Inside IT

Are we being ripped off over software?

With sterling at nearly $2, the price difference between here and the US looks starker than ever

Buy a copy of Microsoft Windows or Office, Adobe Photoshop or even a game in the UK, and you will usually end up paying much more than you would in the US. It could be as little as 20p more for a music download (though even after VAT that's a near-25% markup), up to an amazing £181 extra for a copy of Adobe Photoshop CS2, if you are paying manufacturers' suggested retail prices.

This isn't anything new for the computing and videogame industries, where prices have often been converted from dollars to pounds just by changing the currency symbol, not the amount. However, it attracts more attention whenever there is a slump in the exchange rate, and that's the case at the moment.

With £1 currently worth $1.96, it's dead simple to look at any US price and halve it to get a rough UK equivalent. Since most UK product prices were set when the dollar was at a much lower rate, this is bound to prompt another round of complaints about "Rip-Off Britain".

Brian Gammage, of market analysis company Gartner Group, points out: "It's a much wider problem than just computer software and hardware, but we don't seem to get a fair run at the exchange rate when the dollar is down, as it is today."

With software, it's easy to assume that the product is identical on both sides of the pond, so prices should also be the same - or at least equivalent, after allowing for the UK's 17.5% VAT. Clearly they are not. Amazon US, for example, sells Windows XP SP2 Home for $189.99, whereas Amazon UK wants £175.99. The UK price including VAT should be £113.90 at the current exchange rate, saving buyers £62.

Making the same comparison between Amazon's US and UK sites, an XP Home Upgrade costs $91.99 and £79.97 instead of £55.15, so it's £24.82 more. Mac OS X Tiger costs $103.90 and £87.99 instead of £62.29, so you're paying £25.70 more. With SuSE Linux 10.1, it's $47.99 and £37.99 instead of £28.77. The worst was Adobe Photoshop CS2 at $579.99 and £495.99 instead of £347.20. You'd pay £148.29 more in the UK, at Amazon prices, and £180.81 more at the recommended retail price.

But products are not always the same. Microsoft Windows, for example, is localised for numerous European editions, and the different versions include links to different internet service providers and other services. Also, each European office has to pay the local prices required to run a business (rent, rates, salaries etc) plus the specific costs of software distribution, advertising, marketing and support - and support can be extremely expensive.

Steve Dunn, the finance director at Microsoft UK, says: "The costs incurred in delivering European packaging and settings plus the cost of marketing in many languages ... will drive a price differential" when compared with "the scale and volume of the US market."



Also, users should not be surprised that software prices tend to follow historical trends; there's not much else to base them on. The prices of games and popular applications tend to cluster around recognised price points that have only a casual relationship with either the cost of production or the eventual volume of sales.

As Gammage says: "Any attempt to associate real value with what we buy in software is probably doomed to failure."


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