BUS400 – Prof. J Santanella M 8-10:40
Assuming that the development of Microsoft’s Window XP operating system is an accurate example for most of their new operating systems, Microsoft’s break even analysis is as followed. On page 46, it is said that Microsoft sold 17 million units of the Windows XP in the first 8 weeks and incurred for developing at $1 billion. Revenue for the XP was between $45 and $60, which makes the median at $52.50. Assuming the XP accumulated an average $52.50 for each copy for the break even for the development of a new operating system for Microsoft would be when they sell 19,047,620 units. Also, assuming they keep the rate of sales per week, Microsoft should reach this target in approximately 9 weeks. (exhibit 1)
Break even for apple, on the other hand, is a different story. While Apple’s new operating system the Mac OS X produced similar cost into its development ($1 Billion, page 47), Apple took the premium price approach and sold their units at a much higher price than that of their competitors. For example, an iPod ASPs generally ran $50 to $100 higher than their competition.
This pricing strategy resulted in many challenges for Apple, but they implemented a system that attracted customers and kept them loyal to their un-substitutable brand. The large price gap between apple and their competition created many difficulties for them in their early years. Price sensitivity was high for many computers users and Apple’s numbers proved this fact. Many of apples competitors were selling similar quality products at a fraction of the price. Apple lacked any incentive to buy their product for the much higher price; differentiation between products was very low. Because of this fact, Apple’s market share dropped to around 3% and they were within 90 days of bankruptcy.
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