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Summary:

Ultra-low prices on portable computers are nothing new, and in fact have increasingly become the norm since the debut of netbooks — small and light ultraportables that are virtually defined by their low cost. However, there are some strong reasons to believe that Microsoft’s upcoming Windows […]

Ultra-low prices on portable computers are nothing new, and in fact have increasingly become the norm since the debut of netbooks — small and light ultraportables that are virtually defined by their low cost. However, there are some strong reasons to believe that Microsoft’s upcoming Windows 7 operating system, in addition to new types of Linux-based portables, could help drive profit margins for hardware manufacturers to surprising new bottoms. But is it good for the tech industry for laptops and netbooks alike to sell for fire-sale prices? And can hardware providers build healthy businesses around a new, premium-priced operating system?

“It’s getting harder and harder to sell anything over $800,” CNET over the weekend quoted IDC analyst Bob O’Donnell as saying about the portable computer market. The CNET article also notes that the price of an HP EliteBook 2530p business notebook in August 2008 was $1,500, while an upcoming ProBook 5310m notebook, less than inch thick and featuring a slick aluminum case, will be just $699. That new computer, and its rock-bottom price, will arrive with Windows 7 on the day that Microsoft’s new operating system ships: Oct. 22nd.

Windows 7 has a much smaller footprint than that of Windows Vista, and is much more adept at memory handling. It’s aimed squarely at the hot netbook market, where Microsoft has had problems with its profit margins, as evidenced in a 10-Q filing from last year in which the company pointed specifically to the market when explaining large revenue shortfalls:

“The decline in OEM revenue reflects an 11 percentage point decrease in the OEM premium mix to 64 percent, primarily driven by growth of licenses related to sales of netbook PCs, as well as changes in the geographic and product mixes.”

Microsoft is clearly aware that the trend toward very low-cost portable computers isn’t allowing for the kinds of revenues and high profit margins that it’s used to. As PC World notes, while not all the details of Microsoft’s Windows 7 pricing strategy are in place, it’s inevitable that the company will have to charge a premium for the operating system, which could in turn force hardware manufacturers to have to keep the prices of their portable computers especially low by way of compensation.

Meanwhile, Dell is shipping the very first netbook, a $299 Mini 10v, with version 2.1 of the Intel-backed Moblin Linux-based operating system. Other netbooks running Moblin will soon hit the market, and Jim Zemlin, executive director of The Linux Foundation, was quoted at the recent LinuxCon conference as saying that they will arrive at very low price points.  Only Apple, it seems, is able to maintain a healthy business selling portable computers at premium prices. And Apple won’t even play in the netbook market.

Still, despite the arrival of Moblin netbooks, Windows 7 will be the pace-setting operating system on new netbooks and laptops heading into the holiday season. In fact, as InfoWorld reports, it’s already on one in 67 personal computers in advance of its official release, due to early availability for users with volume licenses, and it has gotten rave reviews. It’s also being aggressively marketed by Microsoft.

As buyers continue to show their unwillingness to pay premium prices for portable computers, manufacturers respond to an unforgiving portable computing market and shaved margins, and Microsoft seeks to carve out whatever margins it can get for its new operating system, daunting new economics loom. In the end, we may very well see consolidation within and even exits from the portable computing manufacturing market as a result.

This article also appeared on BusinessWeek.com.

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  1. Windows 7 to Usher in Profitless Prosperity – Gigaom.com | Latest in Tech News Tuesday, October 6, 2009

    [...] Visit link: Windows 7 to Usher in Profitless Prosperity – Gigaom.com [...]

  2. My questions are only based on feelings about the market; but, I’m not certain that a more detailed breakout of the market would show the same trend. Just as I always try to see whether we’re talking about institutional purchases vs. personal [it is a personal computer, remember] for OS and hardware, discussions about laptops should breakout institutional [low-level travelers vs. executives], students, personal purchases.

    Corporations are always run by beancounters. To a certain extent a requisite. Students are governed by the smallest budget in the nation.

    But, personal purchases are generally driven by what the user probably considers to be the maximum demand on the system they carry around with them. I know beaucoup telecommuters who pop for MacBook Pros. I know kids/gamers who have HP laptops costing $2K.

    Bottom line drives all these decisions I realize. But, these are more than niches – as Apple continues to prove.

  3. The quote ” Dell is shipping the very first netbook, a $299 Mini 10v, with version 2.1 of the Intel-backed Moblin Linux-based operating system” seems to imply that this is the very first Linux netbook from Dell. What about the Dell mini 9 with Ubuntu that I bought for $199 six months ago? Why isn’t Dell selling that anymore? What happened to the two hundred dollar PC?

  4. Linux Foundation News » Blog Archive » GigaOm: The trend toward very low-cost portable computers Tuesday, October 6, 2009

    [...] Rupley writes: “Other netbooks running Moblin will soon hit the market, and Jim Zemlin, executive director of The Linux Foundation, was quo… as saying that they will arrive at very low price [...]

  5. Linux Foundation – Page One PR – Public Relations and Social Media in Silicon Valley Tuesday, October 6, 2009

    [...] GigaOM Windows 7 to Usher in Profitless Prosperity [...]

  6. There are a lot of great alternatives to Windows 7 emerging, for netbooks and smartbooks:

    e.g.
    – Moblin
    – Ubuntu Netbook/Moblin Remix
    – Android
    – Chrome OS

    And each of these OSes is backed by a reputable company (Intel, Canonical, Google).

    It’s doubtful that Microsoft will be able to charge a premium, for Windows 7, with all these options available, but they can try. For users that just need a light, low cost machine for web browsing, email, etc., it is likely to be a difficult sell.

  7. Windows 7 to Usher in Profitless Prosperity | Sebastian Rupley | Voices | AllThingsD Wednesday, October 7, 2009

    [...] Read the rest of this post on the original site Tagged: Microsoft, Voices, economy, GigaOm, Microsoft, Sebastian Rupley, Windows 7 | permalink Sphere.Inline.search("", "http://voices.allthingsd.com/20091007/windows-7-to-usher-in-profitless-prosperity/"); « Previous Post ord=Math.random()*10000000000000000; document.write(''); [...]

  8. The move to Linux is for a great reason, to LOWER COSTS significantly. Even if Microsoft lowers the initial cost of Windows, the cost of maintaining it and cost of additional software can still be VERY high. This often gets overlooked. With Linux being open source, users can obtain additional software for their computer all for FREE. This includes all productivity software and loads and loads of all sorts of stuff to make the computer more productive. I have owned my own business since 2001 and use Linux to run it. If I would have used Windows, I probably wouldn’t be in business today because of the high costs and maintenance. Instead, I’ve been able to focus on my business while I use Linux because it is FREE and it just works.

    http://members.apex-internet.com/sa/windowslinux

  9. The move to Linux is for a great reason, to LOWER COSTS significantly. Even if Microsoft lowers the initial cost of Windows, the cost of maintaining it and cost of additional software can still be VERY high. This often gets overlooked. With Linux being open source, users can obtain additional software for their computer all for FREE. This includes all productivity software and loads and loads of all sorts of stuff to make the computer more productive. I have owned my own business since 2001 and use Linux to run it. If I would have used Windows, I probably wouldn’t be in business today because of the high costs and maintenance. Instead, I’ve been able to focus on my business while I use Linux because it is FREE and it just works.

  10. As someone who has used and built his own PC’s since the DOS days, I can honestly say I will never pay for a Microsoft OS or software again, no matter how pretty VIsta 7 is made up to be (pig+lisptick=?).

    I always looked around, had a Mac once (the horrible OS9 was worse than garbage) and tried Linux back in the RedHat6.1 days and not until VIsta the first came out did I seriously think about Linux again.
    A 300$ netbook was my first glance at the modern Linux desktops. I realized early that I hated the ugly Ubuntu desktop called GNOME which is a copy of Mac, hated the fonts and the whole feel and look and discoverered there is a KDE desktop with Kubuntu and Mandriva and the XCFE desktop which could run my 10 yr old Thinkpad (with 8 mb video card!. Woohoo!) and P3 desktop in the youngest;s room.

    Once we got confortable with the netbook, we moved on to dual booting both XP and Linux and now all our 6 computers in the house run Linux. (We keep XP around on one still for a few games that we dont have on the Wii or PS3). Right now im in the middle of learning Virtuabox and will soon have XP running virtually on that computer.

    My point is, I will never again pay for Office or for Windows OS.
    That’s it.
    You saw the last dollar from me.
    There is simply no need.

    I upgrade my own desktops so I dont pay the MS tax that people are forced to pay whether they want to or not. And I just bought my mom her first laptop, a 2nd hand one which cost me less than 200$ because it works only w./ power supply and trackpad is busted (mom prefers the big mouse anyways) and which is running Mandriva Linux w.KDE4.3.
    This is her first computer ever.
    She knows how to access Gmail (firefox extension), how to use Skype and Kopete for IM and even saved a text file in Open Office this week (her first save and retrieve operation ever). She loves the games and prefers the speed dial extensions to view sites than using bookmarks.
    Most importantly, KDE lets me adjust everything how she wants which is very, very big fonts on everything. Flow, design and line isnt her thing… she wants to see things…. BIG.

    So now, were all using Linux, my folks are both on Linux on their computers, i dont have to play the tedious virus/malware game and loading and updating and blah,blah….

    They wont be able to give away its OS like it did with XP but even if it did:
    We dont NEED Microsoft anymore.
    It doesnt mean it will go away but there are now both Linux and Mac which have comparable desktops and its all a question of taste now rather than functionality (I use OS10 at work sometimes and have tried Vista 7 RC).

    If I buy another laptop next year, I will no doubt by a Dell or other that carries a Linux option. I wont even care which one (since I can change it) as long as I dont pay for the OS. Why should I ?

    I have a safe OS with multiple looks for different needs, it gets updated every 6 months, as does the KDE desktop and every day, the latest bug fixes and additions are added to my computer.
    And its free.
    With kids, house, cars, recession… EVERY dollar counts.
    Why should I spend when I dont have too?
    It would be like paying for bottled Dasani when you can get the same thing from the tap for free (minus the beautiful bottle. Design is important to some people you know.)

    Terry

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