OS costs

Piercarlo Grandi pcg at cs.aber.ac.uk
Sat Sep 1 06:24:33 AEST 1990

On 30 Aug 90 03:23:04 GMT, richard at pegasus.com (Richard Foulk) said:

richard> Guessing the optimal price is perhaps a marketeers most
richard> difficult job.  But there's always the possibility that if you
richard> reduce your price by 50% you'll increase your sales by 200%.
richard> With no way to prove it except to try it.

richard> It is my distinct impression that ISC and SCO are erroring on
richard> the high side.

It is my impression is that they are trying very hard to limit sales,
and thus will strive to keep the price as high as they can.

In case this sounds crazy to you, sales must be backed by capital; if
you are short of capital, the best way to increase absolute net income
is not to increase sales, but price; this will reduce sales and thus the
demand for capital. For manufacturing companies this is counteracted by
economies of scale, and by the fact that once capital has got invested
into fixed equipment you want to maximize revenue, not margin, because
the bulk of your capital has already been sunk.

This is the reason why foreign distributors normally try hard to sell as
little as possible of the products they import at as high a price as
they can; sales to them are just a bother, and they do not have the
incentive a manufactuer has to spread the initial fixed investment on as
large a volume of sales as they can. To them more volume means more

This is also true for software companies, especially those, like SCO and
ISC, which are in market that is growing very fast on its own on the
demand side, and where the supply of capital, in the form of competent
system programmers, is very scarce.

ESIX and Microport are betting on different economics: they bet they can
provide a product for people that does not put a lot of demand on their
capital resources, and they can just resell AT&T's product as a
bookseller would do. Not exactly cash and carry, but...
Piercarlo "Peter" Grandi           | ARPA: pcg%uk.ac.aber.cs at nsfnet-relay.ac.uk
Dept of CS, UCW Aberystwyth        | UUCP: ...!mcsun!ukc!aber-cs!pcg
Penglais, Aberystwyth SY23 3BZ, UK | INET: pcg at cs.aber.ac.uk

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