Microsoft's Windows 7 is the apple of many in tech community's eye, with even former Microsoft critics eager to get their hands on the hot new OS which arrives later this year. In response to the growing netbook market, Microsoft is set to release slimmed versions of the OS which can install on netbooks. And while these versions are likely to make netbook owners day, they represent a challenge for Microsoft as it will likely to sell the base price at cheaper rates than standard OS's to keep its Linux netbook competitors at bay. In order to maintain its bottom line, Microsoft is relying on a risky strategy -- counting on customers trading up to more expensive version.
Microsoft Chief Financial Officer Chris Liddell describes this challenge, stating, "The challenge for us clearly is to get the average selling price up. We see Windows 7 at as an opportunity. We’ll have the ability for people to trade up, which would give us a price more similar to what we would normally get for a consumer."
Paul Otellini, Chief Executive of Intel, a key player in the netbook industry, believes that Microsoft's strategy is a dangerous one. He states, "That upgrade’s going to be tough for a bunch of reasons. Microsoft has to figure out: What’s their strategy?"
Windows sales accounts for 28 percent of Microsoft's $60.4B USD annual revenue and is the area where Microsoft sees its biggest profits. However, netbooks are threatening that strong revenue base by demanding cheaper OS's. Microsoft consented to sell netbook makers cheap copies of Windows XP for the time being (Windows Vista is too bulky of an OS for most netbooks), rather than lose market share. However, ultimately it’s losing money for each customer who picks a netbook with Windows XP over a more expensive laptop or desktop with Windows Vista Home Premium.
With Windows 7, Microsoft may be trying to tempt customers to upgrade by giving them a base OS that is very much bare bones and lacks many desirable features. Michael Silver, an analyst at Stamford, Connecticut-based Gartner Inc. states, "If you look at Starter Edition, I really don’t think Microsoft wants to sell that at all -- it’s pretty crippled. It’s really there just so they can say they have a really low-priced offering."
The most basic version of Windows 7 , Windows Starter Edition, can only run three programs at once -- something many users will find unacceptable.
Analysts believe Microsoft's tactics will probably not work, though, and customers will just buy the crippled version and be mildly discontent or choose a competitor like a Linux netbook instead. Michael Cherry, an analyst at Directions on Microsoft in Kirkland, Washington, states, "I don’t know that there’s much room to charge more than what’s been charged currently. I’m pessimistic about this."
Steve Ballmer, Microsoft CEO, is pushing his company to work to make upgrades more attractive. For Windows 7, Microsoft looks to make upgrades a much easier process. Switching version will take only minutes as most of the core software will stay the same, only certain features will be unlocked based on the version.
Thus far, Microsoft has released no concrete information on the pricing of its different Windows 7 versions.
Despite the general sentiment that Microsoft's move to limit the functionality in its base OS for netbooks is a bad idea, there are some analysts who think that the move could pay off in the short term. States Sarah Friar, an analyst at Goldman Sachs Group Inc. in San Francisco, "Microsoft will be able to find something that lets them cream off a little more revenue than what they get from XP right now."
quote: As a result of ongoing collaborations with governments on PC access programs and increasing digital inclusion, Microsoft developed Windows XP Starter Edition in 2004, an operating system designed for first-time PC owners in developing technology markets. Microsoft Windows XP Starter Edition is designed to offer an affordable and easy-to-use entry point to the Windows family of products that is optimized for lower-end hardware , tailored to local markets, in local languages, and is compatible with a wide range of Windows-based applications and devices.Windows XP Starter Edition began as a limited pilot program at the request of government partners and then grew into a product benefitting millions of first-time PC owners in 139 countries around the world. Windows Vista Starter was launched in January 2007 as part of the Windows Vista Family.
quote: These engineering investments allow small notebook PCs to run any version of Windows 7 , and allow customers complete flexibility to purchase a system which meets their needs. For OEMs that build lower-cost small notebook PCs, Windows 7 Starter will now be available in developed markets. For the most enhanced, full-functioning Windows experience on small notebook PCs, however, consumers will want to go with Windows 7 Home Premium, which lets you get the most out of your digital media and easily connect with other PCs.
quote: It's like a car manufacturer putting a speed limiter locked at 55 mph on their car and asking for a premium to remove it.
quote: Furthermore, I give it a few months before a crack to eliminate the limit is released ;)
quote: For Windows 7, Microsoft looks to make upgrades a much easier process. Switching version will take only minutes as most of the core software will stay the same, only certain features will be unlocked based on the version.
quote: For example: parents buy a kid a laptop for school. Kid has a browser (for Facebook), IM, and Word open (you know, for that paper he's supposed to write). Now he can't open iTunes, or a dedicated email client, or anything else.
quote: What it teaches us is you are pro-MS and totally ignoring the reason to have a modern computer.
quote: ultimately it’s losing money for each customer who picks a netbook with Windows XP over a more expensive laptop
quote: Running three programs != running 3 CPU-heavy programs. I can easily see running more than 3 programs in a useful manner on a netbook.