Microsoft fights Android and Chrome OS with dirt-cheap Windows 8.1 PCs and tablets

How low can the price of a Windows PC go? At this week's IFA show in Berlin, PC makers are rolling out new PCs with outrageously aggressive pricing. Here's how they're cutting costs.
Written by Ed Bott, Senior Contributing Editor

How do you compete when your fiercest rival is willing to give away its product? That’s the dilemma Microsoft faces in trying to compete with Google, which offers the Android operating system and Chrome OS to OEMs for nothing.

Redmond’s response, earlier this year, was to introduce a variant of the Windows client software: Windows 8.1 with Bing. This OS option is available to OEMs at a price that’s a carefully guarded secret but is probably close to zero. Yes, there’s a catch—two of them, in fact. Windows 8.1 for Bing is available only on low-cost devices, and OEMs are unable to change the default search engine during the setup process. (The PC buyer can change search defaults with no restrictions after starting up for the first time.)

In all other respects, this is just Windows 8.1, available in 32-bit and 64-bit versions, with variants in Chinese and single (non-English) languages.

At the IFA tradeshow in Berlin this week, OEMs have begun taking advantage of the lower Windows licensing cost to unleash a flood of small tablets at prices that were previously unheard of for Windows devices. Toshiba’s 7-inch Encore Mini tablet, for example, will sell for $120 in the U.S. (129 Euros in Europe). Acer’s Iconia Tab 8 W, an 8-inch tablet with a quad-core CPU, is priced aggressively as well, at $150. And plenty more are on the way, all running Windows 8.1 for Bing.

The new, cheaper Windows isn’t just for tablets. Microsoft and its OEM partners are taking aim at Chromebooks, with Windows 8.1 with Bing showing up on low-cost laptops this week as well.

Toshiba’s new Satellite CL10-B, for example, is an 11-inch clamshell-style laptop with 32 GB of eMMC flash storage and 100 GB of OneDrive cloud storage, prepaid for two years. The price tag of 269 Euros undercuts the new 13-inch Chromebook 2, which Toshiba is exhibiting a mere 10 feet away at its IFA stand. That device, with a bigger screen, checks in at a price of 349 Euros for 16 GB of built-in storage and 100 GB of Google Drive cloud storage, also prepaid for two years.

And it’s just one of many similar neo-netbooks that will be showing up this fall, including the resurrection of the Ur-netbook, the ASUS EeeBook Z205, at $199. HP’s Pavilion 10Z, introduced earlier this summer, is one of the few Windows 8.1 with Bing devices that includes a touchscreen.

One way that Microsoft and its partners are able to tamp down costs is by shrinking the amount of built-in storage available with these new devices. The specs for Windows 8.1 with Bing allow manufacturers to ship tablets with as little as 16 GB of flash (or SSD) storage. The clamshell devices typically include 32 GB of flash RAM.

The reason PC makers can get away with such skimpy storage is a new feature called WIMBoot, which allows the OEM to install Windows so that it runs directly from the compressed image file previously used only for Windows 8.x recovery functions.

This diagram, taken from a Microsoft technical article for OEMs, explains how the disk layout differs for a WIMBoot installation.

With a WIMBoot installation, the system boots from the same Windows image (WIM) file used for system recovery purposes, freeing huge amounts of disk space. Image via Microsoft TechNet.

The difference in free storage is profound. On that Toshiba Satellite notebook with 32 GB of flash storage, I checked the system disk using File Explorer: there was a total of 24.5 billion bytes of free space (reported as 22.9 GB in File Explorer), which means the full Windows installation takes up only 7.5 billion bytes, or 7 GB as reported in File Explorer. (For an explanation of the confusing way Windows reports disk space usage, see this article.)

That’s a huge improvement over a conventional Windows installation, which can gobble up half of a 32 GB drive. In my tests of other systems using WIMBoot compression, I've seen no degradation of performance. In addition, every device I looked at offers expansion through removable storage.

Several of the low-cost devices I’ve seen at IFA so far also include a one-year subscription to Office 365 Personal. Presumably Microsoft is betting that a significant proportion of those device owners will get hooked on Office and renew their subscription when the year is up.

The move is vaguely reminiscent of the inexpensive Starter editions Microsoft released in the Windows Vista and Windows 7 era. Those editions were hobbled, feature-wise, and at one point Microsoft even planned to restrict those editions to running only three apps simultaneously, although they eventually reversed course on that decision. In contrast, Windows 8.1 with Bing contains the full Windows feature set.

And it's worth remembering that although those early netbooks were unbearably slow, that's not likely to be a problem with this generation. Modern CPUs are more than capable of handling the demands of media consumption and basic productivity tasks without breaking a sweat. None of these low-priced devices will be suitable for video or photo editing but that's not their intended role.

For OEMs already dealing with razor-thin profit margins, these new device classes are a mixed blessing at best. The slimmer prices will also drive down revenues for Microsoft, which is used to collecting a full license fee for every Windows device. But for consumers the low prices might be enough to distract attention away from Android devices and Chromebooks.

This story has been updated since its original publication to include discussions of WIMBoot performance and historical comparisons with earlier Windows versions.

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