Microsoft posted a quarterly drop in sales and profits yesterday, which is interesting news all by itself, considering the mammoth scale of Microsoft’s PC dominance. But hidden in the data is the suggestion that one of the causes of the financial stutter is the rocket-powered growth of the netbook market.
Specifically, revenues of the Windows Client division of the company fell 16% in the last calendar quarter compared to the year-on-year figure. That’s of course a figure that’ll be affected by the global slowdown–as people buy less computers, that equates to fewer Windows OS sales. But Microsoft itself has suggested that it’s due in part to the netbook revolution, with the company’s general manager of investor relations, Bill Koefoed, suggesting that around 10% of all PC sales in the quarter were netbooks.
Of course this isn’t because the new class of PC only runs Linux-based operating systems–there are many sold that carry Windows XP aboard, and Microsoft’s even seen fit to extend the lifespan of that aging OS to support the netbook craze. But Windows XP simply doesn’t make Microsoft as much money as its higher-end, higher-margin operating systems like XP Professional, Vista Ultimate, and Vista Business, which is why the financial reports also show a drop in the “premium mix,” a figure that measures the percentage of Windows sales from the high-end products: it went from 76% in the same quarter last year to just 62% in this year’s quarter.
The upshot of this news is actually pretty significant for Microsoft. Netbooks are clearly here to stay, and their rapid rise in popularity points to a consumer desire for cheap, easy-to-use machines. If Microsoft is to successfully capture some of its revenue back, it absolutely has to get its next-gen OS, Windows 7, selling successfully on the netbook. Will it be forced to reconsider the seemingly crazy “three apps running” limit in Windows 7 Starter for netbooks?
And then there’s Apple. Its recent finances have actually bucked the global downturn rather well, aided not insignificantly by the iPhone. During its press event, Apple’s leadership was questioned again about the likelihood of an Apple netbook, and their response was to roundly condemn the machines as inadequate. Can Apple really afford to ignore a growing new PC market, and one that’s now powerful enough to damage its biggest rival? I’d argue it definitely has to take note. Maybe we can read between acting CEO Tim Cooke’s words “When I’m looking at what’s sold in the Netbook market, I see cramped keyboards, junky hardware, very small screen, bad software. Not a consumer experience that we would put the Mac brand on,” and speculate that there really is something slightly different, but aimed at the same market, on the way?
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