HMS Newsletter

The History and Macintosh Society

volume 3, no. 2 (3.2)
Fall 1993

HMS Now Electronic

As most of you now by now, the History and
Macintosh Society has gone completely electronic.
The newsletter will be produced in electronic form
only, and we hope to add a number of new services
soon. Information on those will be available soon.
HMS will no longer charge membership dues. If
you know anyone who's interested in joining, have
them contact Marc Bizer or Joe Coohill at the
addresses listed below.

This is the first electronic HMS newsletter and
we hope it's a good one. Electronic newsletters
will be much shorter than the old paper versions
and will contain only one major article, but they
will appear more frequently. The format will, for
now, be in plain-text only, but we hope to be able
to liven things up a bit soon.

In this issue, you'll find interesting reading
with Tig Tillinghast's article on European
Software. Since HMS is an international user-
group, this should be of particular interest to
our members.

HMS Across the Atlantic

HMS was founded in California, but has recently
moved. We now have two bases of operation: Austin,
Texas; and Oxford, England. Marc Bizer (in Austin)
will handle requests for review copies of
software, and will be our Ambassador to Apple. Joe
Coohill (in Oxford) will produce and distribute
the electronic newsletter. Marc and Joe are in
constant contact with each other via electronic
mail, so you may contact either one of them about
any HMS activity. The postal address for HMS is
now:

The History and Macintosh Society
1603 Woodlawn Blvd. #4
Austin TX 78703

Marc Bizer can be reached electronically at:
mlbizer@bongo.cc.utexas.edu

Joe Coohill can be reached electronically at:
coohill@oxford.ac.uk

European Software Bargains: Who's Gouging Whom?

Tig Tillinghast (tig@dartmouth.edu)

Right now the cheapest software deals in all of
Europe are just south of where I live, in Marlow,
New Hampshire, home of mail order giant
MacConnection. European Mac users writhe with
envy every time some New Englander mentions
having just picked up PageMaker 4.2 for $400. The
cheapest deal in Europe right now is more than
twice that. It should be no surprise then that
American mail order firms like MacWarehouse find
many people ordering software from Helsinki to
Milan. Even after value-added taxes exceeding 25
percent and shipping that can be as much as $40,
U.S. mail order firms consistently provide
cheaper deals than any offered by a European
retailer.

This point has not been lost on European Mac
users. Unless you've been under a cybernetic rock,
you've read complaints from the Continent about
the evils of American software corporations. U.S.
manufacturers have been accused of everything from
conspiratorial pricing to naked greed to plain
stupid marketing. But there seems a reason to the
madness. And that reason may not have much to do
with the software manufacturers.

THE PROBLEM

"Prices for the end users are too high and the
level of service is too low." -David Steiner;
Vechta, Germany

Put simply, it seems non-American software
consumers are getting soaked. Over the past six
months, a rather large and random sampling of
American-made software products sold from about
one and a half to two times as much as it did
back in the colonies. (The variation in relative
cost came not so much from changes in prices, but
rather from wildly shifting exchange rates.)

Also, several major American software companies
are beginning to garner consistent complaints
about a lack of customer support for European
patrons. Even worse, when Europeans spring for a
call to U.S. customer support, they are often
turned away, told that they must go through their
recalcitrant European distributor. One Mac user
from Vienna said he used his American parents'
address when he registers software to guarantee
decent support and cheap upgrade prices.

David Steiner, a researcher in Vechta, Germany
recalled a time when he tried to get a question
answered from Symantec's European office
(Netherlands). His fax was never answered.

"We report bugs," said Jan Steinman, a Swiss
who often tries to help clients find customersupport,
"and companies disappear off the face of the earth,
or at least the face of Europe."

Many registered purchasers of Microsoft Word,
Microsoft Excel, Norton Utilities and other name-
brand American products still have yet to receive
update notices for the latest software
incarnations.

"The sad part of this," added Steinman, "is
that, due to the weak dollar, U.S. goods should be
real bargains these days."

Dr. Alan Hewat, of Grenoble, France, told of an
experience where he failed to get any sort of a
response from Adobe Europe (both offices, in the
Netherlands and Scotland) until he finally sent
back his original Illustrator disks with a nasty
letter to Adobe's offices in America.

Adobe, as Mike Glendinning of Britain reported,
also proscribes U.S. retailers and mail order
firms from selling to foreigners, denying better
deals to non-domestics.

Some companies do better than others, however,
when it comes to service and prices. Dr. Hewat
noted that in a recent French MacWarehouse
catalogue, Aldus PageMaker and Adobe Illustrator
both cost over $1,000 (this before an 18 percent
tax!) while Microsoft Word cost $374 - roughly
comparable to the U.S. street price.

When Erkko Autio of the Institute of Industrial
Management of the Helsinki University of
Technology was asked what was going on, he
responded, "Many American companies are suffering
from what I call the home market myopia."

He said that since U.S. companies have already
determined that their home markets are large
enough to sustain them, they "tend to focus on
that only and ignore the international
dimension." He went on to add that if the U.S. is
not careful, its software industry might follow
its car industry - into the red.

"To put it simply," summed up Autio, "some
American software companies are acting arrogantly
toward their European customers."

Europeans are not alone, however. All countries
but the U.S. and Canada suffer from the same
pricing structures. Frank Horowitz, of Mt.
Waverley, Australia listed about 50 items offered
in a Sydney-based catalogue. Americans buying
from the very same company pay only one half to
two thirds as much as Australians.

Judging from the frequent protests seen on the
nets, people are beginning to take notice of the
opportunities they are being denied. And they are
demanding an accounting.

AN ACCOUNTING

Software companies by and large do not charge
different prices in European markets - at least
for the original, English versions. For the most
part, the mark-ups are perpetrated after they've
been sent over the Atlantic.

Licensing, taxes, various certifications and so
on add to the cost, according to University of
Connecticut marketing professor and well-known
network omnipote Murphy Sewall.

"In short," said Sewall, "it really may be more
expensive to make products available in some
markets, but perhaps not 70 percent more
expensive."

Companies do spend a good amount of money
localizing their products. You can't just use
ResEdit to change all the words to a different
language. Manuals and other documentation must be
translated and printed. Multi-lingual technical
service employees must be hired. This, however,
fails to explain the entire price difference.

"It costs a lot of money to translate the
manuals and other paper documents, but that does
not explain why the English versions of the
software I buy is as expensive or, sometimes,
more expensive than the German one," noted
transplanted American David Steiner.

Here's the low-down. Large companies have the
capital outlays to create a national subdivision
for a particular market - say Italy. This
subdivision can then take advantage of the tax,
labor and product regulation benefits given to
domestic Italian companies. Smaller software
companies, however, must hire a local distributor
in order to compete from afar. The distributor,
however, asks for rights to a monopoly for the
product in the particular market since the market
is so tiny to begin with. No monopoly, no deal.
This creates a situation in which distributors
feel they must charge a high mark-up because of
their relatively minuscule market and the market
constituents feel they're getting the rod due to
the monopoly - and, in some respects, they are.

"Distribution monopolies undoubtedly drive
European software prices up, either through waste
or greed," noted a recent Info-Mac Digest
contributor. "But, even in a perfect world,
software in Europe would be more expensive than
in the U.S. because the expenses are higher and
the markets smaller."

SOFTWARE COMPANIES RESPOND

"I know of no software company that charges a
penny more for exported copies of software. In
fact, we often lower our prices to overseas
distributors," said Terry Morse of Fifth
Generation Systems, makers of AutoDoubler and
other utilities. "The real problem is that noother nation
can compete with the U.S.A.'s
efficient and highly-competitive distribution and
sales channels."

U.S. manufacturers give European distributors
identical deals to those they give the Americans,
according to Morse. The higher prices come from
foreign markups. "50 percent is the low end of
markups overseas. 100 percent is more typical,"
said Morse.

Another executive from a different utilities
developer, who asked that he not be identified,
concurred, "The end-user price differential comes
from the fact that the foreign distributors mark
up the product a lot more than the domestic ones,
mainly because they serve much smaller markets."

He noted that "advertising costs roughly twice
as much per subscriber in foreign markets," and
"there are costs associated with shipping,
customs and the administrative expenses of
maintaining an international vendor/distributor
business relationship."

He also defended the monopolistic nature of
software distribution: "Most international
software distribution is territory exclusive. If
there were two distributors in a territory and
one does a good job of building the market, the
other would lowball the marketing and support
budgets in favor of a cut rate price and get the
business generated by the 'good' distributor."

Finally, several executives pointed out that
retail channels outside the U.S. are simply not as
efficient as they are in the U.S. There is limited
mail order, practically no superstores and a much
less well-developed dealer channel.

Larry Zulch, of Dantz, was reticent to lay all
the blame on distributors, however, noting that
"the number of distributors going bankrupt is at
record levels." Instead, he blames the "fact that
the services distributors provide are expensive,
particularly when the volumes are low."

Zulch highlighted the differences between
domestic and foreign distributors. Here in the
U.S., distributors rely on the software company
to provide customer support and upgrade programs.
"It makes no sense for a German end user to call
us: not only are they likely to call at 2:00 AM,
but we don't speak German," Zulch pointed out.
"So our distributor provides tech support - in
effect, they become Dantz in Germany."

THE SOLUTIONS

"If the American companies do not treat their
European customers well, it is certain that
someone else will." -Erkko Autio; Helsinki,
Finland

When pressed for a solution, Fifth Generations'
Morse said half- jokingly, "Do away with borders so
markets will be big enough to support large
distributors and dealers. Do away with value-added
taxes that escalate the price of software through
every step of distribution."

More seriously, several companies are beginning
to experiment with new forms of distribution. For
instance, one company said it was experimenting
with dissemination via loaned CD-ROMs.

"I believe that the end of full service
distributors is in sight," said Dantz's Zulch
pondering the future. "It has already happened in
the US, and it will happen in other markets as
well, starting with Europe."

Already Dantz ends up making less per copy sold
overseas than those sold here despite the price
differences. They sell products at roughly 50
percent of suggested retail price to companies
like Ingram Micro, Merisel, and Kenfil who go on
to take on the expenses of foreign marketing.

"US distributors don't deal with end users at
all. For the most part, they rely on us to provide
telephone support, run upgrade programs, and
generate demand," noted Zulch.

He said we shouldn't be surprised to find those
relatively expensive services no longer offered in
foreign markets sometime soon. And, he adds, that
might not be such a bad thing.

It's all a matter of waiting until the foreign
markets become more like the American one, said
Erkko Autio. "Achieving economies of scale
similar as in the U.S. is what the European
integration process is all about: to create an
integrated market."

One thing European computer users tend to
forget occasionally is the fact that most other
consumer technologies are also more difficult and
expensive to come by on the Continent. The U.S.
simultaneously suffers from and enjoys a full-
blown consumer economy. Europe is both cursed and
blessed with a more producer- driven economy.
Just try finding a 24-hour ATM machine in
Mannheim, Germany and you'll see what I mean.
Outside the U.S. Air Force base located there,
it's practically impossible - as it is in most
German towns.

When I asked an electrical engineer in
Viernheim, Germany if he missed having a Radio
Shack down the road where he could pick up most
anything he needs, he replied rather simply, "But
I can just order something and go to Frankfurt to
pick it up in a few days. Why would I need that?"
He simply did not perceive he needed the
convenience. And because he didn't perceive heneeded it,
he probably doesn't. But other
electrical engineers who do perceive they need
that local Radio Shack shouldn't be surprised that
Tandy decides not to plant a store in their
European town because it doesn't see a seething
demand.

The mainstream European culture does not yet
perceive it needs immediate service 24 hours a day
at cut-rate prices. Things then become
particularly dissonant when Europeans gaze over
the pond at Americans who get their software Fed-
Ex'd to them 12 hours after they call a toll-free
number and shell out only one half to two thirds
the money. It's a great incentive to join the
consumerism culture.

Unfortunately, barring a cultural revolution,
it does not look as though many Europeans will be
boycotting their fishmongers and tobacconists in
deference to supermarkets and 7-11s. It's simple
market sense. Software and hardware distributors
simply won't feel safe trying to exploit the same
market that can't even make EuroDisney profitable.
Discount-minded computer consumers in Europe must
either wait for compatriots to join them to create
a large enough market or somehow figure a way to
finagle software and hardware from America.

* *
* Joseph Coohill Postal Address: *
* Faculty of Modern History Lincoln College *
* Oxford University Oxford OX1 3DR *
* e-mail: United Kingdom *
* coohill@oxford.ac.uk phone: (0865) 279800 *
* *
********************************************************

jmfarmer@students.wisc.edu

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Last Update: 9 April 95