Netbook News: Rumble in the OS Jungle Comes Down to Price

netbookI’m starting to believe that the fight for the netbook operating system simply won’t go the full 10 rounds. In case you haven’t yet managed to score a ringside seat, let me offer you a blow-by-blow recap.

So here we are at the beginning of the next round, which would get us halfway to the full 10. There’s only one problem, and it has to do with how Microsoft (s msft) plans to position Windows 7 for netbooks. The company has already stumbled once, when it limited the Starter Edition to three concurrent apps, only to backtrack on such a constraint later on. The version had other limitations as well, such as minimal personalization and a lack of Aero support and DVD-playback, but the knockout blow may actually come in the pricing.

Although Microsoft isn’t expected to confirm Windows 7 pricing until later this month, word on the street is that OEMs will pay between $45 and $55 for a Windows 7 license on a netbook. Bear in mind that some netbooks cost as little as $279 in today’s market where it’s believed that a Windows XP license is no more than $15 of the overall device price. As Mary Jo Foley astutely points out:

“In order to thwart Linux, Microsoft has chopped the per-copy price it charges for Windows XP for netbooks to an estimated $15 per copy, according to various sources.”

If true, and I suspect it is, why abandon the successful strategy halfway through the fight? Did the manager step away from the corner?

Complicating the situation even more is that the pricing challenge that has everyone’s attention just might be a wind-up of the left while the real hook is coming from the right. According to Microsoft’s initial introduction of the various Windows 7 editions, it’s the price of Windows 7 Home Premium that might bring a TKO:

“All SKUs of Windows 7 will work on many of these devices, with Windows 7 Home Premium as the recommend SKU on small notebook PCs with sufficient hardware.”

The netbook market is, first and foremost, a low-cost market — price has been key to it success. I believe that if a netbook is offered in both a Linux and a Windows version, most consumers will choose the Windows version if the price premium is within 10-15 percent over the Linux model. If Microsoft wants to make it to round six, they need to keep this in mind during round five. That’s when I expect Google’s (s goog) Android to make an appearance, and I don’t mean as the ring-girl.