Why Windows 7 Will Kill The Netbook Market
It’s fascinating watching people come to terms with the craze for netbooks. As the costs of the units drop to commodity levels, the space for profit is being squeezed both by the retail price target of £200, and the generic components being used in the machines.
Even with a 20% profit on all components, that means there’s only £40 to be shared round all partners on a typical netbook. So anyone getting involved in the space is going to have to hope for either a massive volume of sales, or the customers happy to put up with an increase in price.
I doubt that the market will stomach an increase in price now – the netbook is entrenched in the sub £250 / $300 market. The problem is going to be what happens with the operating systems on the machines due out at the end of 2009.
It would be fair to say that Linux on Netbooks isn’t working out. These machines are being returned at an increased rate when compared to those running Windows XP. So I think it’s fair to say that in the short to medium term future, the volume of netbooks will need to run Windows.
And there’s the problem – because Windows 7 is due soon, and the cost of that could be on the order of $100 per licence. On top of a $300 machine. Which (a) drives it dangerously close to the laptop market (where margins are higher) and (b) is likely to be the Windows 7 Starter Edition, which is limited to just three programs running at one time. Ouch.
Far from me to suggest that the netbook market is going to be killed because companies can’t make enough money out of it, but the needs of the consumers are starting to diverge from the needs of the manufacturers and software providers. When that happens, one side of the equation is going to be disappointed.
No, what’ll happen is that either Microsoft will have to give the netbook companies a deal as good as the current deal on XP licensing, or the netbook manufactuerers will pass on the cost to the consumer, and suggest to them “Well, you could pay $400 for a Windows one or $300 for a Linux one.”
Of course, what they need to do is make the Linux they install on the netbooks be something other than huge pile of turd, and then they won’t get returned so often. The Linux that comes on the AspireOne is a horrific tragic mess compared to Ubuntu or Debian.
Good post, but might it also be the death of Microsoft as people understand the over valuation of the OS compared to actual hardware.
Tom, certainly that’s one scenario (you’d think I was being deliberatly provocative to get comments), and my money is on microsoft offering the Win7 Starter at the XP levels, and the Win7 version that works as an increased cost. The current price difference still has people tending to Windows.
The best thing would be for Ubuntu Netbook Remix, polished, to be available rather than the proliferation of My First Fisher Price OS Linux builds.
I think consumer acceptance is at a point where people are so used to netbooks being around that if they are ridiculously expensive with Windows 7, there will be manufacturers that offer a competitive alternative to milk that cash cow.
I would agree with you Ewan, I think MS will rely heavily on people upgrading to a more functional version but in order to keep initial cost down, they will sell Windows 7 Starter for a relatively low license fee.
One thing I wouldn’t underestimate are the cloud OS out there – gOS Cloud, Jolicloud and the like. From the screens I have seen of Jolicloud, I so want that on my netbook, right now.
The reason the linux netbooks are not as popular is the expectation that you get a full laptop in a smaller box. I have a first generation eeepc which I use for checking my email and skype. Anything more and I boot up my proper laptop. For the tasks that I use it for the linux install works fine, if I wanted to do more with it then I would probably put XP on it but the performance of these devices is more suited to linux than windows.
True, but then the price of the laptops will also go up a wee bit too because they too will be needing a more expensive Win 7 license.
It’s a great time for Apple to bring out a $600 Apple Netbook, which all of the Apple fan boys will buy anyway and with the same commodity Intel parts Apple can make a great mark-up.
The hardware requirements for Windows7 will help in ensuring that it can’t succeeds in this market for a couple of years.
This will give the Linux guys some time to catch-up in terms of usability, also the smart-phone market may start to push into it as well.
Also, for the netbook space, the ract you are limited to three concurrent apps might not be such a limiting factor. Basic apps; web-Browser, IM client, and email, and email can be swapped out for Skype if needed.
We agree that “one side of the equation is going to be disappointed” but given there is such strong demand I’m almost certain that you’ve picked the wrong one.
I’ve been saying for a *long* time that as the cost of hardware drops it will become increasingly difficult to justify the cost of proprietary software. The operating system as we know it is finally set to fade away into the background (when was the last time you interacted with your OS except to fix something that didn’t work the way it should have – eg move a file?).
You’re also ignoring the onslaught of the truly embedded single purpose devices running custom (generally Linux based) operating systems on ARM processors. Windows has been married to x86 since Windows 2000.
Both Intel & Microsoft are at risk of finding themselves without a seat in the next round of musical chairs.
Sam
Sam raised an interesting point about O/S interaction – Microsoft have got it totally right: the user doesn’t want to have their PC experience dominated by the successes or failures of their O/S – they want a computer that makes life easy and does what they want it to.
Windows is by far and away the only O/S that does that.
I don’t want to think about what my O/S is doing, I want my time on the PC to be personally rewarding. Long gone are the days where setting up an O/S took 2 days or more – and thank Microsoft for that!