I have a feeling that this article from Seattle Weekly is going to get some traction so let’s just call it out now. The author states that WP7 ‘clearly’ violates California law and MS is going to be in hot water. Here’s their argument:

In their lengthy written decision, the appellate court judges make it clear that everything Microsoft is doing–investing in the creation of an improved product and selling it at less than its true cost, with the express intent of taking market share from a California competitor–is completely prohibited in the Golden State.

Under California code, it is against the law for a business there "to sell any article or product at less than the cost…or to give away any article or product, for the purpose of injuring competitors or destroying competition."

I’m not going to get legal on you- let’s just use logic. Google is giving away licenses of Android for free. So it’s clearly at a loss, yet we haven’t heard a peep out of anyone about it and we know Android is gaining traction. And what MS is doing isn’t to hurt competition – they are clearly a minority player in the market and are spending money to gain market share. My non-legal mind is telling me that the actions of Intel against AMD is more of what this law was aimed at. Intel, for years, sold chips at a loss to hurt AMD and force them out of a market that they dominated (and if I recall they paid federal fines for violating anti-competitive laws for their actions).

If you want to read the full Seattle Weekly article it’s here but I simply can’t imagine the premise is correct so I wouldn’t go around thinking that WP7 will not be sold in California because of this article that fails to follow logic.

8 COMMENTS

  1. Actually, I don’t see that article getting any traction. Just read the comments; the very first one made it pretty clear the author of the article is a moron. He’s just trying to defend his employer’s parent company by suggesting their business practices are no different than what everybody else (in a very different field) is doing.

  2. Not to nitpick but Google isn’t “giving away licenses” for Android for free, rather it’s under the Apache License with freely available source code, the license stating that the software may be used in the development and sale of proprietary software (Sense, Bing, Motoblur or whatever). And it is part of the Open Handset Alliance which is made up of about eighty firms, Android being its flagship software.

    So not only is there no Google number you call in order to ask for your free license, the software may be used by anyone who wants, including competitors of Google and other companies in the OHA, and mixed with software that competes with anyone including Google and other OHA companies. Not only that, everyone is free to then take whatever they brew up and slap a more restrictive license on top of it and charge as much or as little as you want for the final product. Off hand the only restriction of which I’m aware is keeping some little readme intact.

    Also, the Google software that you see on most Google phones (market, maps, gmail), that’s a separate package I believe.

    They call that a public service — with fringe benefits. That companies use Android and leave Google stuff (most of the time) intact may have less to do with Android’s association with Google and more to do with Google’s services just being better than anyone else’s and the ensuing higher demand you get in such a situation leaning the likes of HTC in that direction.

    In contrast, it sounds like Microsoft is breaking this particular state law or whatever the thing is but the law in my mind is more anti-American than it is anticompetitive. Microsoft should be free to go down in however long a streak of flames of tricks like this as they want.

    What you could have compared it to was Google giving out free Gmail calling for free domestic and possibly unprofitable international rates (I don’t know if that’s true but $0.02 a minute to Hong Kong is pretty cheap. Them’s getting-acquainted prices and if I were the type to want such laws as this enforced harder on some than others I’d break Google’s balls a little in defense of little ol’ Skype, poor bastards… no one pulling them except for certain NBC broadcasts (Today/Nightly) with their constant Skype chats with the Skype logo bright and blue.

    Tl;dr? Bump on Wayne’s comment.

    Ugh, contributing to windowsphone subdomain and to your comment ratio, mouth tastes bad.

  3. By that logic, it would be illegal for Target to have a sale on objects at a loss, just to make sure that people shop there instead of Walmart.

  4. i dont think its fair to mention comment ratio’s given your abrasive (yet elogant?) writing style… im pretty sure theres a comment ratio out there that david k has you beat by miles on…

  5. @Max,

    Yeah, that is basically the point of the law. If Target were big enough to price everything they sell at a loss to make sure everyone shopped there instead of Walmart, and could keep doing it for long enough to drive Walmart out of business, they would clearly be violating this law. But the author’s trying to make an argument about WP7 that just doesn’t work well with software.

    He says MS spent over a billion bucks developing WP7, and they’ll have to sell 67 million units to make that up. So what? After the development is done, and once they start selling phones, theoretically (and for sake of argument, ignoring future, continuing development costs) they are starting to recoup that loss. They make $15 per phone. It’s not like each phone (or copy of the OS) is costing them $20 dollars to produce so they’re losing $5 each. The money they spent on development is not tied to the number of phones they end up selling, so they could, again, theoretically, make their money back $15 at a time.

    But of course, their profit will actually come from other software sales. All those app sales they’re going to get a piece of. Microsoft isn’t bargain pricing their operating system to drive Apple and Google out of business, but rather to build themselves as a large a customer base as they can so they can sell software to them.

  6. The linked court document was way too tl;dr so here’s Wikipedia on predatory pricing in the US:

    Predatory pricing practices may result in antitrust claims of monopolization or attempts to monopolize. Businesses with dominant or substantial market shares are more vulnerable to antitrust claims. However, because the antitrust laws are ultimately intended to benefit consumers, and discounting results in at least short-term net benefit to consumers, the U.S. Supreme Court has set high hurdles to antitrust claims based on a predatory pricing theory. The Court requires plaintiffs to show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole, in order to establish that there is a substantial probability of success of the attempt to monopolize.[4] If there is a likelihood that market entrants will prevent the predator from recouping its investment through supra competitive pricing, then there is no probability of success and the antitrust claim would fail. In addition, the Court established that for prices to be predatory, they must be below the seller’s cost.

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