ms-revenueMicrosoft missed its revenue projections, and the company will layoff 5,000 workers to help cut costs. Besides the fact that the economy stinks and everyone is suffering, you want to know one of the reasons Microsoft’s revenue ain’t where the company hoped it would be? Netbooks.

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.

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14 replies on “Netbooks partially to blame for Microsoft layoffs”

  1. i don’t think that netbooks are responsible for the layoffs. nobody wants vista. people go out of their way to get winxp. so they are paying staff when their most wanted product was written 8 years ago. windows 7 looks good but i won’t be buying a system with it nor installing it. winxp handles my deminishing windows needs. linux and macos handle everything else. really wish i could get a legit mac netbook.

    in the past few months my company has had more than a few requests by accountants now coming to us trying to get office 2003 rather than the new ‘improved’ office 2007 as they hate the ribbon. one or two have now jumped to open office 3 as while it is different, so is office 2007 but they prefer the ui in openoffice 3.

    we program in vb at work and their development systems are equally bad when we can knock up a fully functional program in a few hours in obsolete vb6 but the same program will take weeks in superduper all bells and whistles as its documentation sucks.

  2. It doesnt matter the price difference, ASUS announced that 40% of their netbooks in 2009 will be Linux.

    If you told anyone 2 years ago that a company would be selling Linux on 10% of a line, people would have been over the moon. There was no Linux pre-installed before Asus brought their baby to the market (or barely) so anything would have been a success and Im sure that hoping for double digit penetration would have been seen as a pipe dream.

    The paths to using less familiar software is the same for Linux and Mac (id say even less for Linux since you are bound to find a desktop and/or distro that is suited to your tastes) and apart from a few habits, it is rather painless.
    Linux is even more painless when it comes to price and gets a bonus for reliving old computers.

    Vista 7 will be just like service pack was before, it will make the software finally usable but is it enough to stop the Microsoft spiral downwards? Doubtful.
    Microsoft has too much money, political clout/payoffs and leverage to die off. Anyone who thinks this is dreaming. However, like every great empire it is crumbling left and right. Netbooks are one very visible chink in their armour but not the only reason.
    Linux offers both a choice and a leverage against Microsoft, something that they are not used having to deal with. Like you said, they sold many licenses but did they make profit on them?

    The open source model and SAS are something that is now firmly entrenched in the tech world and Microsoft has to deal with it as well as the OS moving to the web and making the monolithic OS of the past not necessary.

    Ive used Linux at work for about a 8 years while working on servers and some of the modifications I did at work even made it in some GPLed software and I use about 3-4 OS every day. Linux wasnt ready for mom and pop even 2-3 years ago. It is now.
    You can install Mandriva, Mint or Puppy Linux like I did for family (old P2 and P3s) and they can get online and do what they want right away. It works.
    But the real secret is the fact that it is CONSTANTLY evolving and getting better and better. It took Redmond about 7-8 years to release Vista and it will take 2-3 years to get service pack Vista 7 out. The Linux kernel on the other hand is CONSTANTLY worked on and its mods and improvements added quickly and regularly. The eye candy like Compiz is already a top level and the desktops are getting better and better (KDE being the cutting edge one that has moved ahead and changed its whole infrastructure).
    When Vista 7 comes out, that’s it. No more changes until the next OS or some future service pack. If any new comes out till then in terms of technology, it will have to wait until the next time they feel they can get money out of clients (same with Mac).
    Linux can incorporate things in the kernel, desktop or software when its ready, NOT when they can fit it in their next release cycle.
    When technological advancement are released when ready, technology advances faster.

    Vista 7 will be good like XP service pack 2 was.
    But it wont be enough. The rules of the games have changed and now free (and free) is also good. Throw in the marketing savvy of Apple for quality computers (well, its the same hardware, Im talking about the finish/case) at the high end and I dont see Microsoft ever going back to their glory days.
    Hey, 60-70% of any market is still exceptional, its up to them to make sure that controlling JUST 60% of a market eventually can still make them money.
    If they cant, they deserve to die off.

    Then again, back in the 70s and 80s, when the PDP and VAX products were arguably the most popular minicomputers for the scientific and engineering communities, I never thought DEC would disappear either.

  3. The only reason Micro$oft charges so high a price for their crappy software is that, too many people in this world do not want to bother with learnig a similar but cheap or free program. And that is really ilogical. Why does anybody spend two weeks to learn M$ Office but does not spend the same time to learn OpenOffice? even if it is only for his/her own education, and maybe cannot use it in everyday work, because his/her boss is a Micro$oft fanatic believer.
    I don’t understand people who stick with this crappy software with the excuse “I learned this and it I can’t change now because I must learn a new program”! This is ridiculus! It is the same as if someone who bought an East-German Trambant once, (or any other crappy automobile), does not want to change and buy a Ford or a Toyota car, because he/she “will have to learn how to drive a new car”!
    People get what they are wotrh for.
    So, why Micro$oft got so “popular” and big (almost monopoly) in a world where most countries used to have draconian laws against monopolies? Because too many politicians “are on the take” and too many “professionals” want a “microsoft” to blame for their blunders whent it comes to IT projects!
    And then ordinary people have to pay for it!

  4. Microsoft’s problem, isn’t netbooks, its Microsoft. They don’t innovate, they copy. There are fewer and fewer companies left to copy,as part of their total domination of the software market which has literally destroyed their competition. Microsoft is a huge company, with very large operating costs, they have to make a fat margin on their software, but the consumer is pushing back. The software in many cases costs as much as the hardware, which is in most folks mind ludicrous. Office & Vista together cost more than many laptops or desktop computers. Microsoft continues to try to gain marketshare in other markets, but must do so by selling at a loss, ie xbox and zune.

    Microsoft has painted itself into a corner, its software is no longer compelling, look at how people reacted to Vista, very few felt they had to have it, for most XP was certainly good enough, for others the problem was draconian DRM and the ability to remotely lock out the O/S, which was both stupid and arrogant.

    Microsoft is a juggernaut in a world of shrinking revenue, it will either have to reduce its size and prices or invent something so good and so cool that everyone will pay a premium for it. What do you think they will do?

    1. Worse yet for them….if the economy goes down the labor supply will go up and the dynamic will change. Instead of employee ‘mary’ demanding a machine with a copy of offiice 2007 on it she’ll be more willing to try running openoffice 3 or risk being replaced by someone who’d be more than willing to learn openoffice 3 for less pay.
      The US really has been hugely spoiled having such low unemployment for so long. Throughout history jobs have always been scarce compared to the available work force.

  5. How about nobody wants to buy Vista? That pretty much sums up why their earnings are poor. Also why I won’t buy a laptop unless I can get downgraded to XP…..

  6. And yet Apple (who announced some very nice profits this same week) say the netbook market is not something they’re interested in because they “have slow processors, cramped keyboards and small displays; they give users experiences that they aren’t necessarily happy with.” Are there really a lot of disappointed netbook owners out there? And if so, why not show them how a real netbook can be done and make a mini MacBook Air (even an 11″ model would be nice).

  7. I wouldn’t have a netbook if it weren’t for XP being close in price. I’d have just kept on using the larger el-cheapo Toshiba laptop with the crappy battery I’ve been using for a couple of years for my data acquisition stuff (all the various applications run on Windows).

    The surprise to me has been that my Aspire One has also partially elbowed aside my “real” laptop – a 12 inch G4 Powerbook – because it’s even more portable than the PB and its battery (6 cells) lasts over twice as long.

    I’d rather have it all be on OS X (and then I’d not have either the Toshiba or the Acer), but it’s not practical for the folks whose software I’m using (various products related to model airplane power systems). Their markets are just too small to develop for OS X (or some flavor of Linux) with Windoze’ huge dominance still.

    Yes, I tried Virtual PC on my Powerbook…. it worked poorly or not at all with the various applications.

  8. Given how much money that company has ripped off consumers for, that’s just a little bit of payback. Let’s hope Linux will start eating more and more into their laptop and server businesses as well.

  9. Ok, the economy is in the toilet, netbooks are eating their market up and they are bitchin’ and whining because revenue only went up 5%. Cry me a river. Only a monopoly who has never before had to face the real world would say things like that.

    No, the story is in the next lines in that graphic. They are spending too much. Too much on lame ad campaigns that aren’t working. Too much on divisions like the Xbox and Zune that aren’t making a profit and aren’t projected to make one any time in the forseeable future.

    Which is why the ax is going to fall and fall hard. Only growing revenue by 5% could be followed by a flat or down ’09. Without the promise of unlimited revenue (just set the price of a license to dial in whatever amount of cash we need!) they are going to have to live in the real world.

    Pressure on OEM pricing from the netbooks will creep into the low end desktops next. The prices are in netbook territory already yet they are still paying full retail for Vista licenses. It’s a side effect of a trend that has been running for about a decade now.

    Used to be a PC was about $1000. Moore’s law just changed what you got for that $1,000. But around the turn of the century they got ‘good enough’ and the $1,000 barrier fell. Everything got cheaper except the price of an OEM Windows license. Now it is far and away the most expensive component in a low end desktop or laptop. For a while OEMs worked around that by taking on crapware/trialware/etc for a price to offset the license cost. But it got so bad customers revolted. Plus Microsoft has blunted the appeal by bundling in their own anti-malware solutions.

    Seriously. We are talking about sub $200 netbooks here every day or two on the way… but never seeming to make it to store shelves; to date something always thwarts em. But a Sub $200 desktop would be a no brainer if it weren’t for the need to include a Vista license at full OEM pricing. Somebody will eventually break that logjam, probably using the same hammer ASUS used, wave the penguin banner until MIcrosoft makes em a deal.

    1. Adjust those numbers for inflation (5.8%) and 2008 was already ‘down’
      and 2009 will be less than ‘flat’ unless somebody wakes up.

  10. Hope they will still keep doing in tho.

    Can you update the link to jkontherun of your “Blogroll”?

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