Microsoft plans price war to stymie Chromebook growth

In the U.S. commercial channel, Chromebooks accounted for 35% of all notebook sales through May, says NPD Group

Microsoft's COO yesterday promised that his company and its army of OEMs would compete on price with Google's Chromebooks, a milestone in Microsoft's battle against the small but encroaching enemy.

At Microsoft's Worldwide Partner Conference (WPC) Monday, Chief Operations Officer Kevin Turner, the executive who drives sales, both internally and through the firm's vast partner network, pledged that Microsoft would "redefine the value category" with notebooks as inexpensive as $199.

"We are going to participate at the low-end," Turner said, as quoted by the Verge yesterday. "We've got a great value proposition against Chromebooks, we are not ceding the market to anyone."

(Computerworld was unable to verify those quotes as Microsoft has not yet posted a recording or a transcript of Turner's part of the WPC keynote, although it has for other executives who spoke yesterday.)

Turner's promise was just the latest tactic in Microsoft's campaign against Chromebooks, the inexpensive laptops powered by Google's browser-based Chrome OS, made and sold by vendors such as Acer, Dell, Hewlett-Packard and Samsung.

In the past, Microsoft has been concerned enough with Chromebooks' increasing popularity to target the devices with attack ads in the now-defunct "Scroogled" project, where it argued that they were not legitimate laptops. It backtracked later, however, by implicitly bestowing a productivity label on the devices when it added the free Office Online apps -- Word, Excel, PowerPoint and OneNote -- to the Chrome Web store, the main distribution channel for Chrome OS software.

Microsoft has also made other moves to wrestle with low-cost rivals, including Chromebooks: It has handed out Windows free of charges to OEMs building devices, including phones and tablets with 9-in. and smaller screens and it offers Windows 8.1 with Bing to OEMs either free or at a very low cost for use in the very cheapest hardware. Microsoft has also tweaked Windows 8.1 so it can be installed and run on devices with as little as 1GB of system memory, another way to drive down costs and, thus, retail prices.

Chromebooks are selling, at least in the U.S., said Stephen Baker, an analyst with the NPD Group. Through May, a little under 1 million Chromebooks were sold through U.S. commercial channels. That channel consists of large and small distributors -- of the former, CDW and Ingram Micro are examples -- that many businesses, government agencies, schools and other organizations use to buy personal computers. The figure did not include consumer sales, nor PCs sold by OEMs directly to businesses.

"And that's way before things are going to start heating up," said Baker of the nearly 1 million Chromebooks.

According to Baker, from January to May, Chromebooks accounted for 35% of the year's commercial channel notebooks sales; in the first three weeks of June, that figure climbed to 40% as school districts began placing orders for the 2014-2015 school year.

Most Chromebooks go to schools and government agencies, said Baker, along with a smattering of small- and medium-sized businesses. "There isn't a lot of Fortune 1000 companies in there," he said.

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