Netbooks Are Seriously Harming Microsoft's Core Business

Microsoft Down do to Netbook Sales

Remember Microsoft, the company that has its Windows operating system on nearly all the computers in the world? It would seem they would be doing well with netbook computers selling like hot-cakes these days, but, unfortunately for Microsoft, they haven't been able to capitalize on those sales.

As one would imagine, that is quite odd. After all, wasn't the news that computer sales were on the rise always good for Microsoft in the past? Yes, indeed it was. But, with competition on the rise, this is no longer the case.

Windows is no longer the automatic choice for the operating system in netbooks — they have Linux distributions to worry about now. And these are no pushovers. Some heavy hitters in the industry, like Intel, have started to support linux distributions, like Moblin, to compete with closed-source counterparts like Windows.

Interestingly, 30 percent of all netbooks are shipping with Linux, and this isn't good news for the boys in Redmond.

Less operating system sales and Office sales is bad enough in the short-term, but it also hurts them in the long-term as well: Microsoft's services, in general, will easily be overlooked for Web-based alternatives (like Google's products). Put simply, Microsoft has no control over this if their operating system isn't on the machine, and the long-term damage is growing as Microsoft's influence diminishes.

But it gets worse.

Of those netbooks that do ship with Microsoft products, Windows 7 Starter Edition is typically what comes pre-installed, but this also isn't particularly encouraging because Microsoft makes drastically less on sales on Starter Edition than they do Windows 7 Home Premium and Ultimate editions. As a result, if netbooks were selling well with only Microsoft products being installed on the systems, the profit margins would still be drastically less than they were in the past — Microsoft relies on desktop and laptop sales to generate the big bucks.

Honestly though, Windows 7 is no longer necessary on netbooks. This holds true for any particular operating system, especially with the Internet's constant expansion. The typical consumer will probably use the browser more than any other application on a computer. Once the browser is started, the operating system almost becomes invisible to the user.

This presents us with a vital question: if the operating system no longer matter, what happens to Microsoft?

But all hope is not lost. IDC has reported that they expect a resurgence in traditional laptop sales as consumers hopefully realize that there are better deals to be found with full-fledged laptop computers instead of their netbook counterparts. If true, then Microsoft should do well. After all, Windows 7 is a drastic improvement over Windows Vista (and the differences between Mac OS and Windows are practically nil).

Unfortunately, while short-term gains may return for the company in 2010, the long-term outlook is still somewhat grim.

The once highly visible Microsoft has been lacking in innovation. While the Windows Phone and Microsoft Courier look promising (the Windows Phone in particular), the company still needs to get its act together in the realm of cloud-based services. That, as I previously noted, is not going to be an easy task. Along with a lack of innovation, that is what could (and most likely would) spell the end of Microsoft in the future. But they can still turn it around.