ULPCs Long-Term Impact on Microsoft
July 22, 2008 - Tom Greer
Filed Under Acer Aspire One, Asus Eee PC, Dell Inspiron Mini 9, MSI Wind Netbook, Netbook Market |
Last week, I published an article on how ULPCs were going to disrupt the entire PC industry. Since that time, I’ve taken a lot of grief from my friends. While we disagree on a number of points, the strongest disagreement is over the impact on Microsoft.
I have a number of Microsoft-fanboy friends who took special exception to my comment:
Microsoft’s low-cost XP licensing program for ULPCs is not a long-term fix for the company. It was like putting a band-aid on your skin cancer. It keeps the public from viewing the wound, but it doesn’t make the problem go away.
They believe that the XP Home for ULPCs offering will address the problem. They also took delight in the fact that notebookreview.com found that Vista ran faster than XP on an MSI Wind netbook.
They are missing the larger picture.
First off, the Windows XP for ULPC solution will work in the short-term to correct the problem that millions of netbooks were being shipped with Linux. Most will now ship with Windows XP Home edition.
But the limitations of the XP Home edition are the crux of the long-term problem for Microsoft. XP Home is crippled and will not work in enterprise network environments. Of course, you could upgrade to XP Professional, except Microsoft has killed that product. That leaves Vista, which as we have seen, can run (in a stripped-down mode) very well on a netbook. But buying a Vista license kills the low-cost aspect of the netbook.
Microsoft won’t respond to customer complaints (as evidenced by the retirement of Windows XP). But they will respond to customers spending their dollars elsewhere.
The second generation of ULPCs (netbooks and nettops) are just now being introduced (MSI Wind, Acer Aspire One, Asus Eee PC 901/1000 series). Most of these will be sold for personal use, either at home or in a small office environment.
There will be some consternation when customers try to make the XP Home play at work. But Microsoft’s real problems will not start until third-generation ULPCs are introduced.
Third-generation ULPCs will be geared to businesses. The appeal? Low-cost, of course. (The ultra-low carbon footprint will help, too.)
There are many power users who need much more processing power than netbooks and nettops can muster. However, the majority of business users do not.
The primary applications for most business users are email and office applications. The Intel Atom processor is capable of running these applications nicely.
Most businesses have been converting other applications to run in a browser. Once again, the Atom processor should run most off these just fine.
The OEMs are already starting R&D on these third-generation ULPCs. To continue their growth, they must expand into the enterprise environment. But Microsoft’s existing XP program for ULPCs won’t allow them.
Now here is where it will get interesting. Microsoft will dig in their heels because these third- generation ULPCs will be taking the place of Windows Vista sales. Also, realize that these netbooks/nettops sales will be stealing sales that would otherwise go to one of the existing PC manufacturers like Dell or HP. They will be pressuring Microsoft not to cave.
The problem isn’t that Microsoft won’t want license to Vista for use on ULPCs. They will, but the ULPC manufacturers will want to pay the same price that they are currently paying for XP Home. Microsoft can’t go anywhere near that price without undermining the entire price structure for Vista.
The wild card here is Linux. Linux runs fine on enterprise networks. It handles email, office applications and most browser-based applications just fine. Asus, MSI and Acer are already proficient in packaging Linux with their computers. They will use this as leverage with Microsoft. They will be pressing to get XP Professional licensed.
Dell could be the catalyst here. They will shortly launch a set of netbooks. If the pricing is as agressive as the rumors say, then Dell could become a real player in this niche. That could make them the power broker with Microsoft.
Dell seems very comfortable working with Canonical in deploying Ubuntu Linux on their hardware. Canonical recently announced a special version of Ubuntu for ULPCs called Ubuntu Netbook Remix. I am sure the new Dell netbooks will be offering this.
Mark Shuttleworth (CEO of Canonical) is probably already pressing Dell to create an attractive Ubuntu package for enterprises. The third-generation ULPCs may just be the vehicle to ride to this party.
I’m not sure how all this will play out. My best guess is that Microsoft will be desperate to prevent Linux from gaining any inroads to enterprise desktops. They will either expand the current XP program for ULPCs to include XP Professional, or they might launch a special version of Vista for netbooks and nettops.
But either way will be painful for Microsoft. That’s because it undermines their profit margin.
Microsoft is entering a phase where the margins for their products will continually deteriorate. The reason? Operating systems are now a commodity. They are becoming interchangeable. Would you like your netbook with Linux or Windows?
For Microsoft, every loss of a business desktop to Linux represents the loss of a Microsoft Office sale, as well. That really compounds the pain.
When will all this happen? The third-generation ULPCs should be entering the market in about 12 months.
So, in conclusion, my prediction is that Microsoft is heading into new territory. They will be pressured by OEMs who suddenly have some leverage, some negotiating power. These OEMs will be pressing for a low-cost version of Windows that will work in enterprise settings. And Microsoft will be forced to offer either XP Professional or a special version of Vista.
Industry Worries About Impact of ULPCsHow ULPCs will disrupt the entire PC industryEee PC vs. MSI Wind vs. Aspire OneAcer’s Bombshell Shakes Up the Netbook MarketTrends in the Ultra Low-Cost PC Market SegmentComments
Leave a Reply