I'm going to do at least two posts on netbooks. This one deals only with Microsoft.
A netbook, as explained in this Wired article, is a simple, small laptop computer. They were originally designed to be distributed at very low cost in developing nations. So, there's not much in the way of processing power or RAM. The early versions had no hard disc, using flash memory instead, and ran Linux rather than the more expensive Windows. Microsoft probably didn't like it, but hey, as soon as someone can afford a better machine, they'll get a better machine, and that one will be running Windows. The netbook is really only useful to browse the web and handle e-mail: serious software, like Photoshop, won't run on one.
Then, to everyone's surprise, people who could afford a "better" machine bought netbooks. Worldwide, they'll account for some 10% of laptop sales this year. Not worldshaking -- yet -- but important.
What does it mean for Microsoft? (and, by implication, what does it mean for your mutual funds that own Microsoft?) First, there is now a market segment that is accustomed to getting a computer that does not come pre-loaded with Windows. Yes, I know about Apple, but that's a niche brand whose fans apparently like being a niche brand. Anyhow, Apple has never shown any interest in selling copies of its software to other hardware manufacturers.
Vista is a famous memory vampire, and will never run on a netbook. Many netbooks sold in the US do come pre-loaded with XP, but it's really too much OS for the hardware, and Redmond can't charge much for it. The upcoming Windows 7 includes a cut-down version, which will run on a netbook, but there's still the problem: if the manufacturer can pre-load Linux for next to free, Gates and Ballmer can't charge much more than next to free.
Next, the netbook model is: don't run an app on your computer. Use a browser on your computer to run an app that's actually hosted on a server someplace. So netbook owners can't use Photoshop to edit their pictures ... but, since most people only want to eliminate the red-eye and add a caption, they really don't need Photoshop. There's appsavailable on the web to do those tasks. And, significant to our discussion, there's apps available on the web to do word processing and spreadsheets. If netbook owners are satisfied with those, well, it doesn't help the sales of Microsoft Office.
To summarize: the netbook looks like a market changer, and it'll be a market that does not favor the Microsoft business model.
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