Analyst Report: Can Microsoft’s OS Versions Survive the Netbook Challenge?


With positive Release Candidate reviews, it looks like the Windows 7 launch in October will go smoothly. However, its impending arrival is creating challenges for Microsoft at the bottom of the hardware spectrum. Netbooks are a category too successful to ignore, and Microsoft is aiming to beat out Linux as the netbook OS of choice with the Starter Edition version of Windows 7.

Microsoft wants to see its products on everything from netbooks to servers. But ultimately, the company’s tiered pricing and multi-edition strategy is wearing thin in a world expecting 99-cent mobile apps, free or cheap cloud productivity solutions and free Wi-Fi connectivity on the road. The story with Windows 7 will not be if it outshines Vista (it will), but rather if it’s the beginning of the end for the artificially tiered, restricted and priced operating systems.

Hardware Shifts Downward

With roots in the One Laptop Per Child initiative, the ASUS Eee PC began the netbook phenomenon. Too small to be a laptop, yet big enough to work on for several hours, it offered just enough for web browsing, email and other online tasks while being light and cheap. Initially, most netbooks ran Linux, but when it became clear the category wasn’t fading away, Microsoft reacted by low-balling the OEM price for Windows XP Home to about $15 and licensing it for netbooks.

For consumers, netbooks running Windows were an easy sell. Buying to supplement your desktop? No problem, it runs all your apps. And no new OS to learn. We’ll never know if netbooks would have been such a breakout success running Linux, but with Windows they’re selling in the millions.

Is There Life After XP?

Bringing XP out of retirement for the netbook market was a good idea at the time. However, it puts Microsoft in an awkward position with the roll-out of Windows 7. Microsoft can’t use the same netbook strategy with Windows 7 that it employs with Vista (i.e., it can’t just sell a cheap low-end version of the “old” OS). For one thing, people like XP, while Vista’s reputation in the marketplace is that of a troubled OS, slow and with numerous problems. Not to mention that Vista, with its relatively high CPU, memory and graphics requirements, simply isn’t well-suited to netbooks’ stripped-down hardware.

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