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May 26, 2009

Microsoft and the great netbook price-fixing scam of 2009

Microsoft is colluding with netbook hardware vendors to deny customer choice and protect profits

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It's the question vexing hardware vendors everywhere: How do they seize on the fervor and froth of the netbook craze without cannibalizing sales of their higher-priced, higher-margin notebooks? After all, if the current crop of netbooks can run the majority of users' day-to-day computing tasks -- and my recent personal experience with an HP Mini 2140 shows that they indeed can -- then what's to stop these same users from ditching their notebook habit altogether in favor of the lighter-weight and increased battery life of a full-time netbook?

Now we're hearing that Microsoft is about to weigh in on the matter. The company already muddied the netbook hardware waters when it set forth its byzantine "maximum hardware requirements" for netbooks running Windows XP Home. And with Windows 7 just around the corner, the company is reportedly preparing an updated set of parameters. In a nutshell, the acceptable netbook screen size is decreasing (from 12.1 inches to 10.2 inches), the acceptable storage capacity is increasing (from a 32GB solid-state drive or 160GB hard disk drive to 64GB SSD/250GB HDD), and restrictions on touch and other Windows 7-centric features are being lifted.

[ Get the lowdown on the coming netbook revolution from InfoWorld's Neil McAllister. | Follow Randall C. Kennedy's test of working only with a netbook. ]

It all centers around Microsoft's archaic, multilevel pricing strategy. If you're a hardware vendor and your device fits within these restrictions, you qualify for the lower-cost netbook edition of Windows 7. If not, you have to offer one of the pricier versions and pass the additional cost onto your customers. And given the price-competitive nature of the netbook marketplace, this latter option would be suicide, so expect most vendors to fall in line.

On the surface, the whole situation reeks of the worst kind of collusion, with Microsoft helping certain at-risk hardware vendors to deny their customers choice by letting them hide behind the straw man of software licensing costs. Do you like that shiny, new netbook on the shelf? Want one with the same general specs but a slightly larger screen? Then get ready to go with a second- or third-tier vendor and pay through the nose!

What those involved in the great netbook price-fixing scam of 2009 fail to realize is that denying customers choice is never a smart move. The savvy ones will find a way around the restrictions, while the regular Joes will scoff at the arbitrary nature of the "rules" and walk away. I, for one, am encouraging enterprise customers to fight back, to demand that their hardware providers take the business netbook concept seriously and provide the configurations and form factors users are asking for.

And if you, like me, find yourself retching at the thought of this latest Microsoft money grab, there's always the Ubuntu netbook remix.

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18 of 18 comments
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regulas 26-May-09 4:13am
1 reply
What MS is doing should be illegal. I only hope the vendors tell MS to go forth and screw themselves and push Linux with public education adverts and that Linux takes off. Linux does anything those netbooks are designed and more, for free. I use Ubuntu on my 14.1" laptop, no dual boot with Millennium II, Windoze is gone. MS is dictating that the HD can be bigger to accomidate the oversized DRM infected Windows 7. Yup audio and video DRM is built right in along with spyware and easy access to your machine by the government. Why do you the FEDS dropped their case against MS when they had them red handed, because MS works with them now! Don't trust Redmond or anything that comes out of there.
gunner@gulftel.com 26-May-09 2:45pm
"Yup audio and video DRM is built right in along with spyware and easy access to your machine by the government. Why do you the FEDS dropped their case against MS when they had them red handed, because MS works with them now! Don't trust Redmond or anything that comes out of there." Quick! What's that behind you?! Lookout! Hide! They're all after us now...
jubal 26-May-09 5:08am
You have confused price fixing with pricing. Does your new netbook support Wikipedia? http://en.wikipedia.org/wiki/Price_fixing
gratefulEd 26-May-09 5:11am
What a friggin surprise! I have contended since the nineties that M$ will go down in history as one of the biggest stumbling blocks in the advancement of technology and Gates and now his protogé, Drinkin' Buddy Ballmer will be viewed as criminal for their greed driven methodology. Take a look on your desktop and then your mirror. Most of you have bought their crappy products and paid through the nose, but you have also bought their stock, greedily supporting their vampire-like business practices. With over twenty years in the tech biz I have only begrudgingly paid $149. for student office for my daughter because someone said she "HAD" to have it for school. How did such a poorly managed company do so well? Look at Wall Street, look at America today, it is simply embarrassing.
corey340 26-May-09 5:15am
The U.S. Attorney General needs shine a bright light on this practice and assure some form of fair use policy. I have little doubt that most people will opt for Windows but that by no means is a license for M*soft to set hardware guidelines designed to limit the the design or functionality of Netbooks. Personally, I prefer that governments do not intervene in industry. If Apple were to establish guidelines for Netbooks for OSX, we would see a sudden shift in the Netbook marketplace that would heavily favor a non-Windows solution but without such action on their part, it is critical that government agencies intervene. I have little doubt that if the U.S. does not act, the EU certainly will in time.
redjunkopera 26-May-09 5:40am
Nobody NEEDs a netbook. If you don't like the price, don't pay. Netbooks are the new laptop... an overpriced gimmick to part fools and their money.
Cubert 26-May-09 8:43am
Am I reading that article right? Is MS really going to tell its customers that you can't install one of the basic versions of their OS because they deem that the person's computer is "too fast"?!?!? Too slow, understandable, but too fast???
Derodicus 26-May-09 10:23am
1 reply
MS was asked by the hardware vendors to create a version of their OS to put on the low end netbooks to keep the price low. In turn MS has created a maximum spec for this low end OS to keep hardware vendors from installing it on every system they sell. So what's the problem again??
SunnyGuy53@gmail.com 26-May-09 1:20pm
1 reply
The problem is that's it's predatory, monopoly pricing, pure and simple. If Apple comes out with a netbook equivalent, watch millions of consumers say adios to Microsoft. It will cost more, but at least you'll get real value -- instead of an old warmed-over OS. Sunny Guy
Tragicomix 26-May-09 4:48pm
"If Apple comes out with a netbook equivalent, watch millions of consumers say adios to Microsoft. It will cost more, but at least you'll get real value -- instead of an old warmed-over OS." If it's that easy to beat Microsoft where's the problem again?
ProblemNum1 26-May-09 12:54pm
1 reply
You Forgot to mention that Intel is limiting the specs on these as well, right? You can't put an Atom processor in anything over 12" now and they are moving this to 10" along with Microsoft. So make sure you mention the other monopoly Intel's role in this.
rainabba 27-May-09 5:06pm
You're missing a major difference here though. Intel doesn't want OEMs using the ATOM in a manner that will provide a poor user experience that would hurt the image of the product or Intel. If I sold you a wrist-watch calculator and told you it would get you through an advanced calculus class, you'd end up disappointed and likely tell your friends it sucks. MS is doing quite the opposite here. OEMs could slap this 'light' version (which should be quicker in theory) on more capable hardware, sell that setup a bit cheaper, and make for happy customers. MS STILL gets their profit for the product they sold either way. With the pricing approach this article discusses, the consumer loses, the hardware OEM stands to lose, and only MS wins. Hopefully, the hardware OEMs will realize this and will choose NOT to play Microsoft's game. At any rate, I'm a developer who lives and breaths MS (Windows Mobile even), but if I were to buy a netbook (which I won't thanks to a good Windows Mobile 6.5 device), I wouldn't buy one hoping/expecting/trying to run Win 7 on it. That's like putting lipstick on a pig, trying to stuff it in a sexy little black dress, then go out dancing with it. SOMETHING will fail along the way.
pfidelman 26-May-09 2:36pm
Providing value based pricing is well-established methodology in technology, whether that is based on the number of users, the feature set or in this case on the size of the processor or the number of concurrent applications. Reading the posts, I was surprised that the two companies about which the blog is written has any record of success at all considering the number of expert opinions offered to Microsoft and Intel. I would offer that the current computer revolution of ever reducing prices for ever greater peformance was delivered by these two companies, not by the avatars of open computing which have had a variety of names over the last twenty years.
elecconnec 26-May-09 2:50pm
1 reply
How is this a "price-fixing scam"? Netbook manufacturers begged MS for a usable, cheap, low-end netbook version of Windows so they could sell Windows netbooks cheaper than their "regular" laptops, and not enough people were buying the Linux-based netbooks that supposedly sparked the "netbook revolution" in the first place. In return, MS requires that it only be used on the low-end machines it was intended for. MS is not stopping anyone from selling a higher-spec'd netbook, they're just making them put a "higher spec'd" OS on it as well. If a manufacturer really wants to call a quad-core 8GB/500GB device a "netbook" just because it happens to have a 10-inch screen, they can pony up the extra $10 for a "full" copy of Win7 to install on it, or just sell it with Linux, and watch how fast it hits the "Clearance" bins! The fact no one seems to want to admit, is that the Windows OS is a value-add worth far more than its cost to OEMs. If the inclusion of Windows increases the retail value of a netbook by $100, why isn't Microsoft entitled to their fair share of that increased value? [Before the Linux posse comes looking for me, I should say that I've got nothing against Linux personally, but from a marketing perspective, Windows-based netbooks FAR outsell Linux-based ones. If Linux netbooks sold well enough, manufacturers wouldn't have to spend money on ANY version of XP or Win7, would they?]
RightPaddock 31-May-09 8:42pm
EXACTLY !!!!! thanks eleconnec - saved me the trouble, and better put I couldn't have done
Wretched 29-May-09 8:36pm
Excellent journalism technique: when you can't think of anything real to write about, think up some biatch about Microsoft. Works every time, doesn't it.
sstainba 1-Jun-09 4:28am
How is this any different than what crApple does? They build an OS that works on generic x86 hardware but disallow it from running on anything except their overpriced hardware. Why does everyone bitch about Microsoft but let Apple do anything it wants? Bunch of whiners...
bbstamos 1-Jun-09 10:07am
Oh... Randall Randall Randall. Some journalism. Keep your current job at all costs... unless you want to work for Google of course - assuming they're hiring.

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