In a financial filing, Microsoft says the company saw “decreased revenue from Windows operating system as a result of PC market weakness and a continued shift to lower priced netbook PCs.”
In other words, because Microsoft has been offering low cost Windows XP licenses as a way to convince low cost netbook makers to use the operating system instead of Linux, the company is continuing to sell a lot of Windows licenses. But it’s not making a lot of money from them.
Of course, the alternative would be to demand netbook makers pay full price for a Windows XP or eventually a Windows 7 license. But that would drive up the cost of the laptops and could be enough to convince companies like Asus and Acer to promote their cheaper Linux models more heavily. And that’s something Microsoft surely doesn’t want to see happen. If customers have a choice between paying $299 for a Linux netbook and $349 for a Windows version, many will opt for the more familiar Windows operating system. But what would happen if the Linux model cost $299 and the Windows version ran $399 or more?
On the other hand, it’s possibly that the netbook market wouldn’t have exploded as quickly as it has over the last year if Microsoft hadn’t worked out a way for laptop makers to install its popular Windows XP operating system on the low cost mini-notebooks. While the original Asus Eee PC 701 with Xandros Linux was certainly a hit with consumers, every major player in the netbook space now offers computers with Windows XP or Windows Vista as well.