Stop the Noiz

Linux on Netbooks Is No Threat to Microsoft

Frank Fox - 2009.02.27 - Tip Jar

I like Daniel Eran Dilger's recent column, Why Windows 7 on Netbooks Won't Save Microsoft, but I don't think he is anywhere close to being evil enough to understand the strategies of Microsoft. His argument relies too much on the free market driving certain decisions for the best solution.

Microsoft has no interest in playing on a fair playing field, and it has every intention of distorting things in its favor.

Distorting the Market

What are the tools of market distortion?

First, there is market control through distributors, like collusion without the antitrust issue. Then, there are contract negotiations to fend off competition. Finally, there is marketing to create product perception.

How will these things help Microsoft survive the supposed onslaught of cheap netbooks? Easy, just systematically employ these strategies as needed to kill of the legitimate competition from netbooks running Linux.

Step one has already been deployed as a stopgap measure - convert the sale of Linux netbooks to the sale of XP enabled netbooks. In 2007, almost all netbooks were sold with Linux; in 2008, less than 1 in 3 had Linux. Disaster temporarily averted for Microsoft, but it is not out of the woods yet. This change was successfully implemented with the help of ASUS, Acer, Dell, HP, and others. All of these vendors quickly offered XP versions of their netbooks as soon as they could - and sometimes XP-only versions of new models.

The next part of Step One is to get Windows 7 working well enough to further differentiate the next wave of netbooks from last year's models that either had "obsolete" XP or Linux. (As a bonus, Microsoft may try to tie the "obsolete" tag to Linux brand units.) Again, the OEM vendors will be more than happy to assist Microsoft in pushing Windows 7 on any new netbooks sold.

Different Levels of Windows 7

Once they start selling Windows 7 models, OEM vendors will get two rewards from Microsoft. The first is a chance to sell upgrades on software, e.g., Starter Edition to Home Basic, Home Basic to Home Premium. Nothing helps fill the piggy bank more than repeat sales. Even better than repeat sales will be the chance to upsell their product. For a few dollars more, buy the next model up with the better OS and maybe slightly higher hardware specifications. Windows 7 could very well be the savior the PC industry has been looking for.

Contract negotiations will be tailored on all of these deals to direct the most money possible to Microsoft at every price point. The Starter Edition, which only supports three programs running at the same time, will be low, but with expectations that greater volume and later upgrades will compensate. The Premium edition will have the greatest margins built in to really soak the affluent customer. All of this will be mostly hidden in the price of the new PC, so hardly anyone will complain.

'Free' Doesn't Mean There Are No Costs

While Linux can sometimes pretend to be "free", it still has a price tag to any retailer for customer support. This cost will in part help set the pricing of Windows 7 Starter Edition. By setting the price close to the total cost to the retailer for Linux, Windows will seem like the better choice to promote. This plus any FUD Microsoft can create surrounding Linux will keep the contracts going in their favor.

Finally, Steve Ballmer let slip the news that Microsoft is going to be spending a bigger chuck of cash on marketing. When Microsoft held the lock on the PC market, there was no excuse for spending a lot on marketing except during a new product launch.

Apple has finally awaken the sleeping giant over this issue. To help promote the sale and demand for better versions of Windows 7, Microsoft is going to spend like never before on advertising.

These strategies will be deployed across all PC product lines once Windows 7 is launched. That is why Microsoft is rushing to get it out the door ASAP. Microsoft has a lot riding on Windows 7, and truthfully they have both the money and the market dominance to make it happen. LEM

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