Netbook gains: win or loss for Microsoft?

Sam Varghese
Thursday, 07 May 2009 05:34

Opinion and Analysis

Much is being made of the gains that Microsoft has apparently made in the netbook market, with manufacturers now finding that sales of the little gadgets with Linux on them are slowing to a trickle.
It makes a great talking point for Windows zealots and fanboys. But is this really a win for Microsoft? Or is it some kind of poisoned chalice that will end up draining away the one thing that  co-founder Bill Gates wants - money?

The main selling point of the netbook is price. Given this, it is not possible for Microsoft to make the full $US60 or thereabouts that it makes from a regular PC or laptop by bundling a copy of Windows with the smaller netbooks.

Manufacturers are now coming out with bigger and bigger netbooks, and soon it will be difficult to tell where the netbook ends and the laptop begins. Acer displayed a 11.6-inch netbook in London recently and Dell is already offering its Inspiron Mini with a 12.1-inch screen.

Dell understands that it has crossed a boundary with this model and even the name indicates this. But even in these models, the hardware specs are lower than for a regular laptop and price is the selling point. No room for the Microsoft tax here either.

Times are tough and Microsoft has shown for the first time that it is as vulnerable as any other technology company to the economic climate in the US and elsewhere. The company suffered its first drop in profit as a public company this year and has also been forced to sack thousands of staff.

Its share price is down like many other tech companies. There is no light on the horizon.

Two of the company's products have always been its cash cows - Windows and Office. That changed with Vista which was a disaster in terms of both sales and public perception. Not that a bad reputation has ever hurt Microsoft's sales. But the losses have been huge - and that matters.

Products like the XBox and the Zune have turned out to be less than spectacular in the face of competition from Japanese companies and Apple respectively. And the less said about Microsoft's success in the online space, the better.

Given all these factors, is it really beneficial to Microsoft to keep providing copies of Windows XP at less than cost in order to gain marketshare in the netbook space? I have my doubts. But then did the company have any choice but to try and corner the market when Linux showed that it would eat up anything that wasn't carefully guarded?

This may be one reason why the company is hinting that it is unlikely to make a separate version of Windows 7 for netbooks. And one can't really argue with the logic behind it: does one really need sales that bring in no profit?