Microsoft operating chief Kevin Turner said that the company and its partners won't cede the low-end of the PC market and will sacrifice Windows licensing margins to do it.
Turner, speaking at Microsoft's Worldwide Partner conference, put some meat around the company's plan to focus on platforms and productivity. As Mary Jo Foley noted Microsoft is going for a suite of experiences across multiple devices.
Here's the problem: Microsoft has the share in the PC market, but smaller screens and cheap devices are a bigger challenge. After all, Microsoft lacks smartphone share and Google's Chromebook is nibbling at the lower end of the market. Microsoft will even allow its Nokia unit to launch an Android smartphone to keep visible in the low end of the device market.
Microsoft's plan is to tout Windows value and the ability to run native and Web apps, full Office, desktop apps and work with existing peripherals. Acer has a $249 laptop and Toshiba another version coming at the same price point.
The big question is why Microsoft wants to duel in the race to the bottom. The short answer is Microsoft has to play ball where profit margins don't exist to remain relevant. Google doesn't care about hardware revenue---all the money is made on advertising---because the goal is to get engagement. Chromebooks are merely a Trojan Horse to get you to use Google more.
Microsoft is adopting a similar move. With low-end PCs, the aim isn't necessarily to wow laptop buyers as much as get them using OneNote, Office and buying storage from the company. The risk is that Microsoft's ecosystem will have to deliver something better than the next-gen netbook.
In the new world order, hardware will become super cheap as cloud players aim to make money in other ways such as ads, e-commerce and services.