[kwlug-disc] how netbooks are eviscerating MS's business model

[john at netdirect.ca]

kwlug-disc-bounces at kwlug.org wrote on 01/12/2010 10:27:20 AM:
> From: "Robert P. J. Day" <rpjday at crashcourse.ca>
> 
> "The problem facing Microsoft is that as hardware prices drop, this
> puts pressure on Microsoft to lower prices. Moreover, the problem is
> that as CPUs get faster, hard drives get bigger, and components become
> more and more integrated, the pressure will continue."
> 
> "Another problem facing Microsoft is the type of PCs that are selling
> well. Desktop sales (and notebooks for that matter) aren’t selling
> like they used to. What have been selling well are the cheaper “PC
> companion” netbooks (because they are cheap). Problem here is that
> Microsoft doesn’t get the same for a copy of Windows for a netbook as
> it does for a desktop or notebook. Microsoft was getting as little as
> $15 per copy for Windows XP for netbooks. Sure, that’s better than
> having Linux pre-loaded on the netbook and getting nothing, but it’s
> still quite a cut."
> 
>   or as someone on twitter just summarized it, as HW gets cheaper, it
> gets harder and harder to hide that MS license fee in there.

I don't think it's really a netbook centric issue. I think netbook is one 
symptom of larger set of problems for Microsoft. I do think that lower 
cost hardware also puts pressure on, but only because there are good 
alternatives.

In short "things are good enough" in most of the PC world. The hardware is 
fast enough, the software is capable enough there isn't much reason to buy 
more. 

Microsoft grew up in an expanding market. They made money selling to new 
customers. Things along the way made existing customers replace hardware 
or software. For example the Internet browser needed so many resources 
that it required an upgrade.

For a while now the market has stabilized. Everyone has their PC and often 
a second one. The market is saturated. There are few new sales and because 
there isn't a new technology that pushes the resource limits of today's 
systems, there are fewer replacement sales.

There will always be programmers, gamers, graphic artists, engineers and 
enthusiasts that need (or just want) more, but just about everyone I know 
only replaces systems if they break.

The netbook is an example of "good enough" hardware. OpenOffice or Google 
Apps is good enough for many people for office applications.

Software companies have always had problems moving from an expanding 
market to a maintenance market.  Many software companies can't make the 
transition, Microsoft isn't the first to have this type of trouble. This 
is why we were seeing subscription models recently. It's a way to capture 
revenue from a market that wasn't going buy as often.

Microsoft has been making huge margins on Office and Windows for a decade 
and might have continued to get away with it "if it hadn't been for those 
darn kids and their dog too!" OpenOffice (nee StarOffice), Mozilla (nee 
Netscape), and Linux have all contributed to Microsoft's lower prices. 
Anti-trust losses for Microsoft was the legal leverage system builders 
like IBM, HP and Dell needed to finally negotiate fairly with Microsoft 
and drive prices down further.

Microsoft is backed into a corner. They have meagre profits (or losses) on 
all their product lines and had been relying on thick Windows and Office 
profit margins.

John Van Ostrand
Net Direct Inc.
 
CTO, co-CEO
564 Weber St. N. Unit 12
map
 
Waterloo, ON N2L 5C6
 
john at netdirect.ca
Ph: 866-883-1172
ext.5102
Linux Solutions / IBM Hardware
Fx: 519-883-8533