News: Compatibility drives down PC costs
Why does software cost so much? Software vendors--and I'm not just talking about Microsoft here--will tell you it is because R&D costs so much. Well R&D does, but Microsoft didn't save up $40 billion of cash in the bank by pumping all its software revenues into research, and something tells me the money didn't all come from sales of keyboards, mice and SideWinder joysticks.

Software costs so much because of file formats. Most big software companies out there grew on the back of proprietary (read 'incompatible') file formats that forced you first of all to buy their products and once you had bought them to follow the annual upgrade cycle. And as more companies bought the software of one particular vendor, so more people had to buy that software if their files were to be read. If it were any other industry it would sound bizarre, but I have heard of government departments in one country demanding that all correspondence must be sent in a particular file format if it is even to be opened.

And of course not only did you have to buy the software, but as your business associates upgraded, so you had to upgrade. Ten years ago it was WordPerfect. Today it's Word. It's all the same, but it's changing thanks in part to XML.

In XML, word processors call a spade a spade and every other word processor knows what it means--no more of the weird non-ASCII characters that fill proprietary file formats (and which you can see if you open a Word--or WordPerfect--file in Notepad).

Now WordPerfect can read Word files, StarOffice can read WordPerfect files, SmartSuite can read StarOffice files, and... you get the idea. The important thing is that compatibility brings us three very important things: competition, choice and freedom from the upgrade treadmill.
http://zdnet.com.com/2100-1107-955935.html