On Wednesday, The Wall Street Journal reported that software juggernaut Microsoft (NASDAQ:MSFT) will begin selling personal computers in Thailand, Malaysia, and Indonesia (and two other countries to be named later) beginning in October. The sales, which will run for 12 months as a pilot program, will feature PCs sold for as little as $300, preloaded with a stripped-down version of the company's popular Windows XP operating system called Windows XP Starter Edition. (Incidentally, fellow Fool Alyce Lomax reported on this initiative two months ago. Read all about how the story started right here.)
Microsoft is attempting to kill three birds with one stone here. First and most obviously, creating an entry-level version of a company's flagship product is a well-known technique used in a variety of industries. A good example is Toyota's (NYSE:TM) introduction of the Echo a few years ago as a means of hooking new car buyers on the Toyota brand.
More important are Microsoft's other two goals. It is no secret that the company fears it is losing market share to the "free" Linux operating system, especially the Linux versions repackaged (and sold) by companies such as Red Hat (NASDAQ:RHAT) and Novell (NASDAQ:NOVL). Because Microsoft will not be selling Windows XP Starter Edition otherwise than loaded onto a PC, it is difficult to break out the price of this version of the software. Still, when sold as part of a $300 computer, it is pretty clear that the hypothetical standalone price will be less than the going rate of $200 for Windows XP Home Edition. That low price should help Microsoft compete effectively against the marked-up cost of a repackaged Linux operating system.
The final bird in Microsoft's sights is the threat of pirated Microsoft operating systems draining away sales of licensed software. Again, even pirates charge something to compensate themselves for going to all the trouble of cracking into the CD-ROM that contains the operating system, duplicating the program, and so on. By charging just a nominal fee for its stripped-down version of Windows XP, Microsoft can offer consumers of limited means a chance to buy a licensed version of its software -- and both the clean conscience and lessened fears of getting a bum copy that go with it -- for not much more than the cost of a pirated version.
Smart move all around, Microsoft.
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
