Topic: 1998 - MS executive forecasted the "$1 OS" by 2003

[Nemesis]

From: Jim Gray
Sent: Mon, 5/11/1998 2:30 PM
To: Nathan Myhrvold; Bill Gates; Eric Rudder; Jim Gray; Gordon Bell; Rick Rashid; Chuck Thacker; Roger Needham; Paul Maritz; Jim Allchin (Exchange); Gregory Faust; Dan Rosen; Greg Maffei; Charles Simonyi; Mike Murray
Subject: RE: Free software economics: The DollarOS

Nathan:
A stimulating and well-reasoned argument for priced-software.

Two things trouble me about the situation you describe:

(1) Linix is a cult that captures the best-and-brightest kids.  This is anecdotal, but I see it regularly in 10-year-olds, high schoolers, and University faculty comments on inbound students.

The Linix cult views Solaris as bad and Windows as evil or stupid.

SUN has put the Solaris source on public view (500$ gets you the CD, and you can apply that towards the purchase of SUN gear.) The contract is draconian (SUN owns the rights to derivative works) but no one seems to notice that.

All of this is simply bad for us.

We have dramatically relaxed the rules for access to NT Source, but we are still a long way from our competitors.

Solaris is "scale" player in the OS space.

Linix is s huge training ground and experimental laboratory for Solaris.  Suggestion: We need to find an analog to create a "cult" of core windows developers.

(2) I assume Windows is heading for a on dollar OS: the Dollar0S.  Currently we sell about 30 million W95, NTs, WinCE per year.

I assume that W98 and NT will converge

Following Moore's law, we will be selling 100 M WinNTs/year in 5 years.

I also hope that WinCE takes over the PDA space and so it will sell 100 M/year in 5 years. These do not seem radical numbers to me.

But, I also expect that each disk drive and NIC will want to run either NT or WinCE. (right now Wind River is the OS of choice here and it is quite pricey and not very good). All these "peripherals" will have controllers that are supercomputers and will have 128MB of DRAM in that time frame.

So, all those microprocessors are going to want an OS, a network stack, security, management, and TOOLS.

This trend could drive our volumes up 2x more to about 400 M units/year in 2003 (a wild and optimistic guess).

But the trend requires CheapOS (say one dollar for a disk controller that costs 30$ to make).  I assume WinCE is our move towards Cheap0S and LiteOS but I also guess that we will face a WinCE - NT convergence in that timeframe.

All these numbers are HUGE volumes.

If the volumes go up 100x then prices could rationally drop 100x (which is about right for the dollar OS rather than the 25$ OS).

So, I think we might be a VERY high volume and low-cost OS company in five years.

Jim
Jim Gray, Microsoft Research, 301 Howard St #830, SF CA 94105
[Ed: Telephone and e-mail addresses omitted]
htt://research.microsoft.com/barc/gray (Intranet. http://msr/grougs/barc)

[knightstorm]

I guess he's accurate give or take a couple of hundred dollars

[Nemesis]

That E-Mail does illustrate one thing that has bothered me about software for a long time.  When does "economies of scale" kick in?  Sales volumes go up but prices continue to rise when in a normal market prices drop with volume.


When a new games console has been on the market for a while the price drops on new production.   With software the price only drops when the producer stops manufacturing it and the software hits the "remainders bin" which is not the same thing at all.

[knightstorm]

Economies of scale don't start to kick in until demand declines.  MS has obviously had a steady enough demand for its products that it can continue to charge those prices.  Keep in mind, in the case of the e-mail, he expected that the demand for windows would drop in favor of lower cost alternatives.  I was kind of surprised by the level of competition he expected to emerge from Linux.

[Nemesis]

Obviously you use a different definition of the term. 

Keep in mind, in the case of the e-mail, he expected that the demand for windows would drop in favor of lower cost alternatives

Effects of the "illegal abusive monopoly" perhaps?

[knightstorm]

Obviously you use a different definition of the term. 

Not really.  Even if MS is saving money productionwise, considering the level of demand for its product, and the consumer's willingness to pay, it has absolutely no incentive whatsoever to pass those savings on to the consumer.

Keep in mind, in the case of the e-mail, he expected that the demand for windows would drop in favor of lower cost alternatives

Effects of the "illegal abusive monopoly" perhaps?

Actually, the e-mail was produced at the height of MS's abuses, and can be seen as evidence that despite that, Gray believed that it would eventually lose its market share.