Chris Baus

Windows 7 and the netbook

The netbook represents a serious threat to Microsoft's core OS business. For years, I've believed Microsoft was in a precarious position in the market because the cost of software had become a larger precentage of the cost of a new PC.

In 2004 I said:

When PCs cost $3000+, DOS and Windows ran about $100 for OEMs. That amounts to about 3% of the retail cost. Fast forward 10 years. A PC can be had for less than $500. If Windows cost even $50 (which is low), that is 10% of the total cost...

As hardware costs continue to fall, the software costs will become a greater percentage of the total cost of a PC. Eventually something is going to give. Either Microsoft will have to lower their prices or the manufactures will start looking for alternatives. Neither is good for Microsoft's profit margins.

These days a netbook can be had for less than $300. The netbook represents an extreme in low cost computing, which according to Steve Ballmer, means, "a little less revenue per unit to Microsoft." At the same time Microsoft is positioning themselves as the premium product for business computing over Linux. This opens a significant foothold for Linux in the low end of the market, and the day that Linux finally starts to topple Microsoft on the desktop is here. Windows 7 will run on the netbook, but it will not create the monopoly margins of Microsoft's past.

What I've been expecting since the 90s is becoming a reality. The desktop OS and software are becoming a commodities. The PC is just a conduit to access the far more vast resources of the net. In the words of the great JWZ, "It's all about the network."