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Why Windows 7 on Netbooks Won’t Save Microsoft

Netbook Win7

Daniel Eran Dilger

Microsoft plans to profit from the interest in netbooks by bundling them with a crippled version of Windows 7, forcing users to pay extra to unlock its features. The problem: that was also the company’s strategy for squeezing more money from PCs with Vista. It did not work; here’s why and what it means for Microsoft’s future.

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Microsoft’s Netbook Problems.

The company’s strategy aims to solve a series of problems related to the expansion in sales of low cost mini laptops. The first problem is that these netbooks can’t run Windows Vista because they lack sufficient resources. That means most netbooks currently ship with Windows XP. That’s not good for Microsoft because the company charges its licensees less to bundle the now eight year old XP than it does the more recently released Vista.

Even worse, about a third of netbooks ship with Linux. Microsoft makes nothing from those machines. Microsoft also recognizes that while Linux has offered desktop PC users a less attractive product compared to Windows on the PC (largely due to Linux’ lack of support for Windows games, commercial desktop apps, and some specialized drivers), the barriers holding back Linux on the PC aren’t nearly as significant on netbooks, which don’t play games, aren’t expected to run apps outside of basic things like web browsing and word processing, and have a smaller subset of hardware needs to support.

But the biggest problem with netbooks is that they don’t cost enough to invisibly hide the fees of a Windows PC license. It’s much easier to accommodate a $40 software license into the bill of materials for a $1000 PC than it is into the cost of a $300 netbook designed to sell at razor thin margins. That problem is also becoming an issue for the entire PC market as the average selling prices of PCs decline, with the current PC ASP now down near $500.

Netbooks killing off sickly Windows PC sales

When the Solution Itself is a Problem.

Microsoft’s only options at this point are:

1) lower the price of Windows licenses, greatly reducing the company’s profitably and revenues.
2) leave prices where they are and risk both losing PC sales to netbooks and netbooks to Linux.
3) pretend to lower prices but then force users to pay more fees to use Windows after the PC sale.

Option number three sounds much better than the first two, and that’s why Microsoft is pursuing it. The problem is Microsoft built its software empire upon the idea of not having to sell software to end users. Option three forces Microsoft to actually sell Windows upgrades to PC users, a strategy that did not work when the company tried to do it with Vista, and has never really worked for the company.

Windows 95 and Vista: Why 2007 Won’t Be Like 1995

Why OS Software is Impossibly Difficult to Sell.

Software is notoriously difficult to sell, particularly utilitarian software such as an operating system. Part of the reason nobody could compete against Microsoft in the PC OS market was because no consumers wanted to pay for OS/2, NeXTSTEP, or BeOS.

Nobody wanted to pay for Windows either, but Microsoft had the advantage of being able to hide Windows sales in the hardware purchase itself. Very little of Microsoft’s revenues come from retail sales or upgrades of Windows (less than 20%, according to Microsoft’s own revenue reports, despite the fact that retail copies cost many times more than the OEM licenses that PC makers buy when they bundle Windows on a new PC, roughly $30 vs $300).

The OEM contracts Microsoft set up with PC makers at the beginning of the PC era thus gave the company an inside track to selling its software invisibly. This is called the Microsoft Tax, because the company has achieved the authority and power to levy a fee on every PC sale, just like a government can. This powerful position makes up the other reason why competitors couldn’t sell alternatives to Windows: there’s no functional market for another desktop PC OS because Microsoft has saturated the demand with ubiquitous supply.

SCO, Linux, and Microsoft in the History of OS: 1980s
SCO, Linux, and Microsoft in the History of OS: 1990s
Why Microsoft Can’t Compete With iTunes

The Microsoft Tax.

Imagine trying to sell drivers access to your private toll road when the local government has built a competing, parallel freeway paid for by gas taxes. Unless that competing freeway becomes clogged with traffic, you’d be trying to market a slice of the full and considerable expense of maintaining your road against an alternative that is “free” to drivers who already pay for that freeway’s maintenance in their inescapable fuel taxes.

In Microsoft’s case, it can’t ever run out of free capacity because it’s selling a product that is extremely cheap to mass produce. While competitors can also create software copies at minimal cost, they have to amortize their total development costs with revenues from the much small minority of users they can win over. Microsoft spends billions developing Windows, knowing that the hundreds of millions of PCs sold each year will have to pay for it via the Microsoft Tax.

Linux vendors quite literally can’t even give away their software to desktop PC users beyond a very small subset of tinkers who go well out of their way to obtain Linux. Many of those users end up paying the Microsoft Tax on the PC they buy to run Linux anyway. This is the wonderfully lopsided game that has kept Microsoft rolling in software profits, indirectly paid for by hundreds of millions of PC users, few of whom even realize they’re also buying a Windows license when they buy a new PC. Those users are certainly not going to pay anything significant for an alternative OS, and haven’t demonstrated any real interest in even looking at a free alternative.

SCO, Linux, and Microsoft in the History of OS: 2000s

The Game Unravels

Falling hardware prices and PC market maturity are both killing Microsoft’s game, however. Over the last three decades of Microsoft’s DOS and Windows sales, the company’s software has actually gone up in price as its sales volumes have been pushed into the stratosphere by the regular growth in PC sales. That perfect storm of rising prices and rising PC volumes which delivered Microsoft’s soaring profitability is now dissipating.

PC market growth in developed nations is tapering off as the market matures (and the current recession has stalled growth entirely and resulted in actual PC market contraction). Additionally, hardware prices, which have been dropping regularly over the three decades, are now reaching the point where they can’t hide Microsoft’s license fee. The vast potential for PC sales growth in emerging developing nations isn’t ever going to drive the price of the PC back up; those markets are now demanding low cost PCs and are more open to alternative software than developed nations ever were.

That’s why Microsoft has worked hard to push PC prices back up. PC gaming is part of that strategy. Somewhat ironically, the Windows Enthusiasts who complain about Apple’s hardware prices are the same ones who go out and buy $3500 Alienware gamer PCs and then add a $150 video card upgrade every couple months. Microsoft loves this demographic because they buy anything. They don’t even bat an eye at paying a top dollar premium for Vista Ultimate.

The Apple Video Game Development Myth
Video Game Consoles 2007: Wii, PS3 and the Death of Microsoft’s .Xbox 360

The Encroachment of Apple.

That market segment is the same one Apple is after: premium buyers who care more about performance than cost. Apple has been gobbling up the high end of the PC market with premium MacBook notebooks, high end consumer desktops with the iMac, and prosumer markets related to publishing, digital video, and music. Like Microsoft, Apple has software to sell that it bundles into hardware sales (because software is impossibly difficult for Apple to sell as well).

Unlike Microsoft, Apple also builds the hardware. That enables Apple to survive on sales to a smaller base, something software-only OS vendors couldn’t manage. Sun and Cisco have set up a similar business in enterprise server and router sales, respectively. Apple’s iPod and iPhone also bundle hardware and software together to pay for software development via hardware sales, and conversely, promote those hardware sales via that highly developed software.

Microsoft has tried to do something similar with its Xbox franchise, because the video game console market isn’t big enough to support software-only OEM licensing. The problem with the Xbox is that console hardware sales aren’t profitable. Microsoft’s Windows Embedded CE, Windows Mobile phones, and Windows Media Player efforts are also failing because those markets are similarly not big enough to pay for the continued development costs of the operating system. In ten years, Microsoft has sold 50 million licenses for Windows Mobile, but sells north of a quarter billion Windows PC licenses every year. It’s no wonder why the Windows software model works on the desktop but not on phones and other devices.

The Spectacular Failure of WinCE and Windows Mobile

The House of Cards.

And that’s why the failure of Windows on the desktop due to falling PC prices will kill Microsoft as a consumer company; the rest of Microsoft’s consumer-facing business (media players, smartphones, game consoles) isn’t sustainable. To cover over this clear and present danger, Microsoft has announced that future netbooks will be able to run a new stripped down version of Windows 7, as if that would solve the problems it faces. It doesn’t. It merely replaces one low-cost license (Windows XP) with another (Windows 7 Starter). What Microsoft hopes to do is then force Windows 7 Starter users to upgrade to a functional version of Windows 7; there are plenty of Editions to choose from!

The problem there is that few users will buy software unless there’s a huge and compelling reason to upgrade. As Vista proved, asking users to pay extra for OS features they were denied in the stunted version that came with their computer isn’t feasible. It just makes users mad that they were ripped off from the start.

Apple has managed to figure out how to get users to pay for software upgrades: market serious new advances in technology that dramatically improve upon previous releases. Even so, that only works when selling to moderately high-end users, the same type of market Microsoft has with its serious PC gamers. The Mac and Premium PC/Gamer market are both relatively small however: something around 30 million users. The rest of the world is not nearly as interested in buying software updates. People who buy $400 netbooks are going to be particularly resistant to paying a large fraction of that just to update their software to work as expected.

Windows Vista, 7, and Singularity: The New Copland, Gershwin, Taligent
Windows 7 vs. Snow Leopard: Microsoft’s comeback plan
Exploring Windows 7 for Mac users

The Low-End Sales Tourniquet.

Apple has framed its market by refusing to build cheap PCs or netbooks. That has resulted in Apple retaining a higher-end market, which it cultivates with low cost applications that demand “greater than netbook” performance, things like iPhoto and iMovie. By pinching off low end sales, Apple maintains a sustainable business of selling premium PCs. That’s also why it opposes other hardware makers trying to muscle into its business and steal away its sales with cheap hardware paired with its own software. If that model were sustainable on a smaller scale than Microsoft’s quarter billion per year market for Windows, Apple would have pursued it itself by selling Mac OS X to PC users and licensing it to other OEM hardware makers. It is not.

Microsoft can’t do what Apple is doing because it doesn’t make PC hardware sales decisions. It could only watch as its hardware partners pursued a downward spiral of ever-lower PC prices, achieved by offering low-end performance and features. Netbooks are just the latest example of this long running trend. The same hardware makers that built Microsoft into a big government empire with tax collecting powers are now staging a revolution in hardware that will make the ornately dressed, elite royalty class that Microsoft represents simply irrelevant.

That will force Microsoft to offer cheaper versions of Windows to fit within the budgets of low-end PC hardware products, products that are rapidly eating into the already cheap end of conventional PCs. Those low-powered devices also offer an opening for Linux and likely Android, Google’s “value-added Linux” platform that pairs the free underlying OS with a free Java VM-like development layer and Google’s free (and Windows-free) apps.

While Apple may eventually be impacted by ultra-cheap PCs and netbooks, it has resisted hardware price erosion successfully for years by deliberately competing in higher end markets of its choosing. The day Apple begins selling netbooks that rival the features of its own MacBooks is the day Apple will be in Microsoft’s current position. Which is why the company isn’t at all interested in doing that.

Did Microsoft kill Android at Mobile World Congress 2009

Getting Around Without Microsoft.

Essentially, Apple is competing against Microsoft’s gas tax subsidized freeway by deploying a parallel network of company-supplied electric cars that run on a toll road. Users pay directly for access to the road instead of paying for fuel. Apple doesn’t attempt to directly compete against Microsoft’s model (that’s too hard), but instead offers a model that successfully appeals to the higher-end segments of the PC market. Meanwhile, Linux and Android offer drivers the use of free bicycles they can ride without a highway and without paying for fuel.

Both alternatives are draining away Microsoft’s fuel-buying customers, and will eventually make the PC market small enough so that Microsoft won’t be able to maintain its freeway system. The more it crumbles, the more users will be attracted to driving Apple’s electric cars on the company’s well maintained competing highway (Mac OS X), or alternatively, picking up a free bicycle (Linux) and riding to their destination instead of trying to drive on Microsoft’s increasingly potholed freeway.

Microsoft hastened this migration by building a brand new freeway that users refused to drive on: Vista. It’s now trying to address the problems that made Vista unattractive with Windows 7. Neither effort will stem the tide of drivers flowing to alternatives offered by Apple or Linux, and users who have opted out of that tax system won’t be in a hurry to return. Additionally, the cost of Microsoft’s fuel is now being forced so low that the company’s fuel taxes are becoming conspicuously apparent.

The only way to make up for this is to lower taxes (reducing its ability to maintain its crumbling freeways) or to impose tolls on its freeway on top of slightly lower gas taxes (by expecting users to pay additionally fees to upgrade to a more expensive Edition of Windows Vista/7). That didn’t work in the 90s for Microsoft’s hapless OS competitors, it didn’t work for Vista, and it won’t work with Windows 7.

The government game was fun while it lasted though, wasn’t it Mr. Ballmer?

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47 comments

1 carlo.98 { 02.26.09 at 5:29 am }

This article is a bit late. The crippling of the Starter Edition w/c can only support 3 apps at the same time has been jeered so many times. But it’s always nice to jeer at it again!

I hope MS gets a clue. Adding Value, not taking it away, is the only way to sell against free.

2 Per { 02.26.09 at 5:52 am }

Awsome article. This how it’s supposed to be done.

Being disgusted with Windows is no longer an elitist Linux h4xx0r or Mac fanboy feeling -with Ballmer’s Vista fiasco everybody and their brother are complaining. I find myself helping non-technical and uninterested computer users to install Ubuntu more often than installing XP on their machines that came with Vista. I’d say if Ubuntu or some other mainstream distro came with better driver support (especially for bluetooth and wlan) most would get it done themselves.

Nobody I know plays anyting besides solitaire on their Windows PCs anymore. Everybody’s getting consoles instead.

3 sharp_jiang { 02.26.09 at 6:51 am }

excellent

4 Jon T { 02.26.09 at 7:42 am }

‘Mr’ Ballmer simply wouldn’t understand that, and if you did, would not acknowledge it. The huffing, and the puffing, will continue.

My only addition to this great article is to say that Apple surely IS addressing the Netbook market. Aren’t the iPod touch and the iPhone doing everything and more that you can do on a netbook?

Add the much anticipated larger screen version of the iPod touch and the competition will be complete.

Great article.

5 greendave { 02.26.09 at 7:50 am }

Don’t write MS off just yet – if you can pile ‘em high and sell ‘em cheap, people will buy ‘em. You must always remember just how stupid and gullible people are. MS are not trying to sell Windows 7 [non-]Starter to educated users, but to the PC World weekend shopper who thinks the netbook looks nice and small and has a pretty Windows 7 sticker. Never underestimate the stupidity of the general public.

PS. IE8 running on Windows7Beta in Parallels3 loads .mac served iWeb created pages faster than Safari4Beta on OSX(!!!???). I will miss using Windows 7 to test my websites’ compatibility when the Beta runs out – I am even thinking about how I could get hold of a copy when it is released (for the right price, and not the Starter edition!)

6 Ludor { 02.26.09 at 7:59 am }

What sets Dilger’s analysis apart is, not only is it based on actual knowledge how the business works, and takes into consideration how we ended up where we are, but he also makes his case as a proficient storyteller (just like another Apple-interested guy we know and love to listen to). The electric cars and the bicycles – haha! – was the most original use of the “car analogy” I’ve seen so far. And it makes sense.

I just, well, I, it… I’m glad I came here. Effing great.

7 DyingSun { 02.26.09 at 8:09 am }

Daniel, congratulations on another brilliant article in an already vast collection of well-written, well-researched and thoroughly informative expositions.

Having been a long-time Windows user, MCSE and Network Administrator for an IT services company which develops for Microsoft platforms, I recently (2 years ago) made the irreversible (in a pleasant way) switch to the Mac at home. I haven’t looked back since and it’s been the most pleasurable time I ever spent with technology-related things (in 35 years mostly dedicated to such matters). I presently own an iMac and an iPhone 3G and I simply cannot conceive of myself without any of them.

And thanks to columns like yours and a deep interest in everything Apple-related (which began long before my actual switch), I now feel part of a sort of enlightened minority (and I’m saying this without any pretense of elitism, it’s merely a factual observation), which unfortunately so many people are still unable to understand and/or respect, being so blinded by the mainstream tendencies that tell you to “use what everybody else does”. And why? Because “you don’t want to be in a situation where you have a problem and no-one’s able to help you”! It’s ridiculous that people base their decision on the hypothetical problems they may come to face – why not think that you may actually be free of most problems if you consider an alternative technology? This is, sadly, the enduring mentality of the large majority of consumers in Europe (where I live), who think of Apple products as expensive American toys for American technologically-dumb people. Well, let them have their daily headaches, I’d say. I haven’t had any for quite some time and life’s so much better when you actually have the time to enjoy the technology, instead of struggling to make it work.

Sorry for the off-topic post, but I felt I had to say this.

Cheers!

8 Ilo { 02.26.09 at 8:57 am }

The car analogy works better if you imagine yourself in a big city like Manhattan, where travel distances are usually short enough that a bike or a (clean air-conditioned Apple-like) subway are alternatives. There will always be rural areas where Microsoft’s potholed highway is the only alternative (legacy business app environments, etc.) They won’t die quickly.

9 unscriptable { 02.26.09 at 9:11 am }

Right on as usual, Dan, except for one part. I know a few of the gamers you describe, and there’s not a single one who’d be caught DEAD buying a cheapo video card for less than $800. :-)

10 duckie { 02.26.09 at 10:25 am }

@greendave – you’re missing Dan’s point by a few miles. PC World buyers will indeed buy the netbooks with pretty Windows 7 stickers, but they won’t buy the OS upgrade afterwards which represents the revenue Microsoft need to maintain their many development black holes.

11 trainwrecka { 02.26.09 at 11:00 am }

Great article, but I also wanted to mention something about your site layout. I absolutely LOVE how you link 2-3 previous articles every few paragraphs. This is so much better than those obnoxious Google Adwords. It takes me to new pages in your site, which bring me to new ads, so that’s good for you – but – it takes me to new pages I find interesting, which I probably wouldn’t have known you wrote about without the links. I just Command-click articles I want to read and open them in tabs while I finish reading the current one.

12 GwMac { 02.26.09 at 12:37 pm }

Have you actually used Windows 7? I have tried it on my Mac Pro and I actually kind of liked it. I am still going to continue being a Mac guy, but even I have to admit that Windows 7 is a lot nicer than Vista and addresses most of the complaints. And just like Windows 95, it really only has to be “good enough” to maintain their market share. Linux is still just too fractured with distros to really pose a serious threat and Apple is no threat at all since they do not currently sell a Netbook.

Steve Jobs may call netbooks a nascent market but I think they are here to stay and will continue taking a larger and larger share of laptop sales. Apple will eventually have no choice but to enter this market. Whether they decide to introduce a iPod Touch Pro with a 6″ or 8″ screen running the OS X mobile OS or an actual Netbook with the full OS remains to be seen.

In a lot of ways Apple’s biggest enemy since the Intel switch has been Apple itself. Their obsession with slim and ultra-lightweight has forced them to make some serious compromises in performance. Most notably in the iMac and Mini which are essentially immobile laptops because of the parts they use. How much longer can they expect consumers to pay double the price for less than half the performance remains to be seen. Apple needs to seriously beef up the desktop specs to compete.

They are a little better off on their laptop range. But even there I question why you cannot get a 15″ or 17″ Macbook or a 13″ Macbook Pro. Screen size should not determine what Apple considers pro features. Even though most $600 PC laptops include expresscard slots and often even firewire.

Personally I hope Apple does introduce a Mac Netbook. My only fear is that they will either cripple it with so few ports or with too high a price. All the articles explaining how to install OS X on the MSI Wind, Dell Mini 9, etc.. shows an obvious window of opportunity, pardon the pun for Apple. If they mess around and wait for Windows 7 they will lose their chance because like Windows 95 it will be just “good enough” to keep the sheep in formation.

13 8an { 02.26.09 at 12:41 pm }

You forgot the main reason why Windows 7 users won’t pay for upgrade: they will just pirate it.

14 greendave { 02.26.09 at 1:00 pm }

@duckie – MS don’t need the upgrade – they need to maintain their market dominance, as they have done by undercutting OLPC for the ThirdWorld. They will still make a profit on Windows7 Starter (costs nothing to replicate and is just a bug fixed Vista).

@GwMac – Yes, it is actually quite good isn’t it – I have used Macs since 1985 and I have never said that about Windows before.

15 GwMac { 02.26.09 at 1:04 pm }

One last point I forgot to mention is that if Microsoft can still basically dominate the netbook OS market with a 10 year old OS with XP basically installed on around 70% of models now, that will surely increase when Windows 7 launches. You are certainly correct that their profit margin will be lower vs. more expensive models. But please remember that these Netbooks are rarely the primary computer in a home. They are often the second or third computer useful only for when you are on the road. Since most people prefer to use one OS for all their computers for compatibility and syncing reasons, these cheap Netbooks can also influence their decision to continue buying more expensive laptop and desktop PC’s running Windows as well.

On a personal note I really love the specs and price of the new Dell Mini 10. Ten inches seems to be perfect for my needs and the price is very attractive. Once someone confirms that it can be converted into a hackintosh as easily as the Mini 9 will full functionality I will click the buy button. It even includes features like GPS and a built in TV tuner that we cannot even buy on a $3,000 Macbook Pro. Though I doubt they will work in OS X. Count me as one of the Mac faithful that just got too tired of waiting for an affordable and small Mac laptop that fits my needs and have no other choice but to go this route. What is the old expression along the lines that it is better to have 10% of something vs 100% of nothing.

16 dallasmay { 02.26.09 at 1:41 pm }

Perhaps a better metaphor might be that Apple is a light rail line. You pay for the fuel and the ride all at once. It is a much higher quality ride than most forms of transportation, but occasionally the train doesn’t quite stop where you need it to and you have to walk a distance to get where you want to go.

But over all, the ride is smooth, easy, relaxing, and fast. A lot better than driving if you ask me.

17 John E { 02.26.09 at 2:36 pm }

a lot of good points in this article .

But! the piece should have at least mentioned MS’ OS/consumer revenue is only about half of its profit making machine, not the whole enchilada, or only highway, or whatever. the other half comes from all the enterprise revenue, which is a very different situation. in a nutshell, the core server/back end part is still very very strong, but the Office front end in coming under increased competitive pressure that will push its huge profits down a lot. there is a whole other article to write there …

18 Brau { 02.26.09 at 3:57 pm }

Some sad truth:

Despite all their rationalizations, Microsoft’s “strategy” is little more than throwing crap in every direction hoping it’ll stick somewhere. By not making their own hardware, it’s really their only option, but that said, Windows 7 appears to be my only option for my next purchase.

As a graphics intense user, buying a Mac was a no-brainer 3 years ago. Apple displays and PowerBooks all had color correct displays and the G5 was a data rendering monster, besting the Intel Xeons of the day while coming in at about half the price for similarly equipped systems. Add in the stability and virus free nature of OS X and the only trade-off was knowing that Mac versions of software such as Adobe Photoshop often lag their Windows counterparts substantially. I happily walked out the door with a Quad 2.5 ghz G5 and a PowerBook. I love these products.

Today I am approaching the 3-5 year replacement cycle and Apple has changed for the worse. There’s not a color correct display across their entire lineup meaning I will have to buy a third party display and a Windows based laptop. Macs today use the same processors as PCs meaning I can get similar performance for less from other makers. Adobe skipped offering a 64 bit version for Macs and won’t be offering CS5 until 10.6 arrives, which as I’m told won’t run on my PPC based systems – ouch! (That’s a double whammy). The only thing that would prompt me to buy a Mac today is their OS, which I clearly prefer for many reasons, but I may have no option. Windows 7 will only have to be “good enough”.

19 Nathan { 02.26.09 at 4:26 pm }

I’d be curious to know how much of the 20% retail revenue is attributed to Apple users installing in conjunction with Parallels and etc. I would also like to know which version is most frequently purchased for this purpose. It may be in Microsoft’s best interest to pursue this revenue stream by marketing a version that appeals to the needs of these customers. But of course, appealing to the needs of customers is something they need to learn.

20 Adger Linux » Blog Archive » Distros Bundled Programs in Linux Distros { 02.26.09 at 5:35 pm }

[...] Why Windows 7 on Netbooks Won’t Save Microsoft — RoughlyDrafted … – This powerful position makes up the other reason why competitors couldn’t sell alternatives to Windows: there’s no functional market for another desktop PC OS because Microsoft has saturated the demand with ubiquitous supply. SCO, Linux … [...]

21 beanie { 02.26.09 at 6:04 pm }

Daniel wrote:
“Microsoft plans to profit from the interest in netbooks by bundling them with a crippled version of Windows 7, forcing users to pay extra to unlock its features.”

Microsoft said the majority of netbooks will have Windows 7 Home Premium pre-installed.

Daniel wrote:
“netbooks, which don’t play games, aren’t expected to run apps outside of basic things like web browsing and word processing, and have a smaller subset of hardware needs to support.”

Next generation of netbooks will have better graphics chips. I think the Sony Lifestyle “netbook” shown at the top of this article has PowerVR SGX graphics, which Intel has licensed. NVidia is also trying to get their graphics chips bundled with Atom.

70% of netbook consumers choose to buy the more expensive Windows version over the cheaper Linux version. Remember netbooks started out 100% Linux and has now dropped to 30% Linux.

22 leicaman { 02.26.09 at 6:23 pm }

Great article. Nobody could reasonable dispute the main premise. Microsoft is in trouble, and most of them know it. But everyone’s afraid to get Ballmer out of his echo chamber and woe to the person who wakes him from his delusions.

23 Limulus { 02.26.09 at 7:41 pm }

GwMac { 02.26.09 at 12:37 pm } wrote:

> Linux is still just too fractured with distros to really pose a serious threat [to Microsoft's market share]

That may have been the case in early 2006, when Michael Dell said:

“People are always asking us to support Linux on the desktop, but the question is: ‘Which Linux are you talking about?’ If we say we like Ubuntu, then people will say we picked the wrong one. If we say we like and support Ubuntu, Novell, Red Hat, and Xandros, then someone would ask us, ‘Why don’t you support Mandriva? The challenge we have with picking one is that we think we’d disenchant the other distributions’ supporters. It’s not that there are too many Linux desktop distributions, it’s that they’re all different, they all have supporters, and none of them can claim a majority of the market. If you look at DistroWatch, you’ll see zillions of these distributions. Which one should we do? And, everyone keeps telling us that they want different distributions. So, our conclusion is to do them all and let the customer decide.”

(as per http://www.desktoplinux.com/news/NS3822185143.html) but it is not so anymore. In fact, just over a year after Mr. Dell said that, they started shipping consumer desktop systems specifically with just Ubuntu.

Its not that there are any less distros than there used to be (I would suspect more actually; as per http://distrowatch.com/search.php?status=Active the number of “active distributions” is currently over 300), but there are basically three tiers (compare ranking on http://distrowatch.com/stats.php?section=popularity). From least to most popular:

* all the little-known distros; either new, specialist or in decline, they form a ‘long tail’ in terms of popularity
* the major distros; generally the five to ten below the leader…
* Ubuntu

Ubuntu’s ascent shows up nicely on Google Tends:
http://www.google.com/trends?q=Fedora%2C+Debian%2C+Ubuntu%2C+SUSE+|+openSUSE&ctab=0&geo=all&date=all&sort=2

beanie { 02.26.09 at 6:04 pm } wrote:

“70% of netbook consumers choose to buy the more expensive Windows version over the cheaper Linux version. Remember netbooks started out 100% Linux and has now dropped to 30% Linux.”

The caveat is that it’s Windows XP, which is NOT being offered by any major OEM on their desktop/notebook systems, but for which there is significant consumer demand. Consider Mark Shuttleworth’s comments on the matter: http://www.theregister.co.uk/2009/01/22/shuttleworth_windows_7/

24 Joel { 02.27.09 at 7:25 am }

One interesting data point is that Microsoft now view Linux as a bigger threat than Apple. (And so they probably should, Apple is a known problem. Linux is the unknown one)

25 Joel { 02.27.09 at 7:25 am }
26 Boycott Novell » IRC: #boycottnovell @ FreeNode: February 26th, 2009 - Part 2 { 02.27.09 at 7:27 am }

[...] http://www.roughlydrafted.com/2009/02/26/w… “Even worse, about a third of netbooks ship with Linux. Microsoft makes nothing from those machines.” That’s why Windows is dying as a _cash cow_ [...]

27 Radu { 02.27.09 at 8:02 am }

Apple makes great notebooks. Period. That’s it. Nothing else.

iMacs are a piece of furniture. Mac Minis are an antiquated and overpriced gadget. And don’t even get me started on how overpriced Mac Pros are.

The iPhone (3G or not) is a joke. OK; so you can poke more than one finger at its screen. So what? The only finger worth poking at it is the middle one. iPods are great for teenagers who don’t know any better.

This brings us back to MacBooks and MacBook Pros. They have an attached Apple Tax for a useless operating system (that I’m happy to pay just to get the elegant hardware).

The first thing I did after taking ownership of my MBP 17″ was to wipe its HDD clean and install Windows Seven on it. Now it’s the best Windows notebook money can buy.

Apple should offer the option of having Windows pre-installed on its notebooks. In fact, they should just give up on Mac OS altogether.

[Well that certainly explains why users were flocking to Apple's hardware (notebooks and desktops) at 10x the growth rate of generic PCs, and why Apple is still making money while Dell and others go down in flames.

Had you said you installed Ubuntu on your hypothetical MacBook, I wouldn't have thought you were a Win Troll. But Windows 7? Really? It's a developmental beta that doesn't run a lot of popular software. If that's the best you can do, you might want to stick to playing games in your mom's basement. - Dan ]

28 carlo.98 { 02.27.09 at 9:06 am }

@ Joel

That’s because Linux is a bigger threat than Apple. Apple is only an indirect competitor to MS. Apple does not license OS X to anybody and almost all their paid software is OS X only. That does not really threaten MS dominance. Apple is better classed as a MS ‘frenemy’. While there is a rivalry between the two, more often than not Apple hypes MS software and integration with MS technology (Mac Office, Snow leopard, iPhone, even the Mac vs PC ads sometimes sell MS Office but not Vista). And also Apple normally sides with MS if that does not threaten a key Apple technology (e.g. OOXML)

Linux threatens the MS cash cows directly by threatening to replace the OS and the productivity utilities. Dell, HP, and the others can easily replace Windows with Linux if therein lies the profits. That’s why MS has to consider Linux the bigger threat.

29 Limulus { 02.27.09 at 10:44 am }
30 Joel { 02.28.09 at 12:54 pm }

@carlo.98 : Yes, I completely agree…

@Limulus : Snap…! :D

31 GwMac { 02.28.09 at 2:08 pm }

The sad fact of the matter is that previous poster that said Macs are all about notebooks now is mostly right. Apple needs to seriously update and overhaul their desktop line. The slowness of updates as well as new case designs is beyond stagnant. The Core i7 changed everything. A $1000 Core i7 PC blows away the current top of the line iMac at way over twice the price and even beats the Mac Pro in most benchmarks as well. Will most people really be satisfied with another Core 2 duo bump? When you pay premium prices it should not be unreasonable to expect the latest and greatest CPU’s and GPU’s instead of older and slower versions.

If, and this is a big “if”, Apple wants to introduce a netbook type laptop, they better do it before Windows 7 starts shipping. The current Vista dissatisfaction window of opportunity will be lost for several years if it quells most of the complaints. From the reviews I have read so far, it appears that it will meet that goal. We will be right back to where we were when Windows 95 was released. Apple has a lot of work to do this year to keep growing and getting more switchers to join the fold. I hope they are up to the task and surprise me with some new designs and models.

32 oomu { 02.28.09 at 2:47 pm }

“greendave { 02.26.09 at 1:00 pm }
@duckie – MS don’t need the upgrade – they need to maintain their market dominance, as they have done by undercutting OLPC for the ThirdWorld. They will still make a profit on Windows7 Starter (costs nothing to replicate and is just a bug fixed Vista).

@GwMac – Yes, it is actually quite good isn’t it – I have used Macs since 1985 and I have never said that about Windows before.

@greendave
@gwmac

you are both wrong.

the main point is : windows starter at THAT price for netbook is NOT sustainable

it not matters how terrific is Vista or 7 or windows 8 or windows ULTRABEST !

it does not matter.

it cannot compete against lower and lower price and linux. it simply can’t.

Apple knows that and never want to go in a frontal fight with linux.

Windows ME was also a failure. at that time people said apple should react and whatever to destroy microsoft..

but Apple does not need to destroy MS. Apple is not on that mission, apple want to sell hardware and they are succeeding in it.

So after windows ME, Microsoft did a better windows (xp), it changed nothing.

Linux was more and more there (totally there in my job)

Windows CE was a failure, Windows Mobile was a failure. there are hundreds of phone models using windows mobile and still all a failure. It’s pretty interesting to read sales reports.

You seen, you already lived a time of “windows disaffection”, it was ME (millenium), and it didn’t matter.

“Apple wants to introduce a netbook type laptop, they better do it before Windows 7 starts shipping”

Apple does not want to introduce a netbook. They will sell something better, something more expensive: a new line of iphone/ipod touch stuff with Great Software.

the main point is : windows can’t get enough money to microsoft in the new technological world.

it’s why MS is so adamant against linux. After that, Microsoft is forced to change. They cannot continue.

I think, in mostly 10 years MS will try to move of the windows market and begin to create professional software for unix and web market. Or becoming a new IBM (all about services and custom softwares)

-
in the same time, you can see how profitable is Apple.

the money apple is making is real, very real now.

-
Why do you think Apple wil not use intel core i7 ? of course they will. and macpro is all about XEON. real cpu for MY works.

-
I will repeat myself :

the main point is whatever good is the new windows, because of Linux, netbook and High Quality Apple hardware, microsoft cannot GET ENOUGH money from windows sales.

even when they sale millions of licenses ! it’s the REAL POINT.

so, microsoft is forced to change.

33 oomu { 02.28.09 at 2:53 pm }

“One interesting data point is that Microsoft now view Linux as a bigger threat than Apple. (And so they probably should, Apple is a known problem. Linux is the unknown one)

it’s true. because linux totally changed the rules of the game. to be exact : free software (freedom).

34 Limulus { 02.28.09 at 2:57 pm }

Joel: Sorry, I think I submitted that link after you did, but before your message was approved :)

35 phoenix_feet { 02.28.09 at 6:03 pm }

I don’t know if anyone here reads Frank Fox’s awful columns on Low End Mac, but he’s posted a rebuttal to Dan’s.

http://lowendmac.com/ed/fox/09ff/microsoft-and-netbooks.html

36 stab { 03.02.09 at 5:27 am }

I’m such an antiM$-fanboy (!) that I’d believe anything Daniel said! Pretty sad aren’t I!

37 stab { 03.02.09 at 5:43 am }

(sorry about that last comment!). How does HP’s new ‘mi’ linux distro fit into the equation? Will we see more of this from the big PC makers and more of them ‘weaning’ themselves off of windows?

38 Limulus { 03.02.09 at 2:58 pm }

phoenix_feet: regarding Frank Fox’s column, I note a few points worth mentioning:

First, he hasn’t kept track of the Win7 versions:
http://en.wikipedia.org/wiki/Windows_7_editions#Other_editions
http://www.pcpro.co.uk/news/246562/windows-7-to-come-in-six-flavours.html
(there are altogether too many, and some things have changed from Vista)

Specifically, there can be no “chance to sell upgrades on software, e.g., Starter Edition to Home Basic, Home Basic to Home Premium” except in what Microsoft terms “emerging markets” (the only countries where 7HB will be offered). But there, Microsoft also has to strongly compete against pirated versions of Windows (see the eweek.com article previously linked above).

Also, as has been noted often, people don’t usually upgrade Windows other than by buying new machines; the vast majority of low-cost Windows 7 netbooks in Europe and North America will be sold with crippleware Starter and then remain there.

Second, if you push Win7 Home Premium on Netbooks, you’re going to need to ramp up the specs in order to get a machine that functions about as well as an XP system would, which will mean that the cost will go up to the point where you might as well get a low-end regular notebook.

Third, AFAIK, the way Dell sells their Ubuntu machines, there is no software support; thus Linux will still be cheaper than Windows.

Now, I suspect that starter will probably be sold to OEMs for not more than XP is going now (let’s say $20, max). That will make it acceptable for OEMs to use on netbooks in the $300-500 range, while Home Premium will be used on notebooks in the $400+ range. Linux systems will compete well on netbooks in the sub-$400 range (and would also do well on lower-end notebooks (e.g. sub-$600) if they were widely offered). Macs will still dominate the high-end ($1000+) range.

39 Limulus { 03.02.09 at 4:23 pm }

stab { 03.02.09 at 5:43 am } wrote:

“How does HP’s new ‘mi’ linux distro fit into the equation? Will we see more of this from the big PC makers and more of them ‘weaning’ themselves off of windows?”

HP’s Linux is just a somewhat modified version of Ubuntu, like Dell’s. What will probably happen for the present is that each OEM will take a fairly stable distro (usually Ubuntu, but Linpus (Fedora-based) for Acer) and do some customization/branding to make it ‘theirs’ (compare what OEMs do to Windows to a lesser degree).

The OEMs, especially the big ones, are not ready to ‘wean’ themselves off Windows, nor do they even really want to; however, they DO want:

- a bargaining chip in negotiations with MS
- to be able to offer something that isn’t Vista
- to have a ‘plan B’ in case Win7 is another dud or if the economy is still tanking

40 Limulus { 03.02.09 at 6:29 pm }

From the article: “the biggest problem with netbooks is that they don’t cost enough to invisibly hide the fees of a Windows PC license. It’s much easier to accommodate a $40 software license into the bill of materials for a $1000 PC than it is into the cost of a $300 netbook designed to sell at razor thin margins. That problem is also becoming an issue for the entire PC market as the average selling prices of PCs decline, with the current PC ASP now down near $500.”

http://www.theregister.co.uk/2009/03/02/gartner_2009_pc_declines/

“Gartner says that the average netbook cost $450 in the United States in the fourth quarter [of 2008], but that will drop to $399 by the end of [2009].”

If you go to dell.com right now and look at their Mini 9 systems with Ubuntu, they start at $249… Are we potentially looking at $199 Ubuntu systems by Christmas 2009?

41 Boycott Novell » IRC: #boycottnovell @ FreeNode: March 2nd, 2009 - Part 2 { 03.03.09 at 12:42 am }

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46 Neil Anderson { 08.27.09 at 7:46 pm }

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