Netbooks Take a Bite Out of Windows Profits

twitter writes "Analysts at Bloomberg noticed the tumble in Microsoft's traditional software sales last quarter and blamed it on netbooks: 'The devices, which usually cost less than $500, are the fastest-growing segment of the personal-computer industry — a trend that's eating into Microsoft's revenue. Windows sales fell short of forecasts last quarter and the company cut growth projections for the year, citing the lower revenue it gets from netbooks. When makers of the computers do use Windows, they typically opt for older and cheaper versions of the software. Equipping Linux on a computer costs about $5, compared with $40 to $50 for XP and about $100 for Vista, according to estimates by Jenny Lai, a Taipei-based analyst at CLSA Ltd.' This is why MS declared war on the segment last year and palm top computers in previous years. While they may have successfully tamed the Asus EEE PC, they can't hold back everyone who wants to make a buck on cheap hardware and free software. Analysts have predicted the fall of MS's business model when computers break below $250/unit retail. We are there now, and it has shown in the bottom line."

Comments

MSFT goes SaaS?

[Rinisari]

I was talking to a friend at work about this. We basically felt the same way--Microsoft will eventually either have to cut significant costs so that it can afford to sell Windows for $10-25 per copy (even if it's a reduced version for netbooks) or move to a Software as a Service (SaaS) model. Microsoft could charge $10 to OEMs (maybe $50 retail) upfront, then require a subscription to get updates other than security updates. It could move to a "new big feature" once or twice a year that only subscribers can get.

It's a little farfetched, I know, but it seems the way to go these days. I'd rather pay $50 upfront and then $10 per month for four years than pay $400 upfront at retail. On a netbook, I think it wouldn't be unreasonable for Microsoft to offer something like Box.net on-line storage/backup as part of the subscription, too, especially for netbooks, which, like phones, are more prone to being lost/stolen than larger laptops and desktops.

Re:MSFT goes SaaS?

[jmorris42]

> Microsoft could charge $10 to OEMs (maybe $50 retail) upfront, then require a subscription to get updates other than security updates.

Yea, it could. But they currently get $32 for XP on a netbook and as much as $80 for a basic Vista. Big OEMs like Dell pay less (exact amount secret) and some machines that ship with more expensive versions of Vista pay more. The point being that even if your idea could work it would be a fatal hit to their bottom line. If they can't tap people for at least $5 a month a subscription model is going to be seen by Wall Street (rightly) as a lot less profitable than the current model.

The problem is that the only way people might pony up that kind of coin is they actually get something major, not just fixes to product defects. Even giving access to every Microsoft non-game product wouldn't induce many people to put up with a monthly subscription.

> I'd rather pay $50 upfront and then $10 per month for four years than pay $400 upfront at retail.

If they could still clip people for $50 up front they would have a future. Good luck convincing an OEM to put a $50 component into a product destined to retail for $200 or less. That is the world that is coming and it terrifies Microsoft. As the hardware cost for a basic network node approaches zero the software cost must do likewise, the days of selling the basic operating system, browser and office suite are coming to a close. And as computers become consumer electronics the reality of that transition is just being realized by the soon to be former PC makers. So both the current hardware makers and Microsoft are desperately trying to find some way to survive and would just love to transition to a subscription model in some sort of joint venture with the telcos/ISPs. Laptops/netbooks might end up tethered to a cell modem and a monthy bill but neither Dell nor Microsoft are needed by the telcos. They would rather buy the machines direct from China themselves and pocket the profits.

> On a netbook, I think it wouldn't be unreasonable for Microsoft to offer something like Box.net on-line storage/backup
> as part of the subscription..

Pay for a net based service? Surely you jest. ASUS is already giving it away for free now.

Re:Why make it more complicated than it really is?

[jonbryce]

Microsoft is regarded as a utility stock these days - in a recession, people still need computers as they aren't the luxury item they once were.

Also China and India are much bigger than USA and Europe, and those markets are still growing, at a slightly slower rate than before. That ought to more than counteract any decline in western economies.

Re:The troll, the legend

[dokebi]

Monopoly, meet perceived value.

Before MaBell was broken up, only Bell System phones could be connected to the phone line. And they charged arms and legs for that phone. Why? One, you didn't have alternatives, and two, if they charged too little, then customers wouldn't appreciate the service as much.

The price of something has very little to do with cost, especially in software. How much is an accounting program worth it to you? How much is it worth to a business? What if that software cost $20,000, and runs only on Windows with no alternatives? $200 is cheap in comparison.

Add to this the fact that OS is bundled with the computer (no direct means of perceiving the cost), it's very wise to set the retail price high. See, our product must be good to cost that much.

As much as I like GNU/Linux (3/4 of my boxes boot Linux), for most people, it's worth paying the $100 -$200 to get an OS that runs all the other popular software.

The best thing since sliced bread

[alegrepublic]

My Linux-based eee 901 is the best computer I ever had. The Atom chip sucks compared to the multicore CPUs in my other computers. Its SSD is tiny compared to massive 1TB drives I have in other computers. Its graphics capabilities suck compared to my game desktop. But (a biiig but) it is so
lightweight that I carry it with me all the time, and the battery lasts me a full day! In a month I have been assimilated and now am part of the
symbiotic Me-and-my-EEE borg. It is amazing to be able to have a real computer with me even in the toilet. The Nokia 800 tablet was the closest I got before to this but it was not a full-capability computer, and it showed. There is reason for Microsoft to be scared because they see resistance will be futile. I sometimes walk while typing on my EEE without fear of breaking my hard drive. I always drive with my EEE on the dashboard. More powerful netbooks miss the whole point. They are just laptops, maybe cheaper and less heavy, but not good enough for assimilation.

Re:Why make it more complicated than it really is?

[symbolset]

Somebody doesn't like you in moderator land but you're perfectly right -- though I wouldn't dig all the way back to the PIII and the PII is way too far. I'm a packrat and even I have given up on stuff that old. That an OS is useful on hardware that old is no longer even indicative of what it can do on the lowest power modern gear. It's of historical interest, and embedded platform interest, only. Maybe as unit tests for prelaunch satellites, though I understand they prefer BSD.

The Atom PC at 35 watts is ideal for emerging markets, cheapo PHBs and treehuggers. It runs all the decent business software just fine, works with the latest technologies like SATA and PCIe, and burns less coal-powered watts than the dimmest desk lamp bulb. In comparison a P4 3.6GHz blows enough amps to power a pair of hot halogen floods.

This is important in the US if you want to evince energy independence. It's even more important in emerging markets where if you want to build out a call center you have to provide the watts yourself.

But the Atom not only doesn't run Windows Vista well - it doesn't run it in any acceptable way and Windows 7 will be "less bad" but still not useful.