Chromebooks have won fans with their sleek design and low prices, but Microsoft is getting ready to hit back, with makers of Windows laptops already working on cheaper hardware.
Chromebooks sales are growing rapidly: last year's 2.9 million is likely to turn into five million this year, and could triple to 14.4 million units by 2017, according to analyst firm Gartner. The picture isn't all rosy for Chromebooks of course — 85 percent of those sold last year went to the education sector and four out of five of the total were bought in North America. And while stellar growth rates are nothing to be sniffed at, Chromebooks made up a very small proportion of the 315 million PCs shipped last year.
However, the potential threat to Windows remains clear. If Chromebooks really take off in education, it could present a challenge to Microsoft's dominance of the desktop in the long term, as new staff arrive trained to use Chrome rather than Windows, and expect to see the same hardware in the workplace.
As such, Microsoft is working hard to counter the threat by making sure there are cheaper Windows-based options out there. For example, HP's forthcoming Stream Windows 8.1 laptop shares some of the characteristics of a Chromebook, coming in at a wallet-friendly $199 with two years of 200GB OneDrive cloud storage thrown in.
And there of course are already plenty of cheap Windows laptops already on the market — ZDNet recently looked at, another laptop coming in at a Chromebook price point (£229 in the UK). And a quick web search shows that Dell is currently advertising a Windows 8.1 Inspiron 15 at $249 (which drops to $209 when a couple of special offers are applied).
The challenge from Chromebooks is not just about price, of course, it's also about the quality of the experience - and with Chromebooks manufacturers have created a budget device that doesn't feel cheap.
The secret of Chromebooks' success seems that Chrome doesn't put: beyond web surfing, it doesn't expect too much, whereas Windows tends to be more demanding.
As such the big question here will be around how Windows 8.1 can perform on cheap hardware (perhaps if it had taken off, Windows RT could have filled this niche for Microsoft).
On Microsoft's most recent financial earnings call CEO Satya Nadella emphasised how a shift in licensing strategy would help — Windows licences are now free for any OEM building a device under nine inches, and Microsoft has added a low-cost Windows licence, presumably for larger devices, for manufacturers that integrate Bing. "This new offering combined with lower hardware specs means OEMs will bring a fantastic lineup of value-based notebooks and tablets to market this holiday," he said.
You'll see a lot of value notebooks, he said, and you'll see clamshells. For Microsoft it's about the shift to making money from selling services — Bing and cloud storage for example, according to Nadella. "We will have our OEM monetisation, and some of these new business models are about monetizing on the back end with Bing integration as well as our services attach, and that's the reason fundamentally why we have these zero priced Windows SKUs today."
Consumer hardware sales are always driven by price, and Chromebooks have just made that market even more cutthroat. While Microsoft may still be able to generate revenue from low-cost Windows devices, the trickier question may be for the manufacturers — with hardware margins already razor thin, how low can they go?