Microsoft makes $15 for every netbook sold with Windows XP
We’ve known for a while that Microsoft was offering Windows XP to netbook makers at a deep discount. Now we know roughly how deep that discount is. The Wall Street Journal says Microsoft is getting about $15 for every netbook that’s sold with Windows XP. That’s compared to the $50 to $60 the software company gets for computers sold with Windows Vista.
Early netbook makers like Asus put Microsoft in a tough spot by offering mini-laptops preloaded with Linux. Asus set the bar low for netbook pricing, with the first Eee PC 701 debuting for $399. Prices have fallen since then, and you can often find much more capable machines for $300 or less. Some run Linux, but most run Windows. But in order to compete with the free Linux operating system, Microsoft had to bring down its pricing to a competitive level.
Now with Windows 7 on the horizon, Microsoft is taking a different approach. It will offer several different versions of Windows 7, all of which are capable of running on low powered netbooks. But the cheap version will be Windows 7 Starter Edition, which comes with several severe limitations. For one thing, you’ll only be able to run three programs at a time. For another, personalization and customization options will be missing. You may not even be able to change the desktop background.
It’s not clear yet how much Microsoft will charge computer manufacturers for Windows 7 Starter Edition licenses (this version of the OS won’t be sold to customers through retail channels), but if you buy a netbook running Windows 7 Starter you’ll be able to pay to upgrade the OS and unlock some of those missing features. So I wouldn’t be surprised if Windows 7 Starter sells for somewhere around $15, but Microsoft tries to encourage consumers to shell out an extra $40 or $50 to upgrade to Windows 7 Home Premium.
But here’s the question: Would you rather buy a netbook with a deliberately crippled OS that still costs more than Linux, and pay for an upgrade, or just buy a cheap laptop that runs a fully functional Linux distribution like Ubuntu, Mandriva, Xandros, or Linpus Linux Lite? OK, if you’re reading this there’s a good chance you’re a geek and you’re not scared by Linux. So let me rephrase the question and ask which netbook operating system option would you recommend to your friends and family members?
Kristin Shoemaker at OStatic raises another good question: Is Microsoft trying to hold onto its netbook market share with Windows 7? Or is it trying to stomp out netbooks altogether?
If we put on our conspiracy caps, the latter approach could make sense. Microsoft saw that Asus and others were successfully selling netbooks with Linux in 2007 and early 2008. So it jumped in and started offering cheap Windows XP licenses until Windows had a huge netbook market share. Today most people think of netbooks as cheap, tiny computers that run Windows. So what happens later this year or early next year when consumers go to buy a netbook and find it’s incapable of doing all the things you would expect of a Windows computer? Do they upgrade, switch to a lesser known alternative OS like Google Android or Linux, or just give up and buy a more expensive laptop?
There’s no question that Microsoft and many computer hardware makers would be happier selling software and devices with higher profit margins. But netbooks are selling like hotcakes today. And while it would seem silly to deliberately sabotage a growing industry niche, that could be part of the thinking behind Windows 7 Starter Edition. After all, if people start to think of netbooks as less capable devices that are at best, big cellphones with web browsers and keyboards capable of running Windows CE or Google Android, but not Windows, people might buy them as second or third machines and not as primary laptops.