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CIO - Possibly Microsoft's most important strategic goal for Windows 7, in addition to redeeming the brand damage done by Windows Vista, is to dominate netbooks, now the fastest selling segment of the PC market.

This may not bode well for the Linux operating system. With netbooks, the open-source OS with a highly tech-savvy audience found a market where it could legitimately threaten Windows. But Linux will face an uphill battle in this category now that the sleeping software giant has awoken to the opportunity that netbooks present, say industry analysts.

Top netbook vendors Asustek Computer and Acer, which together account for the majority of netbook sales, run Linux on roughly 30% of their Eee PC and AspireOne netbooks, respectively. That figure dwarfs Linux's nearly 1% share of the higher-end PC market. Hewlett-Packard, Dell and Lenovo released netbook products in the fourth quarter of 2008, all in the $400 price range and all offering a choice of either Windows XP or some flavor of Linux.

But Microsoft designed Windows 7, unlike notorious resource hog Vista, with netbooks in mind (Look here for a video demo of the Windows 7 pre-beta running on a netbook.) According to Parri Munsell, managing director of Windows consumer product marketing at Microsoft, "Windows 7 has been optimized and engineered to run on anything, from the smallest notebook to the most loaded laptop or desktop."

Netbooks crept up on Microsoft

Why is making Windows 7 small form-factor-friendly a necessity for Microsoft? The company was caught off guard when a sudden spike in netbook popularity in 2008 bit into its bottom line.

In its last quarterly earnings report in October, Microsoft pointed directly at explosive netbook sales in 2008 as one of the main reasons why year-over-year growth in Vista sales was sluggish. Because Vista's hardware requirements and licensing costs are too much for netbook OEMs, Microsoft had to get Windows XP running on netbooks to curb the Linux momentum, analysts say.

Initially, netbooks only ran Linux, and the operating system was able make significant headway before and after Microsoft put XP on them. Asus and Acer executives have been quoted recently as saying that Linux should sustain a netbook market share of 20% to 30%.

Linux lacks marketing muscle

But despite reports from bloggers that Linux on netbooks could undercut Windows, industry analysts remain doubtful that Linux can keep up the netbook momentum now that these lightweight, inexpensive laptops have become more mainstream -- particularly when the competition is Microsoft, a marketing giant.

"I don't think Microsoft is really worried about Linux on the client side," says Roger Kay, president of research and consulting firm Endpoint Technologies. "Most attempts to get Linux moving on the client side have gone nowhere, and I think its share of the netbook market will decline when Windows 7 arrives."