More reasons netbooks are killing Microsoft

I've written before that sales of Linux netbooks are a big reason that Microsoft is hurting and is laying off 5,000 people. Here are more reasons why netbooks are putting the big hurt on the company.

As I wrote in a previous blog, in its statement about the layoffs, Microsoft said that its revenue for client software was down 8%, and a primary cause was the shift to netbooks. A big reason for that decline is that 30% of netbooks ship with Linux, so Microsoft doesn't make any money from either Windows or Microsoft Office on those machines.

But there's an even bigger problem for Microsoft as well, as several people commented on my blog. Microsoft most likely gets less for each copy of Windows sold on a netbook than it does on a desktop machine. One problem, at the moment, is that Vista won't run on netbooks, and Microsoft probably gets less for XP than it does for Vista.

The longer-range problem, though, is that even when Windows 7 ships and runs on netbooks, Microsoft will likely continue to be paid less for Windows 7 on a netbook than on a more powerful PC. There's very little margin on a machine selling for $200 or $300, and so Microsoft simply can't charge full freight for Windows on one.

In addition, people are not as likely to buy Office for a netbook than they are for a more powerful computer. A netbook is designed for Web use, and so Google Docs or possibly a free version of Microsoft Office will be all that they need. So there's more revenue gone.

This problem is one more example of why Microsoft needs to find a way to gain revenue from online use of its software, rather than rely on client-based sales. Bringing Office and other apps online may help, by getting revenue from netbook users.

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