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Netbooks Take a Bite Out of Windows Profits 221

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."
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Netbooks Take a Bite Out of Windows Profits

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  • by schnikies79 ( 788746 ) on Saturday November 08, 2008 @03:26PM (#25689003)

    The economy (U.S. and the world) has slowed. Why would Microsoft be bucking the trend?

    • by jonbryce ( 703250 ) on Saturday November 08, 2008 @03:39PM (#25689077) Homepage

      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.

      • by symbolset ( 646467 ) on Saturday November 08, 2008 @03:47PM (#25689129) Journal

        Lots of talk of late about moving to less frequent refresh cycles. The bathtub graph of failures is more like a hockey stick, and the PCs in place have the processing power to meet people's needs throughout the current fiscal difficulty.

        Software support is of course an issue, but there are no fixes for this either on offer or projected through FY2011.

        • I'll add to parent's post with another point:

          It seems to me that hardware vendors for PC components have been so competitive compared to software creators that they've shot themselves in the foot by making such powerful devices.

          Let's face it. Several things have caused software development to take a steep nose dive in terms of innovation over the years. Some blame lies with business practices such as MicroSoft's well known "Embrace, Extend, Extinguish" or even the way Apple bans competing applications on

          • Re: (Score:3, Informative)

            by Whiteox ( 919863 )

            Not a single game since Crysis came out comes close to taxing the system

            Ever try FlightSim 10?
            The guys who run it, also run a pile of addons like real world weather, ATC, virtual 3d cockpits and the rest.
            Even FS9 on directx 9 sucks on a 3.2P4 with 2gb ram with the best 3D card - maybe 20fps.
            FS10 or FSX as it is known, can barely do 10fps.

            3D card/systems comparisons generally avoid the FS game as it is very demanding on all systems.

      • Re: (Score:3, Insightful)

        by rhyder128k ( 1051042 )
        That might be true to an extent but surely people are going to make hardware and software last longer when money is tight? Some offices simply replace a machine once it goes wrong if it's more than a couple of years old. I dare say that a 1Ghz PC with XP (or even better GNU/Linux) would suffice as a workstation for 80% of office workers. Making the current crop of machines last for another five years might give companies a chance of riding out the down turn, or at worst, save some cash.

        Even firms that nee

      • Re: (Score:3, Interesting)

        "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."

        Yes, but in China a copy of windows can be purchased for 5-10 RMB (about $.80-$1.20). Some of the people I work for went on a quest for a legitimate copy of Windows and Office. Here on a campus of over 50,000 people there was not a single legitimate copy, not one.

        The quest continued. What we finally discove

        • It's much better than the alternative. China is addicted to MS Windows just like the rest of the world. The fact that they aren't paying for it is irrelevant, because it still helps reinforce the Windows monopoly in the rest of the world, and that enormous audience still represents potential future revenue, once MS decides they really want it.

          Now imagine if Windows weren't widely pirated in China. Would Chinese people pay a good fraction of a month's salary for a copy? Hell no! The entire place would have e

      • by smoker2 ( 750216 )
        You get modded interesting. When I suggested that companies such as microsoft would not be allowed(by the govt.) to die because of their influence on the market I was called a troll. What a difference a day makes ! All I got was accusations of re-distributing wealth and I should just let them die, no matter the consequences for the helpless people who HAVE THEIR PENSION INVESTED IN THEM !
      • Re: (Score:3, Insightful)

        by Firethorn ( 177587 )

        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.

        I'd argue that anybody doing this is making a mistake. Utility stocks tend to be stable because it takes some massive changes for somebody to use less water, fewer kwh, lower amounts of gas during the winter, etc...

        In comparison, not paying the microsoft tax is rather easy. Simply stop buying a computer every 2 years, extend it to 3. If you're on a 3-4 year schedule, extend it a year or two.

        Don't buy the vista upgrade. Consider Linux for your business.

        Microsoft is about as much a utility as a car manufa

    • by Yvan256 ( 722131 ) on Saturday November 08, 2008 @03:39PM (#25689079) Homepage Journal

      They never followed the standards before, why would they start now?

    • Because twitter and his sockpuppets fancied a troll and its Saturday so there wasn't much else to stick up!

    • by Lumpy ( 12016 ) on Saturday November 08, 2008 @04:28PM (#25689387) Homepage

      Because it really is a part of a trend. I just got one of the el-cheapo Acer Aspire one. It's got a 160gig drive, a dual core processor, a 1024X400 screen that is brighter than any laptop I have ever seen (LED instead of the crappy CFL as well.

      This thing is really fast, really small, and cost me less than $350.00 at WALMART of all places. It does more and has better specs than my new Dell laptop from 2 years ago and cost 1/4 the price.

      Microsoft better be scared, because the high end one like this has XP on it and not vista. and that is how it was marketed to me, "you want these laptops because they do not come with vistal.. Vista is something you want to stay away from."

      Yes it's walmart, but even if the minimum wage know nothing about computers sales guy at walmart is telling people that vista sucks, then it is hurting microsoft... And I bought the high end aspire one.. most of them come with linux (a variant that sucks) and with ubuntu having a distro coming out just for these tiny pc's that is brain dead easy to install from a thumb drive, I can see joe sixpack installing ubuntu on his new pocket sized laptop he got for cheap.

      • a 1024X400 screen

        I trust it has a mighty scroll wheel!

      • Re: (Score:2, Informative)

        by Anonymous Coward

        That screen would be 1024x600, and the processor is only a single core with hyperthreading. I should think that your Dell laptop from two years ago has a faster processor if nothing else.

        • by Lumpy ( 12016 )

          Thanks for the correction on the screen, and that means the sales guy lied to me, each me to not read the full online specs. Time to go kill a sales guy, Nahh. for this cheap I really dont care. It plays Command and Conquer Generals as well as bzflag incredibly well. I've been kicking a coworkers butt in operations meeting bzflag tourneys for a week now.

          It feels quicker, but then that could be the effects of a 2 year old XP install in that laptop as well. I have not reformatted and reinstalled that w

      • by Sj0 ( 472011 )

        Totally off topic, but I'm posting from an Aspire One right now too, and I paid the same you did.

        Awesome machine. If Microsoft suffers greatly reduced profits when someone sells one, Microsoft is in serious trouble.

    • The economy ? How about the fact that Vista is a complete flop ?

      If anything's taking a bite out of Windows profits, it's the release of their worst-ever operating system.

  • MSFT goes SaaS? (Score:4, Interesting)

    by Rinisari ( 521266 ) * on Saturday November 08, 2008 @03:29PM (#25689019) Homepage Journal

    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.

    • Not farfetched (Score:5, Insightful)

      by nurb432 ( 527695 ) on Saturday November 08, 2008 @03:33PM (#25689037) Homepage Journal

      They are salivating while trying to make it work. Their MOLP"s are almost that and part of their core revenue stream.

    • Re:MSFT goes SaaS? (Score:5, Insightful)

      by jonbryce ( 703250 ) on Saturday November 08, 2008 @03:40PM (#25689085) Homepage

      People are not going to pay for updates. It is difficult enough to persuade people to load updates when they are free.

    • Re:MSFT goes SaaS? (Score:5, Insightful)

      by fuzzyfuzzyfungus ( 1223518 ) on Saturday November 08, 2008 @03:53PM (#25689157) Journal
      I'm not sure that SaaS can save them from this problem. People are fairly willing, these days, to pay monthly subscription fees for services, so there isn't an inherent psychological problem; but windows netbook $250 + $10/month vs. linux netbook $250 + $0/month is going to be a hard sell. Perhaps worse, though, is the interest cell companies are showing in selling subsidized netbooks with data plans. If the netbook+monthly fee thing becomes a telco standard, the MS will face the unpleasant prospect of having to play knife-fight-in-a-telephone-booth with the notoriously mean bloodsuckers at the telcos over exactly how much of the customer's monthly fee with go to them and how much to the cell guys.

      Ultimately, though, it just comes down to the fact that cheaper hardware demands cheaper software. 50 or 100 dollars for windows is noticable; but not hugely important in a $2000 computer. 50 dollars for windows on a netbook probably means the difference between impulse purchase and not. I don't think that this will affect MS's market share directly, they can afford to give away XP for netbooks until the end of time, if they want to. Their margins, though, will suffer, and that could be quite serious for some of their divisions. Being able to start a project and let it absolutely hemorrhage money for years if need be gives MS impressive strategic freedom. If their margins on Windows and Office suffer, they won't be able to do that anymore.
    • Re:MSFT goes SaaS? (Score:5, Insightful)

      by rolfwind ( 528248 ) on Saturday November 08, 2008 @04:08PM (#25689239)

      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.

      $400 for Windows is too much, the OEMs pay much less.

      Also the last thing I need is another monthy bill. I have a Trac Phone to avoid that (could easily afford the iPhone but not justify the monthly rate). My used car is bought outright. Other necessary bills minimized, especially in this economy. Etcetera.

      Once windows becomes subsciption: it will either be structured in such a way (updates as you describe) that most people don't bother thus lose money anyway, or many people start migrating away which is exactly what they don't want. It would be the beginning of Linux as a mainstream desktop OS.

      • I like your fiscal planning. I wish there was a decent prepaid carrier with good network. Verizon's "prepaid" essentially costs the same as their regular service and you don't even get minutes, just pay $1 every day you use it for in calling and I think more on top of that for calling other people. T-Mobile might be an option, I'd love to get a G1 but I'm not sure whether they let you get a prepaid account with that.
        • I like your fiscal planning. I wish there was a decent prepaid carrier with good network. Verizon's "prepaid" essentially costs the same as their regular service and you don't even get minutes

          Look at PagePlus [pagepluscellular.com]. They use Verizon's network. I have used T-Mobile prepaid for about 4 years and am happy with it.

          • Interesting, although their phones all suck. I suppose it would work if I got a smartphone from ebay or craigslist. To be honest I'm not paying my cellphone bill since it's a family plan so I really don't care too much. I think what I really want is the G1 on Verizon.
      • by mlts ( 1038732 ) *

        One note. Subscriptions tend to become contracts from what I see. Paying $20 for the OS, and signing an agreement to pay $15 a month for a year is not what I want to do with a computer.

      • Re: (Score:3, Interesting)

        by David Gerard ( 12369 )
        Particularly when they discover Wine. We use Wine as production machinery at work, so we know damn well it's up to enterprise use. Its magical niche is replacing that one bit of old crapware you can't get rid of. And I'm more surprised these days when Windows software doesn't work well under Wine than when it does.
        • Yeah, I'm down to one software that doesn't have a Windows equivalent or can't run on wine like ebay Blackthorne. Unfortunately, it's not going to work anytime soon.

    • Re: (Score:2, Informative)

      by maxume ( 22995 )

      I don't think Microsoft will have to cut significant costs to sell Windows for $25 a copy. Especially XP, which they have pretty much already paid for. As it stands, their OS sales are essentially printing money for them. Go to the following page and find the "Client" section to see what I am talking about:

      http://www.microsoft.com/msft/reports/ar08/10k_fr_dis.html [microsoft.com]

    • Microsoft can afford to sell Windows for $10-$25 a copy, or even less if they need to. At the moment they're making 85% profit on it (according to GIS for "windows profit margin").

      What this means is that the gravy days are over for Microsoft.

    • They already do better than this OEMs pay something like $50 or less for a license, they make their money on corporate sales.

    • Re:MSFT goes SaaS? (Score:5, Interesting)

      by jmorris42 ( 1458 ) * <jmorris@NOSPAM.beau.org> on Saturday November 08, 2008 @04:28PM (#25689379)

      > 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.

      • by fermion ( 181285 )
        Right, but computers are getting cheap enough that the cell phone subscription model might work. Buy a computer, sign up for $50 a month internet access over the cable or phone lines, applications, email, etc. The problem with this used to be that the computers were not good computers and the amount of control the service vendor wanted was excessive.

        Now it would not be unreasonable for a person to choose a computer they wanted, get a discount, up to 100%, pay an activation fee, and walk out with a compl

      • Yea, it could. But they currently get $32 for XP on a netbook and as much as $80 for a basic Vista.
        Where are those figures from, I thought MS direct OEM (not system builder) pricing was negotiated on a case by case basis.

  • DamnSmallWindows (Score:2, Insightful)

    by TBoon ( 1381891 )
    I'd like to see MS reinvent the WinCE concept as something a bit more similar to DamnSmallLinux/PuppyLinux. A minimalistic base system, capable of (and optimized for) running at ultra low-end hardware, yet able to run virtually any "real" Windows application (and game) if the hardware is up to the task, and have storage space for the extra modules needed.
    • by bazorg ( 911295 )
      If you visit The Pirate Bay and look for TinyXP you'll see that it is possible to slim down normal XP to 400MB (after installation) and use that as a good base for customization. Considering the way this is achieved, I'm surprised that OEM's haven't adopted the technique to make their own Windows "editions".
    • by Lumpy ( 12016 )

      It's called embedded XP and it also is a utter failure. I've had to fight with Embedded XP on several systems. It's a resource hog and has all the flaws of XP for embedded use.

  • Should we take up a collection?

  • tamed the eeepc??? (Score:3, Interesting)

    by nimbius ( 983462 ) on Saturday November 08, 2008 @05:06PM (#25689603) Homepage
    give me a break. even with a 10" eeepc stuffed with microsoft bloatware, im going to do the same thing ive always done with my new windows laptop: return the OS for a refund.

    funny though how with my eeepc 901 they have a section in the manual at the end guiding users on how to get back to a windows installation. not certain if it correlates with their statements on "no one is buying these linux laptops" or not, but id be curious to see an unbiased (read: not in bed with redmond) party evaluate whether anyone is buying laptops with linux.

    the one thing redmond cant fight on this is i believe price. as a wise man once said, "if your going up against 'free' you'd better have a damned good product."
    • by Ant P. ( 974313 )

      Wait... you bought a 10" eee with windows just to return windows and install Linux? The same eee that comes in 8GB windows and 20GB Linux configurations?

  • by FudRucker ( 866063 ) on Saturday November 08, 2008 @05:17PM (#25689671)
    microsoft's exorbitant prices and chronic vulnerabilities made it necessary...

    people want to use their computers, not be used by a corporate giant and third parties nickeling & dimeing them to the limit at every corner...
  • by alegrepublic ( 83799 ) on Saturday November 08, 2008 @07:05PM (#25690351)

    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.

  • by ThousandStars ( 556222 ) on Saturday November 08, 2008 @07:38PM (#25690557) Homepage
    Microsoft is being attacked from two sides: on the low end by netbooks and on the high end by Apple. The former is presumably capturing a large share of those who would otherwise buy $600 - $1,000 laptops, while the latter has been gaining marketshare almost exclusively in the $1,000+ market, where the cost of Windows is less noticeable relative to the cost of the computer itself. People who care about computing use OS X or Linux, as Paul Graham said [paulgraham.com]: "So not only does the desktop no longer matter, no one who cares about computers uses Microsoft's anyway."

    Combine the netbook and OS X trends with the Linux becoming increasingly easy to use for novices and a worldwide recession, and one has problems brewing for Microsoft. Not fatal problems, to be sure, but problems nonetheless, and problems whose solution is not obvious.

  • In consumer electronic stores there are $350 Laptops (after rebate) with Intel Graphic chips and 2G of RAM a 120G HD. that run Vista and cost less than a Netbook.

    The $350 Laptop can easily be reformatted to run XP, Linux, AROS, or whatever.

    If it is an open box special you can get one for as low as $300.

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