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

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.