Does Microsoft Want to Kill Netbooks?

Microsoft (Nasdaq: MSFT  ) wants to have its software on netbooks, but on its terms and at PC-sized margins. Bad idea. Really bad idea.

Interestingly, it doesn't sound bad at first. Trade magazine InformationWeek reports that Microsoft is taking Windows XP -- the operating system that refuses to die -- and transforming it into a lightweight version of Windows 7 intended for netbooks.

But there's a catch. This new OS, called "Starter," will be light on user interface features common in Windows 7 and restrict users to running only three software applications at a time. It's a like a trial version that users pay for.

How is this good again? It's as if Mr. Softy is daring Asus, Dell (Nasdaq: DELL  ) , and Hewlett-Packard (NYSE: HPQ  ) to go with Ubuntu's Linux distribution or Good OS' "Cloud" browser-based operating system.

At least Apple (Nasdaq: AAPL  ) and Red Hat (NYSE: RHT  ) have the dignity to ignore netbook users. Microsoft would rather insult them, apparently. Talk about dumb PR, and in the wake of that black eye the industry calls Vista, no less.

As much as I've written recently about the risks inherent in cloud computing, there's no doubting that the Web is more functional than ever. Oprah isn't on Twitter just because it's the Next Big Thing. Well, OK, maybe she is. But the more than 100 million who use Gmail aren't simply fooling around; it's used to conduct serious business. That's why so many cried foul when it suffered a massive outage recently.

There's a right way and a wrong way to take advantage of the northward march of netbooks, Microsoft. Starter is the wrong way. It's a non-starter.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Four out of five dentists recommend the Fool's disclosure policy for fighting portfolio cavities.


Read/Post Comments (18) | Recommend This Article (8)

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  • Report this Comment On April 21, 2009, at 1:42 PM, whsteffan wrote:

    Tim Meyers is apparently another pimple faced preadolecant writer for the Motley Fool who thinks he can enhance his prestige as a reporter by bashing Microsoft. This phenomena appears to be highly prevalent in this age group among the IT tech wannabes. He cant contain himself bashing Microsoft and he actually thinks its cool to bash Vista especially hard. Its strange that an individual who pretends to know something about computer technology ignores the fact that virtually all PC computers for home use sold today have Vista installed on them, or that the market share of Vista has now risen to 25%, or that there are more than 200 million copies installed and sold and that Windows 7 is merely a major Vista upgrade and is in contrast praised by the IT community. No wonder the Microsoft Mojave project was met with such shock and awe and criticized so heavily by this crowd. The truth flies in the face of the big lie they are propagating about Vista. I suppose the Motley Fool cant afford to hire real reporters so they get minimum wage highschool dropouts to fill in part time and this explains the utterly abysmal quality of their news reporting and opinion writing.

  • Report this Comment On April 21, 2009, at 2:08 PM, marv08 wrote:

    Well, selling PC buyers "advanced" versions of the OS that comes pre-installed with the computer is part of their business. As these machines have limited power and memory, there is no real incentive to upgrade to a more expensive and resource hungry version of the OS... the only way to achieve up-sells, is to ship a crippled OS in the first place. I can at least see that logic.

    With Ubuntu beating Vista in usability, Android maturing to netbooks and both of them being free, and considering the low margins on these devices, MS will not get away with that concept. Each and every customer satisfaction survey (such as the recent one by Forrester) clearly identify Windows as the main nuisance, the vast majority of points HP, Dell and others lost compared to Apple were related to the OS... Now, do these OEMs want to have it even worse? Isn't it enough that MS runs ads on their expense... all these companies have now officially been branded as "cheap" and still MS wants their money. With partners like that, who needs competition.

  • Report this Comment On April 21, 2009, at 7:11 PM, stan8331 wrote:

    Regardless of what one's opinion of Microsoft may be, it's just a fact that trying to force an artificially limited OS on the netbook community simply won't work. There are perfectly good Linux distributions that work fine on netbooks right now, and then there's the realistic possiblity of adapting Android (or something like it) for netbook use. Yes, Linux hasn't yet managed to achieve much penetration of the corporate or home PC market, but netbooks are a different animal. The primary purposes of a netbook are email and web browsing - two activities that are not at all dependent on or intertwined with a Microsoft OS.

    It's understandable that Microsoft doesn't like the fact that they aren't going to be able to make much money from netbooks, but they're not really in a position of strength in that market. Given a choice of providing a very cheap, fairly functional OS to netbook manufacturers versus opening a door for Google and/or Linux to threaten their desktop OS/application business, unless they're complete idiots they'll swallow their pride and do the same sort of thing they did with Internet Explorer.

  • Report this Comment On April 22, 2009, at 1:39 AM, GregTrocchia wrote:

    whsteffan,

    I suggest that you re-read the article. It is not about Vista, Beyers mentions it only once in passing, but about Windows 7. As passionate as you may be about Vista, Microsoft has implicitly acknowledged the degree of market push-back (justified or not) by expediting the arrival of Windows 7.

    This looks like a big opportunity for Microsoft, the reactions of the beta testers of Windows 7 are every bit as upbeat as the reactions of the beta testers of Vista had been scathing. In this context, when I read that Microsoft plans to put the "Starter" flavor of Windows 7 on netbooks, the only hot segment of the entire personal computer market, my reaction was much the same as that of Tim Beyers.

    This has less to do with the pros and cons of a particular OS and more to do with a general business proposition: although you might not want to cannibalize your own markets, it is still better for you to do so than let some one else do it for you. Take the example of the IBM PC, back in the days of the early days of PCs. IBM made a decision to limit the performance of the PCs that they were going to sell in order not to draw buyers away from their low end small business computers. This provided Compaq, and the other clone makers a golden opportunity to sell PCs that were not only lower priced than IBM's PCs but faster than IBM's as well.

    Then too, there is the aspect that price discrimination may be a legitimate business strategy, but selling a version of your product which is deliberately degraded to support this strategy is a dicey marketing proposition. Selling a base version and then adding performance for more money is one thing, selling a product and producing a deliberately hobbled version to sell for less is quite another, one which buyers tend to resent. I believe that if Microsoft ignores this, it will do so at its peril.

  • Report this Comment On April 22, 2009, at 10:20 AM, TMFRhino wrote:

    Very well stated Greg, I think you hit the nail on the head with that comment.

  • Report this Comment On April 22, 2009, at 12:49 PM, RaulChapin wrote:

    whsteffan: "ad hominem" Look it up :)

    Tim:

    my 2 cents on the article. I researched the idea of buying an inexpensive netbook for doing presentations, basically showing excel pivot tables that i had created on my PC. Being able to do this was the only reason I would pay an extra $50 or so to get a Windows machine vs a Lynux based one. The result of my research was that I would be better off buying a cheap laptop, as the netbook was not intended for this kind of use. (I also wanted a netbook to have the added portability)

    If the Netbook is mainly designed (as its name clearly implies) for web activities. WHY would anyone prefer the MS OS, specially if Microsoft will offer an option that limits its use to 3 applications. You shave $30-50 off the price and get a Linux machine, no brainer there. (Internet explorer is hardly worth paying more for. And once your machine has the browser loaded, the user could not care less what OS the browser is operating on)

    If Microsoft actually wanted to tap into the market of netbooks it would be better off allowing the windows XP, or a light (not crippled) version of Windows 7 for netbooks AND add a light weight Office suite.

    This would allow extra choice to those that would rather carry the really small netbook instead of a laptop but would still need to perform some MS Office-like work that would be too dificult to achieve using their smartphone.

    ... Perhaps Microsoft feels they are strong enough to kill the netbook market and that is what this move pretents?!

    People buying netbooks would quickly realize the irrelevance of the OS in that market segment... and once they have gotten used to the idea of NOT using windows in one of their devices... they might chose a non Microsoft OS on their next PC/LapTop purchase??

  • Report this Comment On April 22, 2009, at 1:32 PM, RaulChapin wrote:

    Ah yes, my apologies for spelling / use of small caps... just had some time to squeeze in a comment, not to spell check :-(

    TMF: How about a spell checker in here... so that we really do not need to use MS Word LOL

  • Report this Comment On April 22, 2009, at 1:34 PM, RaulChapin wrote:

    Multitasking and me... not really a good combination... the title of the article is :

    Does Microsoft Want to Kill Netbooks?

    So I guess my last two paragraphs were redundant :-(.... I'll just go to sleep now!

  • Report this Comment On April 22, 2009, at 2:54 PM, Milligram46 wrote:

    So lets recap. Netbooks are "it"

    Apple doesn't make netbooks, but that is OK, even though their fat margins on laptops feed the coffers for them. A surge in netbook adoption isn't bad for Apple, even though they don't make one.

    Linux had 95% marketshare in netbooks, now it has flipped and Linux has about 5% marketshare. Somehow, Linux ignoring that, as the author stated is OK.

    Now Microsoft taking the same low cost operating system model they use in emerging markets is a bad thing, even though they are making $15 on what I've read on 95% of the netbooks growing, a very rapidly growing segment. Somehow, that is an insult?

    I mean the iPhone only allows one app at a time, phshaw that Windows Mobile allows multitasking! Oh wait, we want our cake and eat it too.

    I really can't see many situations where someone on a netbook, an appliance largely for checking e-mail and internet access would have more than three dedicated apps open at the same time.

    I'm finding it very funny to see how shrill the fanbois are getting over Microsoft's latest TV ad campaign, which the pundits say are effective and working, and over netbooks.

    Linux is going to kill windows! Ya, been hearing that for more than a decade, still waiting on that one...oh ya, and Apple doesn't have a netbook, shoot Apple only has one laptop under $999.

  • Report this Comment On April 22, 2009, at 4:43 PM, zman58 wrote:

    RaulChapin,

    My spell checker is working perfectly on this website. I am using Firefox on Ubuntu 8.04. :)

    Millegram46,

    You stated,

    "I really can't see many situations where someone on a netbook, an appliance largely for checking e-mail and internet access would have more than three dedicated apps open at the same time."

    Hmmm--interesting. have you checked out the multiple virtual desktops you can have on Ubuntu Gnome desktop. How about the remote login and multi-user support that Linux offers. Far more than three apps can be used effectively at the same time there--even on a little netbook.

    To all,

    Would you like a home made apple pie with your netbook or a stale twinkie? I'll take the apple pie with mine thank you.

  • Report this Comment On April 22, 2009, at 5:30 PM, TMFRhino wrote:

    Milligram,

    "Linux had 95% marketshare in netbooks, now it has flipped and Linux has about 5% marketshare. Somehow, Linux ignoring that, as the author stated is OK."

    He states Red Hat is ignoring netbooks. Just because Red Hat uses Linux doesn’t mean that Red Hat is Linux.

    In general, I think you're missing the point here, it's not that Linux is going to "kill" Microsoft. I spoke with the author and that wasn't his intention at all. The point is (to echo Greg Trocchia from above) that from early reviews Microsoft has delivered a very solid product in Windows 7. Whether fair or not, Vista had a perception problem; as a company that's recovering from a PR black-eye, Microsoft doesn't want to water down an OS that fixes many of the problems that prevented Vista from being an effective netbook solution.

    Even if people don't frequently use more than three applications at once on a netbook (they will surely from time to time... Calculator, playing music, internet explorer... whoops, can't open anything else) they will still be displeased when error messages pop up that they have too many programs open. Your Windows Mobile versus iPhone comparison doesn’t work for me either. The key difference we’re looking at here is a software limitation (or poor user design, whatever you want to call it, pick your poison), versus purposefully disabling already integrated features. 7 is being purposefully limited, it creates a poor perception of their product when Microsoft's been in a long-standing brand war (as you mentioned…)

    Finally, the author's written plenty of positive articles on Microsoft that have been published to this site, can we stop it with the "fanbois" talk. I'm very bullish on Microsoft long term, have worked at the company, and have numerous family members and friends who still work there and had a similarly negative reaction to this news event. It's not going to bring down the company by any means, but it's not starting off on the right foot with 7 either.

  • Report this Comment On April 22, 2009, at 6:36 PM, GregTrocchia wrote:

    "Apple doesn't make netbooks, but that is OK, even though their fat margins on laptops feed the coffers for them. A surge in netbook adoption isn't bad for Apple, even though they don't make one."

    Apple's strategy in personal computing has always been high margin, and if this means being a niche product so be it. As such, missing out on netbooks doesn't hamper their execution of their strategy. Not having a netbook offering means missing out on a hot market, but if it meant that Apple were to kluge up a netbook which ends up damaging its brand, I would argue that the price of entry into that hot market might well be to high to be worth it. Microsoft's strategy towards personal computing, by way of contrast, has always been about ubiquity. So missing out on the netbook market would be a much larger detriment to Microsoft's strategy than to Apple's.

    "Linux had 95% marketshare in netbooks, now it has flipped and Linux has about 5% marketshare. Somehow, Linux ignoring that, as the author stated is OK."

    Here is where the open source nature of Linux comes into play, by its nature there isn't one single "Linux Company" the way MS is the "Windows Company" or Apple is the "[insert feline predator here] Company". Red Hat Enterprise Linux is *a* Linux company, one whose strategy emphasizes the word "Enterprise" in their name. Unsurprisingly, netbooks are not a key part of RHEL's strategy. This is not necessarily true of other Linux Companies, Canonical (the folks behind Ubuntu), for example. For such companies failing to capitalize on the opportunity to displace Windows on a fast-growing new market segment is much more of a big deal.

    "Now Microsoft taking the same low cost operating system model they use in emerging markets is a bad thing, even though they are making $15 on what I've read on 95% of the netbooks growing, a very rapidly growing segment. Somehow, that is an insult?

    I mean the iPhone only allows one app at a time, phshaw that Windows Mobile allows multitasking! Oh wait, we want our cake and eat it too."

    This is where the point I made about customer perceptions in my previous comment comes in. Let me use an example of automobiles from back before the days of $4 gas, when more engine power was unambiguously desirable. Making a car with a 4 cylinder engine and then selling a 6 cylinder version with 100 more horsepower for $5,000 more is perceived as being a case of you get what you pay for. But lets say, instead, that you make a car and then monkey with the engine control software to reduce the output by the same 100 horsepower and charge $5,000 less for the resulting version of it. In this case, I contend that the car maker would run a great risk of being perceived as perpetrating a rip-off should this come to light, despite the net effect (the less expensive car gets 100 less hp) being the same in each case.

    "I really can't see many situations where someone on a netbook, an appliance largely for checking e-mail and internet access would have more than three dedicated apps open at the same time.

    I'm finding it very funny to see how shrill the fanbois are getting over Microsoft's latest TV ad campaign, which the pundits say are effective and working, and over netbooks."

    Granted, I am not a netbook user, but I just checked and I have 5 apps running right now (and that is rather light usage by my standards, none of these apps are the sort of compute intensive things that are ill-suited for a netbook, BTW). It is easy to get used to having more than 3 applications open and if you are, this is a constraint that you are likely to chafe against. Indeed, just the knowledge of such an imposed constraint, I contend, can alter your computing experience even if you are not actually running up against it.

    "Linux is going to kill windows! Ya, been hearing that for more than a decade, still waiting on that one...oh ya, and Apple doesn't have a netbook, shoot Apple only has one laptop under $999."

    Here I invoke a bit of sage advice by Napoleon (who won a battle or two in his day): "Never interrupt your enemy when he is making a mistake." To the extent that would-be netbook competitors have so far failed to make inroads thus far, is it really a good idea for Microsoft to give them another shot at the brass ring? Smart generals (and businessmen) try to avoid plans that require opponents to make, or continue making, mistakes in order to succeed. The fact that Microsoft *might* get away with imposing Windows 7 starter for netbooks without sacrificing market share, does not mean that it is prudent for them to chance it.

  • Report this Comment On April 22, 2009, at 9:01 PM, marv08 wrote:

    Milligram46 wrote:

    "I mean the iPhone only allows one app at a time, phshaw that Windows Mobile allows multitasking! Oh wait, we want our cake and eat it too."

    Repeating false statements does not make them true... The iPhone is multi-tasking. It does run the phone, text messaging, email, calendar/alerts, alarm applications all the time, it simultaneously checks push connections (Exchange and Mobile Me) and even the browser does never really terminate (there is persistence between sessions). The only thing that is not supported, is running more than one third party application on top of all that. This is clearly due to battery, CPU, GPU and RAM constraints and actually a good thing, as some of these apps are pretty demanding. My last Windows Mobile phone was freezing or ignoring incoming calls while multi-tasking, the iPhone simply works. Actually, Microsoft was one of the last OS makers figuring out proper multi-tasking. Apple, IBM and others were always ahead of them. I am not saying the iPhone could not be improved, but future models with more cores, more RAM and advanced battery technology will certainly lift that restriction whenever it makes sense.

    "I really can't see many situations where someone on a netbook, an appliance largely for checking e-mail and internet access would have more than three dedicated apps open at the same time."

    But, as you can see from my enumeration above, even the iPhone is running far more than 3 applications at the same time... considering that not to be a limitation escapes me.

  • Report this Comment On April 23, 2009, at 12:47 AM, zman58 wrote:

    Why do people continue to insist that the netbook will only be good for email and browser use? ...Perhaps because that is all Microsoft will provide on these little units?

    Just delete the Windows whatever on it and throw a good Linux netbook distribution, such a Ubuntu, on one and see how much one of these little babies can really be used for. This can be done in minutes and I'm sure will be/is done in many cases.

    If you can't see the need for more than 3 apps running on one of these systems, then you need more vision.

  • Report this Comment On May 18, 2009, at 6:29 AM, agreatamphibian wrote:

    There's some REALLY bad research at the bottom of a lot of the opinions above. Eg the "MS on 95%" Netbooks claim is actually based on "research" on US bricks and mortar sales. Most Netbooks are sold outside the US via the Internet, so this about as smart as deciding which US made car is most popular by finding out which one sells the most units in China. Anyone who fell for this REALLY needs to improve their research skills before they lose serious money - the first rule of investment research is to remember that companies and other investors have an interest in distorting your perception of them, so read the small print!

    As for the advantage/disadvantages of Windows vs Linux on a Netbook:

    1. Linux is free.

    2. Windows XP is being sold to Netbook manufacturers at $15 per unit and is adding $30 at retail.

    3. MS can't live with #2 long term. They need to get $50 for a fully functional OS, which will add $75-$100 to the price of a Netbook. Or they will have to cut desktop OS prices.

    4. Their solution to this is a crippled version of Windows 7.

    5. This should be hitting the market at the same time as Google Android Netbooks, which should have all the ease of use and glamour of iPhones. Plus about four times the battery life of Windows 7 based Netbooks, because they will be ARM based. And unprecedented web-based functionality. This will be happening at the same time 3G becomes ubiquitous.

    6. Linux/Android vs Windows isn't just a price of the OS thing. L/A needs far fewer resources to run at an acceptable speed. (And I say this a professional programmer who gets invited to Intel conferences and who makes his living most from Windows: i.e. I know what I'm talking about and my biases lie against my conclusions.) That means a lower hardware cost and longer battery life. The real price difference beween Linux and Windows Netbooks of equivalent performance has to allow for more hardware (more RAM, a hard drive instead of SSD, a larger battery pack to power the above) and a usable version of MS Office to duplicate functionality that is free on Linux.

    Conclusions:

    - MS will get hit very hard on this. They really don't have a good place to go.

    - The battle will turn on the European market, and investors who aren't smart enough to realize this and make their decisions on US market based information will lose their shirts.

  • Report this Comment On May 18, 2009, at 6:36 AM, agreatamphibian wrote:

    And Raul - a reasonable Netbook, like an Acer One, could easily cope with showing off your pivot tables. Btw importing Excel sheets isn't a problem unless you use VBA. And even then Open Office can usually cope.

  • Report this Comment On May 18, 2009, at 6:43 AM, agreatamphibian wrote:

    To put some definite technical perspective on this, my lightly tweaked Acer One (I installed a different version of Linux to the one it ships with - which is about as hard as opening a new web mail account) can run with two copies of Firefox open, multiple tabs in each, and several other apps (including GIMP and a programming tool called emacs, nicknamed "eventually makes all computers slow") and still be instantly responsive. System memory use (ie RAM) was about 350MB of the machines 512. My XP desktop needed 1.5GB of RAM to do the same.

    Until you understand these figure, and that the more RAM a Netbook carries the faster it will burn power, then you don't understand the basic algebra of competitive advantage in this market.

  • Report this Comment On November 09, 2009, at 1:48 PM, DoverOs wrote:

    Windows' Starter operating systems have always been designed for people in poor, 3rd world countries to run on low lever, inexpensive computers. As long as the people are new to technology they don't care how many tabs they can open. Microsoft's goal of the starter is for these poor people to invest in a full fledged OS and computer system. So MS get's money, while still helping poor people. Thing is, netbooks are using Windows 7 starter because, it's cheap and efficiant with the hardware, but fails for commom user technology

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