Microsoft is hoping that by pushing a cut-down OS on netbooks it can convince users to upgrade to a more expensive edition. But the asking price for the upgrade, combined with a prosaic set of features, may mean that Microsoft loses out.
What Microsoft is hoping for is that users who buy a Windows 7 Starter edition powered netbook will be dissatisfied with the OS and use the built-in Anytime Upgrade feature to unlock a higher edition of Windows 7. The process is quick and simple and all you need is an internet connection and your credit card.
But let's think about this for a moment. A typical netbook sells for between $200 and $500. The leaked prices for an Anytime Upgrade from Starter to Home Premium is around $85. This means that the OS upgrade costs between 15% and 40% of the original price of the system. That's a huge chunk of change. And for what? A bunch of features that you could add using third-party free software. With the three-app limit in Starter now gone, unless you are bothered about not being able to change the desktop wallpaper, it's hard to come up with a compelling reason to upgrade Starter-edition based netbooks (unless the desktop wallpaper says "You Suck!!!").
Microsoft has an interest in keeping hardware prices high, because a $1,000 PC makes Windows 7 Home Premium seem a lot cheaper than if the PC cost $500. Microsoft was caught off-guard by netbooks. Not only did the new form factor make Vista seem bloated, it also made OS prices seem very expensive. Offering XP on netbooks was a stop-gap, but it highlighted technical problems with Vista that just couldn't be allowed to exist in Windows 7.
To be honest, with the three-app limit removed from the Windows 7 Starter edition, I think I'd be happy to run Starter on a netbook. Heck, if it were offered, it would be fine on even notebooks or small desktop systems, but Microsoft doesn't allow that. If you want to add features such as video playback or encryption, you can add these functions using free third-party software (for example, using VLC Player or TrueCrypt).
Personally, I think you'd have to be a sucker to use Anytime Upgrade to boost your Starter edition to Home Premium. But then again, there's a one of those born every minute, so Microsoft might be lucky.