What about Linux? With just 10 percent netbook market share, the open-source OS is a toothless tiger for now. But Linux-based netbooks may encroach on Microsoft's success in the near future. Two looming threats: Google may decide to run its operating system, Android, on netbooks and low-power processors from smartphone chip licenser ARM may take off in netbooks.
Despite hints that Google may compete on netbooks, nothing is confirmed. For the time being, Linux flavors such as Ubuntu will struggle for consumer and corporate attention on netbooks against the comfort of the Windows brand, analysts say.
The software/hardware architecture behind those "90 percent" of netbooks are Windows XP Home Basic and x86-based Atom processors-Intel's smallest and lowest-power microprocessors, which now live inside nearly every netbook on the market.
Although neither Microsoft nor Intel is getting the big profit margins they want from such a low price-point market as netbooks, the two companies do have a good thing going, analysts say.
"Microsoft and Intel are winning a market using an old OS and its smallest chip, respectively," says Roger Kay, president of consulting firm Endpoint Technologies.
ARM Aims to Change the Game
One company eager to change this dynamic is ARM Holdings, a UK-based intellectually property company that designs, licenses and sells processors that are used in nearly all smartphones and most recently in Amazon's Kindle 2 e-book reader. ARM processors are lauded for their power efficiency, long battery life and low price.
For these reasons, ARM is transitioning its CPU core to netbooks and plans to bring with it the company's many licensees such as Qualcomm, NVIDIA, TI and even Apple. Ian Drew, vice president of marketing at ARM, said there will be ARM-based netbooks arriving in the second half of this year. He declined to mention from which computer makers.
Microsoft is missing out on a growth opportunity by staying exclusively with the x86 architecture, Drew says. "It has been their way historically, and the cost of change to ARM processors may be what's holding them back."
Microsoft does not currently configure Windows to port to ARM processors and did not immediately respond to a request for comment for this story.
Microsoft and Intel Partnership Looks Solid
Industry analyst Kay says that lower netbook prices will be an advantage for ARM and Linux distributors, but still says the "smart money" is on Windows sticking with Atom processors because of their history and market presence.
Yet Microsoft's move to get versions of the upcoming Windows 7 on netbooks could raise prices, says Kay.
"Microsoft has said that it will offer both Starter and Home Premium for netbooks," says Kay. "Starter will be cheap, but it's unlikely that Home Premium will be sold at the same price as XP Home Basic is now selling for netbooks."
This is the wrong direction to go in a market driven by low price, and represents an opportunity for Linux, says Kay.
"Linux could compete here, but it will have to win converts one at a time," says Kay. "What happens with Google remains to be seen, but Android on netbooks will have to deliver an experience, not just brand name comfort."
Kay adds that ARM has some power in numbers and will benefit from all its licensees. "You have all these phones guys [Qualcomm, NVIDIA] excited to try netbooks," he says.
Microsoft's Enemy: Cheaper Netbooks?
ARM VP Drew emphasizes that Microsoft will have to face up to the rapidly dropping prices of upcoming ARM-based netbooks running Linux. "We're looking at prices as low as [US]$199. If, say, Google Android netbooks take off, Microsoft loses."
One well-known nonprofit recently switched to ARM chips. OLPC (One Laptop Per Child) Association announced it is dropping its AMD x86 processors and opting for low-power ARM-based processors in its next-generation XO-2 laptop. Its aim is longer battery life.
Nicholas Negroponte, chairman of OLPC, also expressed hope that Microsoft will move Windows to ARM.
"Like many, we are urging Microsoft to make Windows - not Windows Mobile - available on the ARM. This is a complex question for them," Negroponte said.
This story, "Microsoft Rules Netbooks Now, Linux Lurks" was originally published by CIO.