Taking on the IT giants

Taking on the IT giants
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As the parliamentary inquiry into IT pricing continues, Andrew Jennings finds out what media and advertising folk think of the technology giants’ pricing structures in Australia, and whether they are damaging their
high-profile brands in the process

“At the end of the day, I think these companies have a ‘fuck you’ attitude,” Steve Allen, chief executive of Fusion Strategy, says in reaction to Microsoft, Adobe and Apple’s recent appearance at Australia’s parliamentary inquiry into alleged IT price gouging.

Allen, along with other media and advertising professionals, has backed the government on its decision to take on the multi-billion dollar tech giants over pricing in Australia. But they fear the issue will be put on the backburner this year, due to the fact there’s a federal election on the horizon.

Last month, the Australian bosses of the three companies were summoned before the inquiry where they were grilled over why Australians pay hundreds of dollars more than those in the US for identical products.

Pip Marlow, Microsoft Australia managing director, and Paul Robson, Adobe Australia managing director, were both accused of being “evasive” by MPs conducting the inquiry. And they failed to make a case that the additional costs of doing business in Australia justified the price disparities with the US. In some instances media and advertising agencies in Australia are paying well over a third more for their products here.

Media analyst Allen argues that the government’s move to make these market-leading technology companies accountable for the huge premiums they charge for their software has not come before time. He believes these companies are doing their brands no favours in Australia by employing such a pricing structure here.

“These companies have tarnished their brands by what looks like price gouging,” says Allen. “But they’re unable and unwilling to recognise this and discuss it.”

He adds that the companies put up some “very lame excuses” at the inquiry against the price gouging charges levelled against them.

At the inquiry, Adobe’s Robson failed to explain why the standard edition of Creative Suite 6 costs Australian buyers AU$2,172 – 37% more than in the US, where it costs AU$1,374. Another example used was Microsoft’s Office Professional 2013, which costs $599 in Australia and $383.54 in the US – a 36% difference.

One of the MPs conducting the inquiry, Labor’s Stephen Jones, remarked that the move to subscription software was placing “digital handcuffs” on users, adding that the companies are charging “as much as the market can bear”.

Jules Hall, managing partner at independent Sydney agency The Hallway, says there have long been grumblings within the advertising industry about the way the big tech companies structure their pricing Down Under. “I’d like to see more parity. We’re paying a lot of money for the software that is fundamentally the same,” he says.

“The thing on my mind as a business owner is the way they’re structuring their pricing. It’s pretty galling when you look at the price you can buy the software in the US at the moment. In a lot of cases it’s roughly a third cheaper.”

Hall says when an agency buys on an individual software licence basis it works quite well, but thinks the newer web-based subscription versions of their software is a concern.

“In year one they do seem much more cost effective,” he says. “The problem is when you get to year two, three and four, and the annualised costs overtakes what you would have paid if you bought the product outright.”

Hall admits that most agency managers and owners, plus financial officers, have been aware of the big expense of buying software from these companies for some time, but he doubts many of the creative guys using it are aware of it. 

At the inquiry, when Microsoft’s Marlow pointed out that they do not operate with a single global price, it went down rather badly with MPs.

“I think they could have handled themselves so much better,” says Allen. “It was just a bit pathetic. This is not a hard product, it’s a soft product, so it doesn’t matter where it appears in the world – it’s the same product. 

“However, what are the alternatives to using Microsoft and Adobe products? Almost every agency uses them, so unfortunately we’re all interdependent. If we could find another similar product we’ll surely run into all sorts of problems opening things sent to us, and I think the big IT companies know this.”

The inquiry is continuing to look at ways for Australian consumers to access the same prices available overseas.

A ban on geo-blocking is among several remedies being mulled over by the Australian government as a response.

“Maybe the government is considering this,” says Allen. “Perhaps they’re waving the sabre at a couple of these companies and saying ‘we can do this, and if you want to take us to court then go right ahead’.

“But that’s going to look pretty bad. This might be their technique – that they are prepared to confront them.

“And to have these companies threaten copyright infringement, to take it to court, with the potential for a judge to say: ‘look, this is price gouging’, it’s a big risk.”

Hall believes legislation to ban geo-blocking is not likely to get an airing this year due to more pressing government priorities in election year.

“I’d love it be this year,” he says. “But I think the reality is that it’s a complex debate, because of the precedence that would be set in Australia. But I don’t think it will be a major priority for whichever side wins the election.”

Adobe, Apple and Microsoft declined to comment.

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