Netbooks, Microsoft, a Turning Point


Netbooks, Microsoft, a Turning Point

If we win one more such victory … we shall be utterly ruined.”

Pyrrhus of Epirus, quoted by Plutarch in Life of Pyrrhus.

About 18 months ago a silver (actually white) bullet known as the eeePC running Linux appeared.   They were literally sold out immediately (example story) – despite the fact that they were pre-loaded with Linux, and well before the onset of austerity from the financial crisis.   Within 2 or 3 months a version of the eeePC running Windows XP was announced, first shipping in early (perhaps Jan??) 2008.   At about the six-eight month mark (give or take) people were happy to report the form factor being sold at 70-30% in favour of Linux (google it or see Brendan Leblanc’s claim of “under 10%” in the first half of 2008).

Since that time something has happened.  The specifications for this class of portable device have been steadily increasing, closing the gap between them and standard laptops (so much so, that there may not be a “netbook” market anymore).    With that the price of these machines has also increased.  Linux versions of the eeePC are either not available at all, or are only available on the lowest specification models.   Microsoft now claims to have dominated the  netbook market  with Windows installations (see the Leblanc post referenced above). [One comment notes that Linux based netbooks are available in China.  I would guess that they are available more generally in SE Asia (more price sensitivity) than in the West.]

Windows/Netbooks = Game Over?

Microsoft’s reaction to the success of the eeePC seems, on reflection, to have been well and professionally executed.  Indeed, now that the specifications have been upscaled, Microsoft has announced an intention to increase the licensing fees for this form factor.  That leaves open to question however, how the eeePC was able to be released sans Windows in the first place.  It is difficult to believe that Microsoft had no  knowledge of it.  If they did have knowledge, they certainly could have struck a deal over it (as the fact that they subsequently struck such a deal demonstrates).  They presumably chose not to strike such a deal.  Only ASUS and Microsoft really know what happened, but it does not seem wildly outside the evidence available to speculate that ASUS was initially rebuffed by Microsoft and then has had Microsoft approach them cap in hand.

If so, the eeePC has imposed a heavy price on Microsoft.  It was not a monetary price, although Microsoft has been reporting substantially reduced revenues (indeed, apparently its first ever quarterly revenue decline) and attributing those reductions to the netbook form factor (random example stories- one, two and three).  Rather, that price was its credibility.  The eeePC experience has indicated:

(a) that Linux based products can be a commercial success in their own right; and, as a corollary,

(b) that Linux allows manufacturers to dictate terms to Microsoft;

- and that is the crux of it.  In 2007-08 ASUS appears to have achieved what no other computer manufacturer has managed to do in perhaps over 20 years – it dictated the terms of supply of Microsoft’s products, both in terms of price and availability (XP’s sales availability was either ended or imminently to end).  Given the position of Microsoft this, of itself, is a remarkable achievement.  However ASUS’ achievement was even more far reaching.  Not only do they appear to have dictated terms, but the terms were, in effect, that XP be sold both as a commodity and as a complement to the eeePC.  Commoditising your complements is the holy grail of business.  It allows you to extract the most value/price premium from the sale of your products.

Far from showing strength, the wide availability of Windows on netbooks is a sign of weakness.

Looking forward

The eeePC was the proof of concept for a Linux based future.  There is something incredibly powerful about achieving an apparently unachievable goal.   Until something has been shown to be achievable, only the very brave or committed will even attempt it.  However, once something has been shown to be possible,  many people suddenly become willing to attempt it, and with more people attempting it, each new comer learns faster from the experiences of others.  Consider the history of scaling Everest, with some 30 years from the first attempt in 1922 to Hillary and Tenzing’s first successful ascent in 1953, the time since has been peppered with many additional ascents, including ascents under different conditions such as an ascent without supplementary oxygen, which was once thought too difficult.

It should therefore not be much of a surprise that many companies are now making strategic investments in Linux (reload the link if you don’t get there on the first attempt).   Some companies (such as Dell, Acer and HP) are expressly supporting Linux as a desktop operating system.

Rumours of My Death…

Nothing here should be taken as indicating backruptcy any time soon (- or ever!), or that there is imminent danger of Microsoft ceasing its participation in the IT sector.  It’s involvement is broad and deep and will not fade for a long time.  General Electric, for example, continues to live on after having diversified into many different areas over the past 100 years (Wikipedia claims that half of its revenue now comes from financial services).   Rather, it seems that the days of Microsoft-as-we-knew-it, the corporation which could dictate, at least to some non-trivial extent, many aspects of the IT industry through its leverage over OEMs are over.  Microsoft cannot afford for an OEM to stare them down on the next  eeePC – another Linux based success on the scale of the eeePC would remove any doubt from the minds of the industry.

If this assessment is correct, we would expect to see other industry participants investing in open source, and in Linux in particular, as both a hedge and as negotiating leverage.  Indeed, assuming that ASUS has extracted concessions from Microsoft, other OEMs will be disadvantaged if they do not follow a similar strategy (see this story on Acer’s proposed support of Linux for example).  Loading Linux now appears to be a path to strength.  Google is pursuing it.

In addition, we would expect to see Microsoft to continue to back track on its licensing requirements.   We have seen the start of this in its removal of the three concurrent applications limitation on the starter edition of Windows 7, and also in its repeatedly pushing back the end of availability to manufacturing of XP (it is now 30 June 2010 for the netbook form factor - however despite Microsoft’s end of sales date ASUS has apparently secured an agreement to load XP on its eeeTop).  2008 seemed to be a particularly fruitful year for backpedalling (including limits on CPU speed, RAM, hard drive size, use of hybrid storage and screen size – apparently screen size for a netbook is now 14.1″, – hardly a substantive limitation on the netbook form factor).  [One comment indicates that the screen size for windows 7 is 10.2" - it will be interesting to see how this plays out, although 12" netbooks don't seem to have done that well]

The Final Analysis

The eeePC experience was the case study for the viability of a Linux based future.  If ASUS has used the Linux eeePC to extract negotiating concessions from Microsoft, then it has, in the process, also undermined Microsoft’s credibility, opening the way for other vendors to play into this gap.   Further, if ASUS has secured concessions then other vendors who do not pursue an aggressive Linux strategy will put themselves at a disadvantage.  There is therefore an internal logic to the market which will drive support for Linux installations going forward.

Notes:

I’ve not been able to pinpoint the initial launch date for the eeePC, although it seems to be 16 October 2007.

I recall, but cannot find a reference to, thieves taking the Linux notebooks, but leaving the Windows based ones behind when they robbed a store.  I think it was in the UK and I think it was around March 08. [-> See comment from Al, re Elonex netbooks]

Many secondary documents had to be referred to because primary documents were updated, losing the time relevant information.

The Windows versions of the eeePC were curiously configured in such a way that there was no direct comparison between Linux and Windows versions.   This was also true of some Acer models.  Dell now seems to offer direct comparison (eg lattitude 2100).

Post script

The eeeTop appears to not be available with Linux – however it is shipping with OpenOffice installed.  I guess  other vendors don’t offer an OpenOffice option on their installs – a quick look at the Dell 2100 indicates that Microsoft Office is available as a customisation on the Windows version, but no office suite is available on the Linux version.   Office suites may be next…

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18 Responses to “Netbooks, Microsoft, a Turning Point”


  1. 1 Dan Drake 11 August 2009 at 6:19 am

    Well written and clearly argued article. The future looks brighter for Linux and OSS

  2. 2 Victor J Kinzer 11 August 2009 at 6:21 am

    You need to do a little more research. Dell’s Linux based offerings come with OpenOffice. It isn’t specifically advertised because it is PART of the Ubuntu Linux distribution. I have purchased a Dell and can confirm this, but even beyond that by distributing Ubuntu with only a few slight modifications to support hardware, and to include some Dell information they are shipping with an office suite. You should include this information in your blog post after confirming, which takes only a quick scan of http://www.ubuntu.com

  3. 3 The Open Sourcerer 11 August 2009 at 6:54 am

    Very well penned post. Thanks.

    We have been watching the Asus position with some scrutiny. I have not come to the same conclusions as you especially after Computex this June (http://www.theopensourcerer.com/2009/06/02/is-microsoft-buying-off-linux-netbook-vendors/) but you make a good and thought provoking argument.

    With regards to your note about stolen netbooks! That story did come from over here (the UK). In fact I think I was the first to articulate it in the blogosphere.

    http://www.theopensourcerer.com/2008/08/26/desperate-demand-for-the-elonex-webbook/

    Cheers

    Al

  4. 4 mao 11 August 2009 at 7:08 am

    If you check it out, China did the same thing to MS, they threatened Red Flag Linux and Gates made a personal tour and sold XP for $7 ($3 for students) to all of China, just to keep the Linux share down.

    • 5 lancest 11 August 2009 at 4:48 pm

      Linux notebooks are still being sold in China. Nothing has changed. They are labeled “made for Red Flag Linux” there are also SuSE Linux netbooks like what I’m using right now.

  5. 6 Doug 11 August 2009 at 7:30 am

    I see a couple of things wrong with your blog on this topic. The first is thinking that Microsoft was put up against the ropes by Asus and now the rest will follow. Did you notice that Microsoft is trying to redefine the netbook market as a low-expectation laptop market? Asus might have got Microsoft to drop its price for Windows XP Home but they’d done that in Taiwan when Windows Starter was created when Linux laptops were selling like hotcakes there. What did Microsoft get and was it something they thought was worth the risk of looking like Asus controlled them? Microsoft got Asus to change the hardware, forced a limit of 50/50 production of Linux/Windows versions and then pretty much got Linux dropped from the lineup. They got Asus to apologize when someone shows an Asus ARM based EeePC running with Linux on it.

    So, if Microsoft plans to eliminate the netbook market by manipulating the vendors and defining what a netbook is, do they lose?

    The other problem with the blog is the link to the Microsoft hardware spec for the netbook. That link is for 2008 and from what I’ve seen, Windows 7 has a spec limiting the display to 10.2″. Look for yourself:
    http://www.google.com/search?q=netbook+Windows+7+hardware+spec
    and XP’s last spec was 12.1″
    Microsoft is turning this netbook game into a game is extinction of the playing field.

  6. 7 himanshuon 12 August 2009 at 2:09 am

    great stuff buddy dude. netbook is a revolution. its great to have a such a compact device rather than those bulky notebooks.

  7. 8 Ollie 16 August 2009 at 6:44 pm

    @Dough: It’s a wron assumtion if you think MS can controll all vendors for long. After all, vendors try to satisfy CUSTOMERS. And if customers demand cheap Netbooks, they will try to deliver, no matter how. The success of Netbooks certainly is not a term of OS but of pricing. Look at Sony, you get the point. So MS certainly will not be able to “extinguish the playing field”. Maybe they’ll try, but they definitely will not succeed. On that term, i am very much looking forward to Google OS…

  8. 9 Megan "Best Netbook 2009" 21 August 2009 at 10:09 pm

    Useful post, great read anyway very interesting.

  9. 10 assman 10 October 2009 at 6:04 am

    Fools all of you!

    Netbooks are a gift to Microsoft. Microsoft is a monopolist. As such their optimal strategy is price discrimination. Netbooks are like a free give away to Microsoft because they enable it to effectively price discriminate. Let me tell you the future of PCs:

    People are going to have eight or nine PCs in their homes all running Windows. One netbook for each kid and adult (equals 4 netbooks), a laptop for dad, a desktop for the house, a windows media center for the TV and some other PC just for the sake of it. Microsoft rakes in the revenue. During a recession/depression of course people will go cheap. But once the recession lifts the same thing will happen that always happens: people who have more money will buy more expensive PC. Just go back in history and remember what GM CEO Alfred P. Sloan said, “A car for every purse and purpose”. He realized that a more affluent population would demand more expensive, luxurious cars to satisfy their desire for status and need to spend money. This is how it has been for 100 years and how it will continue to be.

    Microsoft is the ultimate monopolist because their marginal cost of production is zero. So they can make money on even very very cheap netbooks.

  10. 11 Arnel 13 October 2009 at 8:40 pm

    Great post…a glimpse to the future of MSFT..:)

  11. 12 techwoo 10 January 2010 at 6:59 pm

    Netbooks, Microsoft, a Turning Point .Thanks for nice post.I added to my twitter.


  1. 1 Netbooks, Microsoft, a Turning Point « Brendan Scott's Weblog » NetbookBlog Trackback on 10 August 2009 at 11:11 pm
  2. 2 Netbooks, Microsoft, a Turning Point Trackback on 11 August 2009 at 12:12 am
  3. 3 Collusion Against GNU/Linux and Sub-notebooks: Part II | Boycott Novell Trackback on 12 August 2009 at 3:23 am
  4. 4 Mike Linksvayer (mlinksva) 's status on Monday, 12-Oct-09 17:29:52 UTC - Identi.ca Trackback on 13 October 2009 at 3:30 am
  5. 5 The Real Story behind Windows 7 Phone Home « Brendan Scott’s Weblog Trackback on 23 February 2010 at 10:05 pm
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