Strong Windows XP sales on netbooks could hurt Microsoft’s bottom line

The first netbooks to hit the market in 2007 shipped with Linux. Microsoft wanted in on the action, and began offering low cost Windows XP licenses to netbook makers, and today the vast majority of mini-laptops ships with Windows. And from Microsoft’s standpoint, that’s probably better than watching one of the fastest-growing segments of the PC industry be dominated by Linux (although you could probably debate whether netbooks would have become as popular as they have if they weren’t shipping with Windows).

But Microsoft isn’t making nearly as much money off of these low cost Windows XP licenses as it does from pricier versions of Windows including Vista Home Premium or Ultimate Editions. And that makes a lot of sense, because you can’t exactly get away with charging $100 for the operating system on a netbook that sells for $300.

But with Microsoft poised to report its quarterly numbers next week, some analysts are looking closely at Microsoft’s “OEM Premium Mix,” which is basically the percentage of OEM computers shipping with higher priced versions of Windows pre-installed. A year ago it was 76. Now it’s closer to 62 percent.

Windows 7 could change things significantly. While some netbooks may ship with a low cost version called Windows 7 Starter Edition, the operating system has been designed from the ground up to work well on PCs with relatively slow processors, small amounts of RAM, and limited storage space. In other words, while many netbooks struggle to run Windows Vista, most should have no problem running even the fanciest versions of Windows 7. And that will let PC makers offer customers a choice of a dirt cheap netbook running Linux, Google Chrome, or a similar free and open source operating system, a slightly higher priced version with Windows 7 Starter. If you’re willing to shell out more cash for additional bells and whistles you can either upgrade to Windows 7 Home Premium or Ultimate on your own, or some computer makers may even decide to offer netbooks with these versions of Windows preloaded. So while next week’s financial results from Microsoft might not be the brightest, I wouldn’t exactly count the company out in the long run.

Posted on Saturday, July 18th, 2009, 9:00 am by Brad Linder

Ricardo666

I've pre-ordered Win 7 from Newegg, one copy of Home Premium for the Asus 1000H and one copy of Pro for the Dell XPS410.
BoloMKXXVIII

I wonder what will happen if ARMbooks become popular and manufacturers decide to start making larger machines with ARM processors. I think Balmer will burst a blood vessel.
MonkeyKing1969

Hey Microsoft. Yoo-hoo. Yeah, guys maybe you should drop the price of Win 7 to OEMs, so that people buy Win 7 machines and OEMs choose to sell Win 7 machines.

Oh, and do that now. Do not do this in a year, because when Chrome OS comes you will you had a few-million more users that have upgraded from Win 2K and Win XP.

The Win 2K and
DG

Latest version of Windows CE / Mobile / Whateveritistoday is supposed to be surprisingly decent, and a huge cut above the previous generations currently clogging up people's smartphones. For nVidia to be backing it over Linux (for now at least) for the Tegra platform must show some confidence it can deliver a usable experience on larger computers, and that's something that could be built upon further if Tegra and similar found their way on to the desktop. I personally would still prefer a Linux, but although they've point-blank refused to produce Windows 7 for ARM (and would be pointless with no application support), they've still got a canny finger in the pie – and they'll hardly care if users upgrade to Linux so long as they get the bulk licence fees.
sracer

The latest version of Win CE/Mobile is NOT surprisingly decent, but surprisingly continue to lag. I've developed applications for Microsoft's mobile platform for over a decade and have been completely frustrated by their lack of interest (or ability) to push WinMo to the forefront in the mobile arena. I had hope that they would, but I don't hope anymore.
DG

Are you talking 6.5 or 7?
John Morris

Win CE won't play on larger machines and Microsoft won't be dumb enough to try because of the backlash and the loss of their biggest FUD defense against Linux.

The argument to date has gone thus: “Customers are stupid. If you give them something that looks like a small notebook they expect it to act like a notebook. In their mind Windows isn't a separate product, it is an assumption. Notebook == able to run Office, Quicken, Windows games, etc.”

Win CE won't run as many applications as Linux. So if the above assumption is correct they will reject Win CE, even more because they will have seen a “Windows logo” on the box and be doubly confused when the bootleg Office from work won't install.

That said, we really need to remember those first few months of the netbook craze. They were selling faster than ASUS could make them for months on end, Wii style. That was what caused Microsoft to panic and essentially give away XP. It was a tactic to buy time to come up with a profitable response to the new threat.
sracer

7.
Constable Odo

I think Microsoft is cutting its own throat by catering to netbooks. Microsoft should have just held out and let the netbook craze go by. If MS had made it painful for people running Windows on the netbooks, the whole netbook industry would probably be running out of steam by now. Now MS wants to keep supporting them and it will make the whole computer industry suffer with running under-powered, low-priced computers.

Microsoft is truly greedy. They could have let Linux have that small market for a while and only a few users would have been happy with Linux and eventually bought a regular-powered notebook with Windows. I think Microsoft made a mistake that it will pay for through lowered revenue for another year.
John Morris

> They could have let Linux have that small market for a while..

No they couldn't. They remember how THEY got started. It was classic small furry mammals vs huge dinosaurs. They were the mammals and the minis and mainframes with their High Priests of IT were the dinosaurs. People bought Apple's and PCs off the IT budget to run Visicalc and friends. By the time the dinos realized the threat Microsoft was a monopoly and it was too late for them.

Netbooks posed the same risk. PC prices are heading south, that isn't debatable anymore. Let Linux get entrenched in netbooks and customers might realize it was possible to live without Windows. That could mean they might buy cheap Linux powered information worker nettops and start the climb up the food chain, devouring Microsoft as they go.
zima

It's decent for mobile phones, but even there it doesn't really have much of a mindshare.

As for Nvidia…the reasons could be far more trivial. For example they don't want full featured ARM netbooks to eat into other segments; or manufacturers of ARM/Linux netbooks prefer to have access to open source drivers, which Nvidia won't provide.

Or…Tegra has 3 to 4 times slower CPU than other upcoming ARM solutions for netbooks, which might be not that visible on limited OS & aps of WinCE platform.
http://twitter.com/roguesun Raymond Gilford

Maybe it's time for Mr. Gates and Mr. Ballmer to lower the profit margin and sell more licenses making their profit off volume.
pratfall

Microsoft is the General Motors of our time- clueless, slow to react, muddled in its own sick inner workings. Here's hoping they don't make it to the point of a federal bailout.
John Morris

Not really an option. They are still shipping a license with 85-90% of all systems sold and about 10% are Macs. There isn't much upside there on the volume side of the equation even if they were willing to finally snuff Apple. So income per unit sold is the only way to grow revenue but average selling price on every platform they license windows on is going down with netbooks representing a sharp new downward trend. Growing their share of the wholesale price of each machine sold in that environment isn't promising but the alternative is a drop in bottom line profit.

Now consider that Windows and Office license revenue are they two major sources of profit on their revenue statements. What are shareholders going to say when they realize revenue from Windows is only going down from here and Office revenue will be next to get gutted.
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carlleigh

EeePC 1000h and there is no way that any kind of Microsoft OS is touching its pristine SSD.

I tried out the Windows 7 and found little to impress. Frankly it appears to be another upgrade to sell another upgrade. Every few years Microsoft changes the main OS's interface, breaks a few old programs, sells a new Office product that won't open or save in an old format so that everyone has to upgrade. Upgrading for the sake of Microsoft.

It funny because for nearly all its own products there is a free or open replacement. Most of the need programs are sold by a partner.

If Microsoft wants to make money why don't they do it the old fashioned way. 1. Find new customers, (2 to 3 billion people aren't using computers world wide as of yet.) 2. Come up with some new products.

Only fools pay monopoly prices after the patent has run out. More so when there are competing products that plain just work.

Basic patents on FAT, Word, Excel, etc. etc. etc. have certainly run out. Why! you so willing to be suckered.

One more time FUNNY! If they had dropped their prices over the years they would have avoided all the Monopoly charges. Who's going to complain about a multi-million dollar company that charges $10 for their OS and another $20 for their office products. They would have also been forced to find new products…

Thanks for listening…..
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Some Dude

“While some netbooks may ship with a low cost version called Windows 7 Starter Edition, the operating system has been designed from the ground up to work well on PCs with relatively slow processors, small amounts of RAM, and limited storage space. In other words, while many netbooks struggle to run Windows Vista, most should have no problem running even the fanciest versions of Windows 7.”

What a load of crap. Windows 7 was not “designed from the ground up” to run on netbooks. Netbooks barely came into existence during its initial development (when being designed from the “ground up” would've happened), and MS certainly never thought they'd catch on as they have. Windows 7 wasn't even “designed from the ground up” at all…many of the services have been updated but it's still based on the creaky, bloated Win32 codebase of Windows 95.

Windows 7 beta gives me barely-acceptable performance on my HP Mini 1000. Turning off all the useless eye candy (which makes it look more or less like XP) helps.
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http://listeningtoreason.com wanorris

I have to say that calling it upgrading for the sake of upgrading seems silly to me. Ubuntu drops a new release out twice a year, and I typically see new features that are nice to have. Microsoft is releasing their second upgrade in the last 9 years and suddenly they're just doing it for the sake of upgrading? Even Debian releases more often than that.

Selling computers to the last 2-3 billion people involves increasing their standard of living by several orders of magnitude, getting consistent electric power to them, etc. Microsoft is a very big company, but that's a little bigger than even they can handle.

So Microsoft keeps selling to their existing customer base. Corporations typically like standardizing on things and see no reason to switch, and average consumers just know that they want to be able to buy a copy of Landscape Gardener 3D or The Sims at Target and have it run on their computer.

Is it better than Linux? Maybe not. So use Linux and be happy that it's free and easy — who cares what everyone else does?
http://listeningtoreason.com wanorris

> Windows 7 was not “designed from the ground up” to run on netbooks.

Technically true. But limiting extraneous services to allow 7 to run well on resource-constrained systems *was* a goal from the very beginning. When netbooks came along, they became the focus of this study.

> many of the services have been updated but it's still based on the creaky, bloated Win32 codebase of Windows 95.

The Linux kernel dates to '91. The BSD core of Mac OS dates back to the 70s. A shiny new OS core is not a feature.

> Turning off all the useless eye candy (which makes it look more or less like XP) helps.

It's *intended* to run on netbooks in no-eye-candy mode. That's how it will ship on netbooks. Eye candy sells — witness the Mac — but by definition no one really needs it. If you need those cycles back, turn it off.
http://listeningtoreason.com wanorris

> Windows 7 was not “designed from the ground up” to run on netbooks.

Technically true. But limiting extraneous services to allow 7 to run well on resource-constrained systems *was* a goal from the very beginning. When netbooks came along, they became the focus of this study.

> many of the services have been updated but it's still based on the creaky, bloated Win32 codebase of Windows 95.

The Linux kernel dates to '91. The BSD core of Mac OS dates back to the 70s. A shiny new OS core is not a feature.

> Turning off all the useless eye candy (which makes it look more or less like XP) helps.

It's *intended* to run on netbooks in no-eye-candy mode. That's how it will ship on netbooks. Eye candy sells — witness the Mac — but by definition no one really needs it. If you need those cycles back, turn it off.

Strong Windows XP sales on netbooks could hurt Microsoft’s bottom line

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