A few months ago Microsoft blamed the growth of low cost netbooks for its revenue decline, and the company announced it would lay off 5,000 workers. Now Microsoft has announced its revenue was down for the second quarter in a row. And executives are still blaming netbooks.

In order to stay competitive in the netbook space, Microsoft has been offering Windows at deep, deep discounts for low cost mini-laptops. While the company usually gets $50 to $60 for every computer sold with Windows installed, Microsoft may be making as little as $15 for each Windows XP powered netbook that’s sold.

Microsoft says 10% of all PC shipments during the first quarter of 2009 were netbooks, which helped contribute to a 16% decline in revenue for the company.

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13 replies on “Microsoft revenues down, netbooks partially to blame”

  1. A 10% market sector alone cannot explain a 16% drop for a company with a near monopoly on the market. There is another explanation.

    First, the economy.

    But second is their prices for both OSes and Office Suites ARE being cut everytime Linux and Open Office release a new version. The day isn’t far before we’ll see Linux and OOo come close enough to be indistinguishable, and that will eventually register. That MS’s response so far is to cut staff, presumably including programmers, even while they’re still very profitable, is a clear indication that they know the score, and they have to adjust their business model drastically.

    It might be a bit early to start the countdown, but it’s certainly time to start debating when to start the countdown.

  2. they could have saved money (as good as making it these days…) if they hadn’t wasted so much developing Vista or the latest Office effort. 🙂

    i’ve uninstalled Vista a few times in order to get new hardware working like it should (ie fast). it’s a joke and the 5,000 sackings should have been all those people who developed that piece of crap.

    MS is so damn big these days it can’t see what people really want. i look forward to being surprised at 7 when it is released but continuing all these silly versions is one of their most stupid mistakes.

    there are less big computers and laptops selling. that’s why their profits are down but there is also very little reason (ie features you just “have to have”) in Vista or Office for most people to upgrade.

    7 will succeed only if it works as well or faster than XP. we all succumbed to the “bigger, better, faster, more” mantra for too long. wouldn’t it be great to see Win 3.1 or 95 running on some of today’s low end hardware? it would fly with such low overhead requirements!

    what’s different for most users of today’s OS compared to Win3.1 or 95? USB drivers. if the older OSs could handle today’s true plug and play devices, there is not much more most users really need. 🙂

    it’s probably why netbooks are catching on as people start to realise they can do a lot online and with fairly “basic” hardware. If Commodore hadn’t imploded or Atari, what would those OSes be like on modern hardware? True innovation has never been MS’s forte and maybe now the market is reflecting this as we avoid paying them for “updates” we don’t need.

  3. Not that I like using Windows… but am I the only one who thinks we are finally paying the right price for Windows? 15$ seems fair for an OS that is completely locked and not very functional out of the box.

  4. I paid $350 for my fully functional XP 8.9 inch netbook. I expect any netbook I purchase in the future to be just as functional and at the same or cheaper price. Period. The day they sell me Starter in a $400+ netbook that’ll be the day. Sorry about their revenue problems, but its not my concern. I could just as easily use a Linux distro for nothing, so sorry MS, I don’t NEED you anymore, so you know where you can stick your Starter edition.

  5. A greedy lying cheating company whines about revenue decrease during a recession…

    My heart goes out to you MS!

    1. The main problem is isolated to the boardroom.
      If providing low-cost Windows for low-cost machines is a problem,
      the answer is easy: Don’t do it.
      There are a lot of machines that Microsoft does not make an OS for, why these?

      Like the old joke goes – –
      Doctor, Doctor, my ARM hurts when I bend it like this – –
      So don’t bend it like that!

    2. Yeah, exactly. I’m sure the RECESSION has nothing to do with a decrease in profits. *rolls eyes at Microsoft*

  6. Windows XP or 7 Starter Edition? Well, the answer is: Ubuntu – or Mandriva, might be…

    Even with a 25% loss M$ would still be too big. Let’s not forget that it’s not the total of copies shipped that went down. In Europe, it’s quite hard to find a Linux netbook, a huge change from the situation 6 month ago. And it’s not the customer, it’s the industry that dictates Windows and leaves no more choice to the customer than to pay for XP only to delete it from their netbooks as soon as possible. If that results in a loss of revenues for Microsoft, the better it is!

  7. Microsoft can absorb the loss and the end is in site. As soon as 7 is released XP will suddenly no longer available to OEMs. The OEMs will have to make the decision to go with Windows 7 crippled (starter) edition which will be only slightly more expensive than XP or go with a more usable version for considerably more money.

    Businesses will ramp up their testing of 7 to replace the near end of life XP. There is a lot of pent up demand as so many businesses decided to skip Vista. I guess now is the right time to buy Microsoft stock.

    1. The problem with that theory is OEMs only ditched Linux because Microsoft made em an offer they really couldn’t refuse on XP. 7 Starter at a higher cost than current XP is refusable, so it stands to reason at least a few OEMs will return to promoting the Linux alternative.

      So Microsoft has four options. a) Allow Linux to grow, b) sweeten the deal on 7 Starter which would basically require them to offer it at zero since XP is already down to $15 or add features back in, c) keep Windows XP alive or d) forget Starter and make 7 Home an attractive deal.

      All of those options have huge downsides. It will be interesting to see which one they consider least painful. But since they exist because the large entrenched computing powers of their day didn’t see the lowly PC as a threat and allowed them to grow for years unmolested I suspect allowing Linux to get a grip on the new lowend frontier just isn’t in em so a is off the table.

      Starter as is won’t fly. Even if they give it away customers are going to rightly see it as a ‘free trial offer’ and cost in the expense of the upgrade. If they add features back it rapidly becomes option d and that threatens the price structure of the whole monopoly Microsoft is built on.

      The only safe choice is keeping XP around for another year or two.

  8. It is rumored (on very poor authority) that the severance bonus for
    those 5,000 employees will be a NetBook running Linux. 😉

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