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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: volume
By jcbond on 4/20/2009 3:44:30 PM , Rating: 2
I'm curious about this. Let's say that you're Microsoft (OMG! My pockets are suddenly full o' cash). Windows 7 looks so far like it's going to be significantly more successful than Vista. What happens if you cut off XP after 7 is introduced and appears to be doing well? What if you set the netbook price for Win7 at $30 to the distributors?
Will that $30 dollar difference lose all that much marketshare? If I were MS, I think I would at least try this for a year or so before throwing in the towel.

RE: volume
By mindless1 on 4/20/2009 5:36:09 PM , Rating: 2
What made you think they would "throw in the towel"? Surely this is similar to what they are going to do, offering Win7 for netbooks, but not yet as the factor of finishing Win7 streamlining, and having Netbook performance levels go up, are both ongoing projects.

As for losing marketshare, obviously they have already demonstrated they don't want to do it. The real question is what they perceive the customer experience to be running Vista or Win7 on a netbook, they certainly don't want it to feel sluggish even when brand new, then add the expectation it becomes even more bogged down after use.

MS does not want to lose market share and they recognize that even the 'nix put on netbooks is fairly bloated. Build up a distro that's smaller like Puppy Linux and it would run entirely from ram making even the low quality SSD drive performance much less of an issue. This is what they want to stop, a snowball effect that increases the 'nix user base from zealots to average people.

RE: volume
By mafart on 4/20/2009 6:06:22 PM , Rating: 2
This is what they want to stop, a snowball effect that increases the 'nix user base from zealots to average people.

I agree. This is definitely what Microsoft were worried about. People were/are buying netbooks based on price. The last thing they needed was the average Walmart or Target customer getting comfortable with Linux.

Looks like they have been spectacularly successful (again!) at gaining control of an emerging market. They could probably argue that the growth in netbook sales only really occurred once Windows versions were widely available.

RE: volume
By LumbergTech on 4/20/2009 7:40:14 PM , Rating: 2
its not going to happen...i've been using kubuntu for the last few weeks for the first time (im taking a C & unix class)

and i can say without a doubt that linux is a MAJOR PITA in comparison to windows..

there is no way in hell i would recommend it to a novice computer user

RE: volume
By mindless1 on 4/20/2009 11:28:08 PM , Rating: 2
But novice users are the most easily migrated, because they're buying it preinstalled, drivers too, and they're not into hacking away tweaked settings, etc.

They just need applications they recognize like their email, browser, office.

RE: volume
By jcbond on 4/21/2009 8:59:27 AM , Rating: 2
The article above implies that MS was throwing in the towel and selling XP home licenses to netbook manufacturers at $15 per copy. I got the impression that MS had to price the OS at $15 to sell and MS OS. It's one thing to do it on an obsolete OS. It's quite another on a new OS (7) where you need to get ROI. I'm not sure I would even sell the cut-down version of Win7 for $15.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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