Apple, Microsoft and Adobe are all facing the music on IT Pricing. We have all the action for you right here.
[9:30] And we're live from Parliament!
Tony King -- Apple
[9:31] Apple is first up this morning. It will face 90-minutes of questions. Tony King, managing director of Apple Australia, is here to talk.
[09:45] Tony King is blaming the labels when it comes to music and movie pricing. It's not Apple's fault.
[09:46] Sorry folks, connection issues, back up in a moment.
[09:52] And we're back!
[09:57] "We would love to see lower prices for content on the Australian store, but we'd urge the community to talk to the folk who own the content to lower the price."
[09:58] The committee is asking whether or not Apple is concerned that one in three Australians might start just bringing technology back from overseas if this price disparity continues, Tony King says that he's not concerned, but he does want to still see lower prices. King continues to blame the labels but concedes that it does need to get better.
"It's difficult for me to walk in and talk on behalf of the labels, but I'm not the labels...a balance does need to be struck," King says.
[10:01] There's plenty of squirming going on from Apple's Tony King, who continues to shift blame onto the labels.
"Should the labels appear before this inquiry?" asks the committee.
"Everyone should get their day in the Sun, so to speak. If further questions come out of that, then we'll be happy to reappear," he concludes.
That would be a very guarded "yes" from Tony King.
[10:03] Apple is being drilled about its failure to appear before the Committee until now. King says that it's appearance at previous committee's behind close doors was productive enough.
[10:05] Apple says it is no different to a retailer like Sanity or JB Hi-Fi. Fair point, actually.
[10:08] Apple starts with a US-denominated price, takes into consideration the cost of doing business like per-unit freight. Interestingly per unit of freight, the charge of shipping an iMac is more expensive in the AU market than it is in other markets.
[10:09] Apple is now being challenged about how it advertises prices. In the US, you don't need to advertise a price with the inclusion of sales tax, whereas in Australia you need to disclose the 10 per cent GST on all price tags.
[10:12] We're now talking about how much we pay for a Carly-Rae Jepsen single here against in the US. It's 67 per cent more expensive.
Never thought we'd get a Call Me Maybe reference into Hansard!
[10:15] Tony King is now talking about the Time Capsule backup NAS drive. Committee co-chair wants to know why it's 29 per cent more expensive in Australia.
[10:16] Apple isn't providing an excuse, saying that sometimes prices are 20-30 per cent lower. Not really an answer, just buck-passing.
[10:17] Ed Husic is now asking questions.
[10:18] Apple is being asked why it can't just man up and charge less for its content by using its buying power as the largest company in the world.
[10:20] Ed Husic bought a MacBook Pro a few years ago and he can't play DVDs on his laptop because of region coding issues.
[10:23] Apple says it doesn't set the price for its channel retailers, it only pushes a recommended retail price.
[10:25] Apple confirms that it doesn't do a shred of hardware manufacture here. No research and development either. King says however that it provides assistance to app developers uploading apps to the App store.
[10:26] Apple Australia purchases hardware and software from Apple in the US, imports it from manufacturing sites in China and the purchase price is set by Apple locally.
[10:27] Apple employs 2600 people in Australia. Phwoar!
[10:27] Tony King doesn't know how prices get set by the US Apple parent. It just buys them from the parent and resells them here.
[10:30] The cost of a computer coming to Australia differs minutely, King says, because of the bill of materials involved.
[10:32] Husic is trying to get Apple to disclose how many iPads it sold last year, but Apple won't be drawn on it in public, happy to chat about it in private.
[10:34] "Where's your head office again, Mr King?"
[10:37] The Australian Apple business represents 3 per cent of Apple's worldwide business. Crikey.
[10:39] Uh-oh, Apple is about to start dodging local tax questions. Apple is already getting in trouble for not paying enough tax in Australia due to transfer pricing.
[10:41] Naturally, the Australian Taxation Office knows everything about Apple's books: profit, revenue, costs, etc.
[10:41] Just did a bit of napkin-maths: Apple had $US28.3 billion in revenue in 2011 financial year. Three per cent of that -- which is what Apple Australia accounts for -- is about $US850 million. From a nation of only 21 million people, that's significant.
[10:45] Apple is now getting slammed on how much tax it's paying. Less than one per cent, if you recall correctly.
[10:46] King: Software is priced at parity with the US market and hardware is "moderately" more expensive than the US market.
Let's remember, Apple isn't the biggest offender in this inquiry, it's just the largest company accused of wrongdoing.
[10:50] Last couple of questions coming out now, Husic asking about retail margins which of course are commercial in confidence.
"If someone brings an ad into one of our retail stores, our Apple retail stores have a price-matching policy," says Tony King.
Did anyone know that?!
[10:54] Apple now being let go from the inquiry with its thanks. Nick Champion MP adds:
"Don't be shy in future when we ask you to come along".
[10:58] We're now taking a brief adjournment. When we come back, Adobe!
Paul Robson -- Adobe
[11:04] Stay tuned for Adobe...
[11:05] Adobe Australia's MD is making its opening statements.
[11:07] Adobe is arguably the biggest offender here. It's more expensive to buy a piece of Adobe software online in Australia than it is to actually fly to the US and back to buy it there.
[11:08] Adobe is talking about its new Sydney office.
[11:09] Paul Robson is saying that the cost of software comes from sales, marketing, research and development costs around the world.
[11:10] Adobe says that developing software is a "risky" proposition, adding that if you can't recover your development costs you can't stay in business. Get used to that excuse.
[11:12] Because of this risk in the development phase, it is difficult to set uniform pricing all over the world, says Robson.
[11:13] First mention of Adobe's Creative Cloud offering. You may remember that Adobe dropped the Creative Cloud pricing in Australia recently, but not boxed copies of software. It wants to push people to Creative Cloud rather than get them buying copies of the software.
[11:13] "At Adobe, we do redirect people to local sites to recover the cost of local operations and point them to information customised to their local market," says Robson. That's going to be a big issue.
[11:14] Opening statement over, Nick Champion MP now firing questions: 'Should we not [in a global market] all pay the same?'
[11:17] Q: How does Adobe 'personalise' the experience for Australian customers? What's the benefit of an automatic redirect?
[11:18] This exchange is extraordinary: Adobe says we pay extra in Australia because we get a personalised local experience. We can't buy from Adobe in the US because Adobe can't track where the money comes from around the world, but the only personalisation we seem to be getting is a shitty website update. Seriously, read this exchange:
Robson (Adobe): "We do it to capture the revenue relevant to the Australian market. When you run a business like Adobe, it's important for us to track the revenue in relation to where it's coming from. That allows me to request more investment in this market, and it gives me a better understanding the business we do here."
Husic: "It's hard for me to see how programs are...contextualised for the Australian market. It's effectively the same product. Why are Australian consumers charged over $1000 more for your product here for not much localisation? You're a global company with regional fifedoms. You access markets globally but you don't allow customers to benefit from that reach. If I want to go to Adobe.com, you won't let me purchase because you geoblock. How is that fair?"
Robson (Adobe): "The personalisation is relevant to the experience you get when online. One of our key interactions is to allow them to talk amongst themselves and ask them to contribute to the future of our product."
Husic: "When I chase up your corporate social responsibility and what you do for Australia, I get redirected to the Adobe [US] site, and find out what you do in America and not in Australia. If you're telling me that we pay $1500 more for your product, how come you can't update your website to reflect what you're doing in Australia?"
Robson responds by saying that they provide charity support and scholarship support, but Husic keeps hitting him:
"Why do we still pay these prices?"
[11:25] 76 per cent of customers are now buying Creative Cloud rather than traditional software.
[11:28] Oh sweet Jesus. The Nationals MP has asked Adobe if it sells music. Make that stop right now.
[11:30] Husic is now pulling questions from the #FairIT4Oz hashtag on Twitter.
[11:32] "Why can't you leverage your global reach to give Australians a fairer price?" the committee asks.
[11:34] Mike Symon MP is asking about the price of boxed software price disparity. "Is Creative Cloud price drop an admission that your boxed software copies are too high?"
Adobe responds by saying 'look at all the fancy things we do to give discounts to schools and non-profits!'
ACCAN makes a good point:
32% of Not For Profits have old software but can't afford to upgrade - discounts only help so much #fairIT4Oz
— ACCAN (@ACCAN_AU) March 22, 2013
[11:36] "Surely the reason you redirect people is because you want to make more money!" the committee adds. Cue squirming.
Adobe: if you want to fly to the US and buy the copy of a software, you can, but if you want to download it from the US, just go buy Creative Cloud instead.
This isn't doing anything for Adobe's image.
[11:37] Adobe: if you purchase your Adobe product in the US, we're not obligated to provide you a warranty. We want you to buy from us. The cost of running a business is high. That's why we redirect customers to the local market page.
[11:40] Does anyone else feel like Adobe came here to spruik Creative Cloud and instead is making itself look stupid? It sounds like Adobe just charges mark-ups to fund its local operation. Sorry, but if that's the case, you're doing your business wrong and you should be sacked. There's the door, Mr Robson.
[11:45] Interesting. Committee accuses Adobe of trying to indoctrinate students into its software by offering cheap Creative Cloud suites.
[11:45] Nationals MP Paul Neville is still getting that whole "Adobe doesn't sell music or movies" thing wrong. Let's stop him talking now.
[11:56] Adobe's Robson doesn't know if you pay GST on top of online sales.
"Do you make money on the Student Edition of Photoshop?"
Adobe won't budge: "commercial in confidence".
That's probably a 'yes' in that case.
"Is lower cloud pricing an admission that your business model is broken?" the Committee asks. I'd argue yes, but Robson obviously argues no.
[12:15] "If governments regulated against geoblocking, would this affect your business in a material way," asks the Committee.
Again, another probable yes.
Interesting hints by the Committee as to what remedies they're looking for when the inquiry concludes. The inquiry looks like it's trying to decide whether or not to recommend a need for uniform prices for hardware and software by IT vendors, the potential removal of geoblocking from online stores like Adobe's and more. Very interesting.
Whether the government would adopt it as legislation is another thing entirely, and it's something that would take a long time to pass, especially considering that it's an election year.
Husic is now throwing straight price comparisons at Adobe. The evidence speaks for itself, and it's screaming 'you guys are doing the wrong thing'. Price comparisons between Australia and Singapore are even being brought out: Australian consumers are always the loser.
The member for Chifley is belting Robson:
Husic: "Do you accept responsibility as a member of the IT sector that you're responsible for part of the higher cost of doing business in Australia, which in turn you then use as an excuse?
All the products that you mentioned have boxed copies that carry ongoing costs. That is the reason Adobe uses to charge extra for digital downloads and it's rubbish.
[12:24] We're now moving onto the last question. It's about what happens to content and stuff you've created in Creative Cloud when you stop paying the bill. Basically, you lose it when you stop paying. No f**ks given by Adobe: "that's the same with many other pieces of software around the world".
[12:28] Pardon me, two more questions.
[12:29] Interesting to note: when Adobe doesn't give a decent answer, the MPs move on. Many of the committee members are doing a great job on calling Adobe on its nonsense, but
Adobe is getting away with a lot in this inquiry.
[12:32] Husic gets the last question. "If we recommend as a Committee that we prevent you from Geoblocking to allow customers to purchase software from the US site directly, what impact would that have?" It's remarkable that this is even being considered.
Robson won't be drawn on the impact it will have on Adobe Australia, but says that it will damage the contribution the ICT sector has on the local economy. That's a big call.
[12:36] And Robson is done. Adobe is off the stand and we're breaking for lunch.
We return at 1:00pm AEDT with Microsoft's testimony.
Pip Marlow -- Microsoft
[12:37] Stay tuned, Microsoft will appear before the Committee at 1:00pm AEDT.
[1:09] Microsoft MD Pip Marlow is up before the committee now.
[1:11] Microsoft is being asked if it has polled its customers to see if they think the higher prices they are being charged are fair. Obviously, Microsoft hasn't.
[1:14] Husic now rattling off prices again between Australia, Canada, Singapore and of course, the US. Marlow dodges the figures question by saying that she can't comment on those figures because she's not aware of how they were gathered and when.
Marlow: "We dont set a global price for our products. We don't believe that every market is the same. Emerging markets where the cost of living and the availability of technology is different has to be priced differently. At the end of the day. If we make a price too high in a particular market, customers will look elsewhere.
[1:17] Microsoft's Australian office is just sales, marketing and support. There are small amounts of Research and Development done here, too.
[1:17] Marlow is now taking the Committee through how it sells software in Australia. Partner, channel, volume licensing, OEM and retail partners all get a mention as parties that Microsoft sells stuff through.
Marlow: "These days, we're not using discs in retail, we're using product keys sold physically that allow people to download software."
[1:20] Microsoft confirms: no dedicated Microsoft retail stores in Australia. Those are just in the US, Canada and South America.
[1:23] Microsoft, unlike Adobe and Apple, don't operate from a single global price set by its head office in US. That means Microsoft Australia sets the price for everything sold here. Can't exactly slap it for price fixing if it's an independently made decision.
[1:25] "Are you just charging whatever you can get away with?" the committee asks. That's a pretty cynical view, but a good question.
Marlow: "I have never seen a more competitive [software] market in my 17 years in this business."
From a pricing sample taken by the Committee, it found that Microsoft products are nearly 66 per cent more expensive in Australia than in the US. 47 products were sampled.
[1:29] Marlow says that Australians don't perceive Microsoft's products to be more expensive. "If they don't like it, they vote with their wallets". That is, go elsewhere.
So, Microsoft Australia charges extra for software because they know people who don't comparison shop -- i.e: everyone -- just pays it.
[1:32] Committee asks: "Are we that different between the US that we justify a mark-up of 66 per cent?" I'd say Australia's a much smaller market that does have a higher cost of doing business, but probably not towards a 66 per cent mark-up.
[1:34] Committee now on a huge rant about the objectives of the inquiry. Marlow's answers clearly aren't cutting it, added on top of the fact that they've all had to deal with Apple and Adobe's crap between now and then.
Marlow delivers: "You're looking for one simple silver bullet. There isn't one."
[1:37] We're moving onto the charges for games. Hardcore Flight Simulator discussions or GTFO.
"Is the differential between game pricing on Xbox Live in Australia and the US something that is an issue," asks Committee Chair Nick Champion MP.
Marlow: "We don't operate in a global market so we can't tell one way or the other."
[1:40] We're now looking at the Big Mac Index, a graph of who pays what for a Big Mac around the world and how much it costed in labor to make that Big Mac. What the Committee is trying to do is say that labor costs don't really come into it when stuff costs extra between different countries. It's a very convoluted way of coming at the argument, but it was deftly dismissed by Marlow who said that she wasn't familiar with the methodology of the report.
[1:42] Committee says that you'd be very surprised to walk into an Australian business and not find a copy of Microsoft Office on there. Trying to get Marlow to admit that the Lion's share of small businesses use Microsoft's products. She won't be drawn because she doesn't have the market share details in front of her.
[1:44] Committee adds that small businesses are either too busy or too lazy to compare Microsoft Office to the freeware and open source alternatives. This feels very leading of the Committee.
[1:44] Small businesses are being held over a barrel and charged a private tax by Microsoft as a result by having to pay their high prices for software, the Committee accuses Microsoft.
"You're slapping people with a digital handcuff".
[1:46] This is not only incredibly leading, but it's based on the Member's own history with Microsoft products. He's assuming that small businesses can't look around for themselves to find cheaper, competitor products than those offered by Microsoft. He's insulting small businesses and being rude to Pip Marlow.
[1:48] Committee Chair Nick Champion MP accuses the Member of "editorialising" his questions. Too right. Moving on.
Ed Husic MP is now quoting the Microsoft website which reads that 17 million Australians have used a Microsoft products. "Is it fair for me to assume that you have 17 million customers?"
Marlow: "We can take it as read that 17 million people have used us." It's a very crafty way of saying 'kind of'.
[1:52 Husic reads off a few price differentials that the Committee has studied.
• Windows 7 Professional: US: $326 AU: $469
• Office 2010 US: $356 AU: $499
• Word 2010 US: $142 AU: $189
• Visio Pro: US: $570 AU: $900
...and here's the big offender:
• Visual Studio 2012 (with MSDN membership) US: $12,000 AU: $21,000
Marlow: "As we move to the cloud...we will consider different pricing strategies."
Marlow goes on the offensive to correct the Choice numbers on Visual Studio: "Visual Studio is sold to enterprises, and the retail version of that product [is cheaper]. We provide those tools to developers for free...for our development community...if they want to play with it."
That's a bit wobbly, because the paid version differs to the free version. The more you know.
[2:01] Pip Marlow is unsure whether or not a retail key bought for Windows in the US would work in Australia.
[2:06] Marlow says that the device market is more competitive than the incredibly tight software market. Innovating on Windows Phone and Windows 8 is key:
"We have to continue to redesign and innovate on our Windows products."
[2:08] The Committee has run out of questions.
[2:11] "You seem to have exhausted the Committee, Ms. Marlow!" says chair, Nick Champion MP.
[2:12] And that's all she wrote! The hearing has been declared closed. Thanks for joining us. Hopefully the Committee will make its decisions shortly. We'll be speaking soon to Ed Husic about what happens next.