Windows 7 May Equal Fewer Bargain Netbooks

Microsoft must perform a tricky balancing act as it tries to keep Windows on netbooks but not get stuck in a market that generates little revenue, say industry analysts.

The software giant has still not disclosed how much it plans to charge PC makers for Windows 7 on netbooks. But an increase over the current $15 price for Windows XP is inevitable, says Richard Shim, PC analyst at research firm IDC.

Windows 7 Bible: Your Complete Guide to the Next Version of Windows

PC makers will face pressure to keep price points down, Shim says, even as Microsoft charges them more for Windows 7 on netbooks than for XP. Microsoft plans to make the limited Windows 7 Starter version and Windows 7 Home Premium available on netbooks, with Home Premium likely costing more.

To be clear, Microsoft has not announced how much it plans to charge PC makers for any versions of Windows 7. Microsoft executives are saying that the average price that PC makers pay for Windows (across all versions) is $50. It currently charges PC makers $15 per copy of Windows XP on netbooks.

Are More Powerful Netbooks Still Netbooks?

Netbooks are still about price and portability, but that could change if consumers and businesses demand more power from small form-factor machines, Shim says.

"Netbooks could soon evolve from being price-focused to more feature-focused if users demand it," says Shim.

If that feature infusion happens, vendors would certainly raise the price, at which point people will stop calling the devices netbooks, says veteran analyst Roger Kay, president of tech research firm Endpoint Technologies.

"This is what both Microsoft and hardware companies want," says Kay. "They want to sell ultrathin laptops for $500 rather than netbooks for $300. But users like netbooks."

Indeed they do. IDC predicts netbook sales will more than double this year, from 11.6 million units in 2008 to 26.5 million in 2009.

Keeping Windows XP Alive

To stay in the netbook game, Microsoft has agreed to continue licensing Windows XP Home Edition to netbook hardware makers for one year after Windows 7 ships on Oct. 22.

The catch: Microsoft doesn't actually want Windows 7 Starter to gain steam on netbooks, Kay believes.

"Microsoft will offer PC makers Windows 7 Starter on netbooks probably at a price close to what it now charges for XP, but what it really wants to do is upsell to Windows 7 Home Premium on ultrathins or standard-size notebooks to make more money," says Kay.

Ultrathins: The New Netbooks

Kay predicts the industry is heading toward ultrathin notebooks, lightweight machines that lie halfway between netbooks and standard-size notebooks on power, size and price.

Ultrathin laptops typically weigh less than five pounds and have standard-size keyboards and screen sizes between 12 and 14 inches, compared to the 9 or 10 inch netbook screens. Ultrathins also have chips that draw less power than standard-size notebook processors but more power than netbook processors, which mostly use Intel's low-power Atom chips.

Hewlett-Packard, Acer and Dell have all released ultrathin models, and other PC makers are expected to release ultrathins before the holidays. These units generally sell for between $500 and $700, compared to the $300 to $400 pricetags on netbooks.

Windows 7 on Netbooks: Is It Worth It?

Ultimately, Kay says, the Windows 7/netbook connection depends on whether netbook users will be willing to pay more for the Windows 7 experience. "There's no doubt Windows 7 will be better than XP on netbooks," says Kay. "But is it $100 better when all most people do on netbooks is surf the Web, check e-mail and IM?"

Many users will get by with XP on netbooks even after support stops, reportedly in Oct. 2010, Kay says, adding that an opportunity exists for Google's Linux-based Chrome OS if users keep clamoring for basic netbooks that cost less than $300.

"Microsoft and Intel want to get away from netbooks because they are simply not making money on them," he says.

PC Makers Left Holding the Bag

As the PC market keeps fragmenting into sub-categories such as netbooks, smartbooks and ultrathins, PC makers have the most pressure on them, Kay says, because they make investments each quarter in what they think finicky consumers and businesses will want.

Often, they are left with not enough inventory or too much if they make the wrong forecast, Kay says.

Adds IDC's Shim: "PC Makers will have to get better at reacting to buyer needs."

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This story, "Windows 7 May Equal Fewer Bargain Netbooks" was originally published by CIO.

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