I like Daniel Eran Dilger's recent column,
Why Windows 7 on Netbooks Won't Save Microsoft, but I don't think
he is anywhere close to being evil enough to understand the strategies
of Microsoft. His argument relies too much on the free market driving
certain decisions for the best solution.
Microsoft has no interest in playing on a fair playing field, and it
has every intention of distorting things in its favor.
Distorting the Market
What are the tools of market distortion?
First, there is market control through distributors, like collusion
without the antitrust issue. Then, there are contract negotiations to
fend off competition. Finally, there is marketing to create product
perception.
How will these things help Microsoft survive the supposed onslaught
of cheap netbooks? Easy, just systematically employ these strategies as
needed to kill of the legitimate competition from netbooks running
Linux.
Step one has already been deployed as a stopgap measure - convert
the sale of Linux netbooks to the sale of XP enabled netbooks. In 2007,
almost all netbooks were sold with Linux; in 2008, less than 1 in 3 had
Linux. Disaster temporarily averted for Microsoft, but it is not
out of the woods yet. This change was successfully implemented with the
help of ASUS, Acer, Dell, HP, and others. All of these vendors quickly
offered XP versions of their netbooks as soon as they could - and
sometimes XP-only versions of new models.
The next part of Step One is to get Windows 7 working well enough to
further differentiate the next wave of netbooks from last year's models
that either had "obsolete" XP or Linux. (As a bonus, Microsoft may try
to tie the "obsolete" tag to Linux brand units.) Again, the OEM vendors
will be more than happy to assist Microsoft in pushing Windows 7 on any
new netbooks sold.
Different Levels of Windows 7
Once they start selling Windows 7 models, OEM vendors will get two
rewards from Microsoft. The first is a chance to sell upgrades on
software, e.g., Starter
Edition to
Home Basic, Home Basic to
Home Premium. Nothing helps fill the piggy bank more than repeat
sales. Even better than repeat sales will be the chance to upsell their
product. For a few dollars more, buy the next model up with the better
OS and maybe slightly higher hardware specifications. Windows 7 could
very well be the savior the PC industry has been looking for.
Contract negotiations will be tailored on all of these deals to
direct the most money possible to Microsoft at every price point. The
Starter Edition, which only supports three programs running at the same
time, will be low, but with expectations that greater volume and later
upgrades will compensate. The Premium edition will have the greatest
margins built in to really soak the affluent customer. All of this will
be mostly hidden in the price of the new PC, so hardly anyone will
complain.
'Free' Doesn't Mean There Are No Costs
While Linux can sometimes pretend to be "free", it still has a price
tag to any retailer for customer support. This cost will in part help
set the pricing of Windows 7 Starter Edition. By setting the price
close to the total cost to the retailer for Linux, Windows will seem
like the better choice to promote. This plus any FUD Microsoft can
create surrounding Linux will keep the contracts going in their
favor.
Finally, Steve Ballmer
let slip the news that Microsoft is going to be spending a bigger
chuck of cash on marketing. When Microsoft held the lock on the PC
market, there was no excuse for spending a lot on marketing except
during a new product launch.
Apple has finally awaken the sleeping giant over this issue. To help
promote the sale and demand for better versions of Windows 7, Microsoft
is going to spend like never before on advertising.
These strategies will be deployed across all PC product lines once
Windows 7 is launched. That is why Microsoft is rushing to get it out
the door ASAP. Microsoft has a lot riding on Windows 7, and truthfully
they have both the money and the market dominance to make it happen.
