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Customers may love netbooks, but with Microsoft forced to sell netbook licenses for less than $15, it could find its revenue falling by more than two thirds if netbooks were to continue their wild growth and come to dominate the market.  (Source: CrunchGear)
Microsoft is winning more marketshare at the expense of its sales prices

One classic debate in the computer industry is the importance of volume versus price.  A company like Apple Inc. revels in high-priced offerings, and even though its volume has suffered of late, its stock has been soaring due to its high sticker prices, as PC sticker prices fall. 

Microsoft, on the other hand, takes the opposite approach, shooting for volume despite sinking prices, something other analysts favor.  Microsoft is aiming to conquer the ultra-low and low-cost markets, which primarily revolves around the netbook and MID (mobile internet devices) industry.

After netbooks flirted with bringing Linux adoption to the masses, Microsoft quickly pounced on the opportunity, pushing copies of its lean, proven Windows XP operating system onto the market.  Today, over 96 percent of netbooks ship with a Windows-based operating system.  And the move couldn't have come too soon, if Microsoft wants to retain its dominant position.  Estimates by leading market researcher Gartner Inc. predicts that 21 million netbooks will ship in 2009, growth of 80 percent, while overall PC sales sink 11.9 percent.

What is impressive, according to a recent Wall Street Journal report, is just how low Microsoft is willing to price its OS's to stay in the netbook game.  The report cites that Microsoft is offering netbook manufacturers licenses for $15, far less than the standard OEM price of $50 to $60 per Windows Vista license.  The estimate even falls far below Microsoft typical Vista Starter Edition prices of approximately $30 per license.

Microsoft faces a real dilemma as it tries to market the Windows 7 Starter Edition to the netbook market.  Not only will it be priced higher than Windows XP, but it will have a three program limitation, which could prove very constricting.  And upgrading to a more functional Windows 7 version might be desirable but would further raise the cost.

On the other hand, Microsoft only plans on continuing to sell Windows XP licenses to netbook manufacturers until 2010.  However, when the cutoff comes in 2010, it risks losing manufacturers to Linux distributions, if it doesn't offer cheaper licenses.

Thus Microsoft finds itself in the same mess that hardware manufacturers find themselves in when it comes to netbooks.  They have created a monster, which consumers love, but one that doesn't love the manufacturers back, with razor-thin profit margins. 



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RE: Even At 100 bucks its cheaper than Linux
By mondo1234 on 4/20/2009 2:54:04 PM , Rating: 2
I think MS has more competition from Linux than they claim, because, why the price cut? What surprises me is the price reduction MS is willing to take to stay in the game. MS says 90% saturation on netbooks and dell claims 1/3 are linux. If you have 90% of the market, you dont need to drop prices. So, somewhere in between is the facts.

Price wise, the oems are making alot more on XP than $15. The difference between XP and Linux is close to $100 on some netbook purchase. But looking at this,$15 bucks (for MS) for a phased out product isn't a bad thing. The bigger picture will be when MS ships Win7 and the price premium they get for it. If it is still $15 (which I doubt) MS earnings will be down about 2/3 for each license (assuming they are in the $50 range currently for the oems). MS would have to sell 3 times the licenses. Margins on notebooks (and netbooks) are falling anyway and at this rate, it will be a cut throat year for everyone - well except the buyer - we win.


RE: Even At 100 bucks its cheaper than Linux
By atlmann10 on 4/20/2009 3:15:54 PM , Rating: 2
All this talk about price cut is pretty funny. They are cutting the price of an op sys that in many ways no longer exists. What I am saying is XP has been developed active on the market for what more than 5 years and there still making 15 bucks on every Netbook. That sounds like a very stable and high performing investment to me that has paid itself off in triplicate, and there still getting paid for it. There is no comparison between Windows and this version of Linux as the version as no material worth. The only worth it has is in loyalty, and that loyalty is to Microsoft. Really if you find a investment that costs me nothing and has a 150% return let me know, as I want at least a million shares.


RE: Even At 100 bucks its cheaper than Linux
By segerstein on 4/20/2009 3:44:42 PM , Rating: 2
Why sell XP for $15, when you can sell Vista/7 for $60?

One way to differentiate the sales price for MSFT would be to offer a cheaper license for Atom/Via powered devices . $30 is not too much, but 3 program limitation is a no go.

I like Aero, new GPUs with hardware h.264 acceleration should run it well, but it is not essential on a netbook. But gee, I had more than 3 open windows since I started using Windows in 3.1 era... And that was a 40MHz 386 with 4MB RAM. Even on DOS I had several TSRs beside the main application and a DOS Shell.


By Fritzr on 4/21/2009 3:52:57 AM , Rating: 2
The target market for "Starter Edition" will be countries with a low per capita income. The starter edtion for countries like US and EU will be Home Basic.

Starter Edition with a 3 foreground program limit has a proven track record with Windows XP Starter Edition.

Microsoft has a mix of OS packages that are tailored to identified markets. The bottom end will not be available in wealthy countries and they expect very limited sales of the top end in poorer markets. Starter Edition is just part of the plan that ensures a Microsoft monopoly by offering options that fit 90%+ of the market for computers.


RE: Even At 100 bucks its cheaper than Linux
By shazbotron on 4/20/2009 3:52:26 PM , Rating: 3
An investment that costs nothing (input of $0) and leads to a 150% return ($0 x 1.5) would result in a profit of nothing...


By mondo1234 on 4/20/2009 3:54:54 PM , Rating: 2
Its called welfare


By twhittet on 4/20/2009 4:19:08 PM , Rating: 4
Sorry, only Chuck Norris can multiply something by 0 and get anything other than zero.

It's far more fun to watch when he divides by zero though.


By mondo1234 on 4/20/2009 3:52:25 PM , Rating: 2
quote:
What I am saying is XP has been developed active on the market for what more than 5 years and there still making 15 bucks on every Netbook.

That was pretty much my view on the price cut when I said above that:
quote:
But looking at this,$15 bucks (for MS) for a phased out product isn't a bad thing.

Its not about the "what", its about the "why". Why drop the price if you are not feeling any pressure for a price drop? Anything with 90% marketshare doesn't need a price drop. Are you saying that you would drop your price by 2/3 across the board, to pick up a few more percentage points? If you are making $45 on 9/10 copies, why go for $15 on 10/10?

9 x $45 = $405
10 x $15 = $150

It isn't always about the money they make on a product, it might be about the money they didn't make on a product.

http://www.dailytech.com/Windows+Dominates+Netbook...

quote:
Really if you find a investment that costs me nothing and has a 150% return let me know, as I want at least a million shares.


Sure, Its called welfare....


"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer














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