Microsoft tries to jumpstart cheap Windows devices with license price cut

Report cites 70% price reduction on Windows 8.1 to OEMs building sub-$250 tablets and notebooks; another signal that Microsoft faces unprecedented competition

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When netbooks first appeared, they were powered by the open-source Linux, a threat to Microsoft's Windows revenue. In response, Microsoft hijacked netbooks with Windows XP, extending the sales life of the even-then-aged OS, then created Windows 7 Starter, a cheaper and purposefully crippled version, to sell to OEMs.

The landscape is quite different now than during the high-water mark of netbooks: PC shipments contracted 10% last year, an historic downturn; Android and Apple iOS-powered tablets continue to attract consumers' dollars that otherwise might be spent on a new PC; and Windows 8 has received an apathetic, at times antagonistic, reaction from customers.

Microsoft may also be trying to mend a fence or two with OEMs with the price cut. Computer makers, even the most stalwart of partners, were taken by surprise in mid-2012 when Microsoft began directly competing with them using its Surface line of tablets and 2-in-1s. Slowing sales, especially to consumers, have been blamed on a host of problems by the OEMs, including Windows 8 and even Windows 8.1. Some have begun experimenting with Chrome OS or even Android as the backbone for their personal computers.

Two weeks ago, Microsoft's top marketing officer, Tami Reller, hinted that the company is trying to do better by the OEMs. "We'll just do everything possible in the OS itself, and then in the other programs that surround it, to make it easy for OEMs to deliver very competitive products," Reller said, after touting a $279 Windows notebook Microsoft had recently used as the focus for its advertising.

There are currently few sub-$250 Windows devices, either tablets or notebooks. On Saturday, Microsoft's online store showed just one, a Dell Venue 8 Pro tablet on sale for $229. Meanwhile, of the 12 notebooks priced less than $300 at Amazon.com, all but two were Chromebooks. The pair of Windows systems were priced at $280 and $300.

Rubin saw a sliver of a silver lining in the price cut for the Redmond, Wash. technology firm. "Microsoft may even see some benefit from the cut as it contemplates smaller versions of Surface or future Lumia devices, [because] it has charged itself a license fee to remain fair to OEMs," said Rubin.

The below-$250 cutoff for the discount would seem to favor smaller tablets, those in the 7-in. or 8-in. category. Some analysts and pundits have claimed that Microsoft will enter the diminutive tablet market with a scaled-down Surface this year.

"We love the small form factors, too, and we will make sure that Windows is amazing in those categories, too," Reller said during a Q&A Feb. 13 at a conference hosted by financial firm Goldman Sachs.

Microsoft recently claimed that it had sold 200 million Windows 8 and 8.1 licenses since the original's debut in October 2012, a milestone that Computerworld calculated overstated the number of systems currently running the operating system by between 16 million and 31 million.

According to Web analytics firm Net Applications, Windows 8 and Windows 8.1 accounted for about 10.6% of the operating systems that powered personal computers used online in January. That was less than half the user share of Windows 7 and not much larger than the 9.4% controlled by Windows Vista at the same points in their post-launch timelines.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2014 IDG Communications, Inc.

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