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The biggest threat to Microsoft's bottom line isn't Mac or Linux - it's netbooks!

When I look at the current PC hardware ecosystem I see one device which has the potential to significantly dent Microsoft's future revenues, far more than either the Mac or Linux could achieve - the netbook.

When I look at the current PC hardware ecosystem I see one device which has the potential to significantly dent Microsoft's future revenues, far more than either the Mac or Linux could achieve - the netbook.

Rather than tearing down walls, Microsoft is putting in place arbitrary partitions in order to protect revenues The problem isn't that netbooks are cannibalizing Windows sales (they aren't, especially when you take into account that Windows-powered netbooks out-sell Linux models by a significant margin), the problem is down to the fact that Moore's Law has finally caught up with Microsoft and the OS is rapidly becoming one of the most expensive components of a new PC. And as hardware prices continue to fall (which they will), this is only going to get worse for Microsoft.

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The current raft of netbooks are modest in terms of power, but are yet very capable systems based around the 1.6GHz Intel Atom N270 processor and 1GB of RAM, but they are perfectly capable of running Windows 7 Ultimate and several applications simultaneously. OK, games and resource-heavy apps such as Photoshop are a no-go, but apart from those sort of apps there's not much that a netbook can't handle. A year from now and these devices will have even more horsepower at their disposal. By the time that Microsoft is thinking about releasing the successor to Windows 7 these netbooks will be at a point where they could well serve as desktop replacements for many people (all you need is a dock and a monitor, keyboard and mouse).

When it comes to netbooks, Microsoft has, without a doubt, been caught off-guard. Currently the Redmond giant is having to license the older, cheaper Windows XP for installation on netbook devices because Vista isn't a viable option because it's too bloated to work properly. Once Windows 7 hits OEM PC (probably by August of this year) Microsoft will make available the cheaper "Starter" edition of Windows in both developed countries and developing nations (previously this edition was only available in developing nations). But there's a big problem with the "Starter" edition, and that is the built-in "three applications running at any one time" limit. Rather than tearing down walls, when it comes to low cost systems such as netbooks and low-end notebooks, Microsoft is putting in place arbitrary partitions in order to protect revenues and sell the higher-priced editions of Windows. In effect, what Microsoft is doing is putting in place a multitasking tax on users where users will need to pay more to run more than three applications.

By now you've probably caught on to the fact that I'm no fan of application limit that Microsoft has imposed on the "Starter" edition. You'd be right. I can accept different features being made available in different editions, but to go as far as to control the number of third-party applications that can be run at any one time is a step too far. What next, an arbitrary limit on CPU horsepower? Disk space? Not only is this an example of the fact that Microsoft has yet to catch on to the fact that the OS is increasingly becoming irrelevant on a modern PC as more users turn to cloud services, but if Apple ever enters the netbook game then you'll see this particular "feature" being used to hammer home the advantages of a "one size fits all" Mac OS.

My guess is that in the end no one (in particular customers and probably the OEMs themselves who will be trying to sell these machines) will be happy with the limits of the "Starter" edition on netbooks and low-priced notebooks. OEMs will negotiate a cheaper Home Premium license (using Linux as a bargaining chip) and "Starter" will become a non-starter. A cheaper Home Premium license for the netbook will mean cheaper Home Premium license for the desktop. This is good for consumers, good for OEMs, but bad for Microsoft.

Thoughts?