Will Crippled Windows 7 On Netbooks Hurt Microsoft?

In a Monday report, The Wall Street Journal characterized Windows 7 Starter Edition as a 'gamble' by Microsoft to entice netbook customers to upgrade without driving them to Linux-based alternatives.

Hot sales of XP Home netbooks have contributed to a shortfall in Microsoft's Windows Client revenue over the past couple of quarters, and Microsoft needs to find a way to get users to pay more for Windows 7. According to The Wall Street Journal, Microsoft makes just $15 per netbook with Windows XP Home, compared to between $50 and $60 for PCs running Windows Vista.

The Wall Street Journal also noted that Intel CEO Paul Otellini thinks Microsoft will have a tough time getting customers to upgrade to pricier Windows 7 SKUs such as Windows 7 Home Premium.

Microsoft couldn't be reached for comment on the report.

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Despite the gloom and doom, John Kistler, principal at St. Louis-based system builder J&B Technologies, says the speed and performance boosts Microsoft has woven into Windows 7 will provide customers with more than enough incentive to upgrade.

"I think people will accept this limitation. Windows 7 looks like Vista, but it runs 10 times faster, and that's going to be a big deal for a lot of people," Kistler said.

Tim Ulmen, principal at Midwest IT Solutions Group, Wichita, Kan., also sees the three-application limit as a non-issue for the majority of his customers. "People have come to expect limitations with netbooks," he said. "Many of my business clients are using XP netbooks and find them suitable for what they need to do in mobile scenarios."

Microsoft recently cited NPD Retail Tracking Service data that shows Windows netbooks have gone from less than 10 percent of unit sales in the first half of 2008 to 96 percent in February. Microsoft also gleefully noted that return rates on Linux netbooks were four times that of Windows netbooks during the period.

This data, and the positive results from the Windows 7 Beta, would seem to give Microsoft a slam-dunk opportunity to increase its share of the netbook OS market. But with Google's Android looming on the horizon, some solution providers feel Microsoft could end up shooting itself in the foot by playing games with Windows 7 on netbooks.

"This won't be well received," said Steve Bohman, vice president of operations at Columbus Micro, a Columbus, Ohio-based system builder. "Every step that Microsoft has made lately has encouraged more people to go to open source, and I could definitely see more customers start looking at running some Linux variant."

"Obviously, Windows commands a premium over a free operating system. The question is, how much is that premium, and where is that comfort level?" said Todd Swank, vice president of marketing at system builder Nor-Tech, Burnsville, Minn.

"Windows dominates Linux in terms of performance and usability right now, but it's not like the Linux market is just going to sit still. And this becomes a much different argument when you start taking Google Android into the netbook equation," Swank added.