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Are slates going hurt Microsoft's bottom line any more than netbooks?

Are all slates tablets? Are all tablets netbooks? Does the distinction between slates, tablets, netbooks, smartbooks and e-readers matter to anyone -- or do anything beyond confuse customers more than they are already)? The real question in all this, for Microsoft watcher, customers and partners, is whether slates will ding the profits of the Windows client business any more or less than netbooks have.
Written by Mary Jo Foley, Senior Contributing Editor on

Are all slates tablets? Are all tablets netbooks? Does the distinction between slates, tablets, netbooks, smartbooks and e-readers matter to anyone -- or do anything beyond confuse customers more than they are already)?

The real question in all this, for Microsoft watcher, customers and partners, is whether slates will ding the profits of the Windows client business any more or less than netbooks have.

As Microsoft officials make sure to point out, netbooks can run any version of Windows 7. So can the soon-to-be-released slates from HP, Pegatron, Archos and other Microsoft partners, I'd assume. (Microsoft officials said last week the HP slate that Ballmer showed, but which seemed to be non-existent at the show, was running Windows 7, and will include a customized interface created by HP.)

It's up to PC makers which version of Windows 7 they preload on new machines and devices. Many netbooks are preloading the cheapest, lowest end version of Windows 7, Starter Edition. Microsoft gets less per copy for Starter from its OEMs than it does for Premium or Ultimate or any of the other SKUs. (It's unclear exactly how much less.)

Netbooks have been a double-edged sword for Microsoft. The robust sales of netbooks helped keep the bottom from completely falling out of the Windows business in 2009. But the growth of netbooks also cut into Windows' profits. Microsoft ended up offering Windows XP to netbook makers at the firesale price of about $15 per copy, according to many estimates, in part to convince PC makers not to preload Linux on those machines. Microsoft's argument: Even though Linux, at $0 per copy, is cheaper than Windows at $15 per copy, there will be far fewer support calls from customers accustomed to Windows than those unfamiliar with Linux. And there are a lot more Windows apps than netbook apps. So why not just go with Windows?

What's going to happen with slates, the multi-touch-optimized successors to the stylus/digital-ink-dependent tablet PCs? Will Microsoft have to cut the price of Windows 7 that it offers PC makers so as to keep them from doing a Dell, which provided a quick glimpse of an Android-based, 5-inch handheld at CES? Or from coming out with a Chrome OS/ARM-based slate later in 2010? Competition is good for Microsoft's partners: It provides them with a new bargaining chip to be used when negotiating the price per copy of Windows with Microsoft.

On the TechFlash blog last week, Todd Bishop quizzed Tammi Reller, the Chief Financial Officer of Microsoft's Windows and Windows Live business unit, about the potential impact of slates. Not surprisingly, Reller said Microsoft is envisioning slates the same way it does netbooks: As a PC companion, not a replacement.

While the "companion not a replacement" motto is a good one for Microsoft, I'm not sure it reflects reality. For some consumers, netbooks are a second or third PC; for many who bought the devices at the holidays, netbooks were purchased as a replacement for aging desktop/laptop PCs. If slates are nothing more than fancy e-readers that can also play music, they might be supplemental. But if they are full-fledged computing devices (as the rumored Apple iSlate supposedly is), with souped-up media-consumption capabilities, they may become PC replacements.

What's your prediction? Will the new class of slates/tablets or whatever you call them help or hurt Microsoft, in terms of Windows revenues/sales?

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