“Does Linux stand a chance now that Windows 7 will run on netbooks?”, Shane O’Neill asks in an article in ComputerWorld on 15 January 2009 that overall sounds fairly optimistic on Microsoft’s prospects. However it largely avoids one crucial subject that matters for Microsoft in the struggle over market share in the booming nettop market: Money.
In 1985 Jack Tramiel, head of Atari Corporation came to visit Digital Research Inc. (DRI) to license its GEM graphical desktop environment for the new Atari 520ST. It was going to be a low-cost machine based on the same Motoroloa 68K CPU as Apple’s much more expensive Macintosh, which itself was a low-cost derivative of the Apple Lisa (that was long before Microsoft Windows became a viable product). Tramiel had a reputation as a fierce negotiator, so his counterpart at DRI, then the main competitor of Microsoft and Apple, was only half joking when he said to Tramiel: “Jack, I know you’ll probably start off by offering us a dollar per copy.” – “No,” replied Tramiel dryly. “50 cents.”
Tramiel knew that by coming out with a fully-functional product at rock-bottom prices he could grow the PC market. In the segment he envisaged there simply was no margin for a $50 operating system license. What was true when an Atari machine cost around $1000 is even more true today with $250-$450 netbooks, and future netbooks will be even cheaper than that. Soon we will also see netbooks based on the same low-power, low-cost ARM processors that power virtually all mobile phones.
Commentators cited by Computerworld on Windows 7 don’t really talk about money:
Analyst Rob Enderle, president of technology research firm The Enderle Group, agrees that Microsoft doesn’t see Linux as much of a threat and that refocusing on the netbook market is more about “Microsoft addressing the problem of having to keep shipping Windows XP long after its expiration date.”
Enderle says that getting XP on netbooks was clearly a response to Linux gaining traction, but that Microsoft is not afraid of consumers or OEMs having a preference for Linux.
“The problem was that Linux could run on a netbook and Vista couldn’t, not any consumer or OEM love for Linux,” he adds.
But Microsoft’s real problem wasn’t just that Vista was too big to fit on a 4 GB flash drive and too slow and bulky to run on an Intel Atom with 512 MB of RAM. It was also too expensive. So Microsoft could save face by charging next to nothing for its 5 year old Windows XP, but it didn’t make any real money on it. So what’s going to happen when Windows Vista 1.1 aka Windows 7 hits the streets in volume maybe a year from now?
Does it really matter to Microsoft shareholders and employees if the 21 million or so netbooks expected to be sold this year (and the even bigger numbers in 2010) will be running some version of Windows or a version of Linux (which is free), if previously those buyers would have picked up a more powerful machine that netted Microsoft $40-$100 per license?
Whether Windows 7 will run with decent performance on low-cost machines is really only half the question. The other is, how much Asus, Acer and the other netbook OEMs will offer to pay Steve Ballmer of Microsoft. Is it going to be $1 or 50c per copy? That is no way to sustain a business with a market capitalization of $150 billion and almost 90,000 employees worldwide (Jan 2009 numbers), as Microsoft is realizing to its horror.