microsoft, our pricing and marketing decisions get much more intense scrutiny, especially in the community of potential customers, thanks to the internet. Companies need to prepare for this in advance, not scramble after customers have already become upset. (Microsoft thought they had a pretty good story here– that similar tools have always costed much more than their new server applications– but some customers saw it differently, and though that at least some of the new functionality was not something that should require extra payment.)

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