Chapter 768 – The effects of position
The price war waged by Lenovo had caught all other PC brands by surprise. There were no warnings at all, and Lenovo just slashed their prices.
Lenovo was selling their PC at 8,800 RMB. Even the cost of Japanese PCs was more than 10,000 RMB.
Those PC manufacturers could not afford the losses to compete. If they endured the losses and monopolized the market, they will be fined heavily by the Chinese government. Furthermore, Lenovo might lower the prices further. They might suffer losses and still not achieve the results they wanted.
The worst was the laptops. The other PC brands were selling more than 20,000 RMB for their laptops. But Lenovo was selling 14,000 RMB for a laptop with similar or better specs.
Lenovo used 3 selling points for this exercise. First, their PCs are the cheapest in China. Secondly, they are using the best operating system and software. Thirdly, they have the most advanced VCD optical drive.
From these 3 points, Lenovo’s PCs had better specs than the other brands.
The other brands also started to think of ways to compete with Lenovo. The simplest way was to join hands and force Lenovo to increase their prices. This way, all of them will be back on the same starting line. They would be able to make use of their brands to get back their market share and profits.
After Microsoft’s Win 95 was launched, the whole world’s PC sales had increased. The PC manufacturers had to admit that the operating system will stimulate their sales.
But in China, those PC manufacturers found it difficult to compete using the operating system!
This was because Lenovo’s PC comes along with Microsoft’s Chinese language operating system, and it was free. There were also lots of software pre-installed into their PC. Those PC manufacturers had tried them, and all of them were well developed.
Those PC manufacturers could not understand why the software was also given to the customers free. Just the software which comes along for free cost at least 2,000 RMB and might be even worth 3,000 RMB. That means Lenovo’s cost was less than 5,000 RMB?
This was impossible!
Those PC manufacturers had better production lines, higher efficiency and had lower cost for getting the parts. They were able to lower their cost to around 5,000 RMB. Lenovo’s scale was not as big as them and should have a higher manufacturing cost. It should be about 6,000 RMB.
Lenovo still has to factor in their marketing, storage, transportation, retail, etc. costs. They were selling their PC at 8,800 RMB. How many profits were they getting? It would be a miracle if they did not make any losses. How much money does Lenovo have to burn, and how long can they last?
It can’t be they were getting their software for free. Just Microsoft’s software alone cost a lot. Microsoft was like a bloodsucker. Those PC manufacturers had purchased Microsoft’s products in bulk, but it was still expensive.
Could it be Lenovo was getting those software at low prices?
Those PC manufacturers knew that some of the programs installed on Lenovo’s PC were developed by them and it could be provided free. Kingsoft was also partially owned by Lenovo and, Lenovo could get those software at a cheaper rate. But Microsoft operating system and software were different and should not be cheap.
Those PC manufacturers came up with 2 possibilities and much discussions. First, Lenovo’s PC parts were very cheap. Secondly, the programs installed in their PCs were very affordable!
Those PC manufacturers immediately contact the hardware suppliers to find out Lenovo’s rates. Although their volume had some differences with Lenovo, their prices should not be very different.
In the end, those PC manufacturers found out that it was not the hardware. The hardware suppliers told those PC manufacturers that their costs were fixed and there was no way for them to lower their selling price to Lenovo.
So, the PC manufacturers got the answer. The problems lie with the software!
They checked Lenovo and Kingsoft’s software prices in the market and found out that the software that was installed cost about 1,000 RMB. This was about the same as what they estimated.
Even if the cost of these programs were not included, Lenovo also has to pay Microsoft for their operating system and software. Microsoft’s operating system and software cost at least 200 USD.
Unless Microsoft was selling their products to Lenovo at a much cheaper rate. But…… was this possible?
These PC manufacturers had worked with Microsoft for a long time. Their cooperation had started since Microsoft was a small company. These manufacturers had been manufacturing PC much earlier than Lenovo and had the economy of scale. Their brands were several times bigger than Lenovo. If Microsoft’s products pricing had differences, then they should be the ones getting discounted prices.
All the PC manufacturers came to the same conclusion, and all of them went to Microsoft to verify it. They want Microsoft to tell them that the prices of their products were the same as Lenovo.
They contacted Microsoft’s headquarters, and the reply they got was to contact the head of the Asia market, Mr. Steve Ballmer.
The PC manufacturers called Ballmer’s secretary and were informed that the Chinese market was handled by Mr. Feng. Mr. Ballmer had given Mr. Feng full authority for the Chinese market.
So, the PC manufacturers called this director, Mr. Feng.
“Hi, this is Microsoft Mr. Feng’s office. Who are you looking for?” Ralph answered the call.
“I am Toshiba’s Vice President, Saburo Hiratani. I would like to speak to Mr. Feng.”
“I’m sorry. Mr. Feng is on vacation. If you do not have anything urgent, please wait for Mr. Feng to contact you after he is back.”
Huh? Mr. Feng is on vacation? Contact me after he is back? Is this the way Microsoft operates?
Even if Mr. Feng is on vacation, you should tell me who is taking over his work or let me know when he will be back.
“Wait. How do I address you?”
“I am Ralph. Mr. Feng’s assistant.”
“Ok, Mr. Ralph. When will Mr. Feng’s vacation end? Or during this period when he is not around, who is taking over his work?” Saburo Hiratani asked.
“I am not sure when Mr. Feng will be back. It has to depend on his mood. Who is taking over his work? I’m sorry. No one is taking over his work. You are Mr. Saburo Hiratani, right? Please leave your contact number, and if Mr. Feng wants to contact you, he will call you.”
Saburo Hiratani was confused. You are Mr. Feng’s assistant, and you don’t know when his vacation ends? Also, why no one is taking over his work? Mr. Feng was also not some developers, why can’t someone take over his duties?
But Saburo Hiratani also had no choice. He could only leave his contact number with Ralph and asked Ralph to tell Mr. Feng that he had something important to discuss with him.
Saburo Hiratani knew it was useless to ask Ralph and did not tell Ralph anything. But Ralph knew what was going on. Saburo Hiratani’s call was the 6th call to Feng Yu’s office. All the callers were from PC manufacturers, and Ralph’s reply was the same for all of them.
This was also one of the benefits of Feng Yu’s position in Microsoft.
At this moment, Feng Yu was also no doing anything important. He was at a pet shop, picking a pet.