Does Microsoft Want You to Hate Netbooks?

A survey published this week by consumer shopping site Retrevo puts Windows 7 Starter on trial for disappointing netbook users who were expecting more features and fewer restrictions.

With Windows 7 now available to all, Microsoft is between a rock and hard place as it tries to replace the aging Windows XP without overemphasizing Windows 7 on netbooks.

Slideshow: Windows 7 in Pictures: The Coolest New Hardware

Microsoft's sweet spot is Windows 7 on ultrathin and regulation-size laptops, but those higher-priced PCs are in danger of being cannibalized by netbook sales, say industry analysts.

Microsoft Stuck with Netbooks

Netbooks appeared suddenly about a year and a half ago with most machines running a Linux-based OS. Microsoft curbed that threat by installing Windows XP on netbooks. Now, says Roger Kay, veteran analyst and president of research firm Endpoint Technologies, Microsoft and its hardware partners are reluctant participants in a netbook industry that returns little profit for all parties.

And the netbook market shows no signs of slowing. A report published last month by market researcher DisplaySearch showed that in Q2 of 2009 netbook revenue increased 37 percent compared to the prior quarter, and increased 264 percent compared to the same time last year, all of which drags down traditional PC prices.

"If Microsoft could kill the netbook market it would, but they're stuck with it," says Kay.

He adds that Microsoft and its OEM partners are using Windows 7 Starter to de-feature the OS on netbooks and make it difficult for users to get all they want.

"They want users to think 'I need more than this.' It's a way to upsell to higher-priced laptops," says Kay.

[ For complete coverage on Microsoft's new Windows 7 operating system -- including hands-on reviews, video tutorials and advice on enterprise rollouts -- see CIO.com's Windows 7 Bible. ]

Originally Windows 7 Starter could only run three applications at once, but Microsoft eliminated that restriction in late May. Yet the OS still lacks features such as the ability to use the Aero graphical interface, play DVDs and use Windows Media Center.

Most netbooks are shipping with Windows 7 Starter pre-installed. The Retrevo survey points out that 23 out of 28 netbooks now available on Amazon.com are installed with Windows 7 Starter.

Netbook users who are unsatisfied with Windows 7 Starter can spend $80 to upgrade their machine to Windows 7 Home Premium through the Anytime Upgrade program, which is accessible on Microsoft's Web site.

Who's Really to Blame for Win 7 Starter Gripes?

The young netbook market is still maturing and Windows 7 Starter may not be the netbook OS for long, says JP Gownder, a vice president and research director at Forrester. If Windows 7 Starter does not satisfy netbook users, he says, then Microsoft will have to ship more with Windows 7 Home Premium, which could push buyers toward higher-end netbooks in the $450 range.

The disappointment with Windows 7 Starter, adds Gownder, is more the fault of hardware manufacturers than Microsoft.

"OEMs have to keep netbook prices down, so they demanded the lowest Windows SKU at the lowest price. Microsoft had to give it to them."

But analyst Kay believes Microsoft is more complicit in the handicapping of the Windows 7 netbook experience.

"Microsoft has all but admitted that it despises netbooks, but it can't back off from them because that would leave an opening for Google's Chrome OS," he says.

Netbook Hardware Limitations

The most important question to ask, says Rob Enderle, president of tech consulting firm The Enderle Group, is 'what do consumers want from a netbook?' They are traditionally used by students for Web browsing and instant messaging, or as a secondary machine for travelling business people, in which case the stripped-down Windows 7 Starter should be capable enough, he says.

The problem for more demanding users is that netbooks lack the muscle to run Windows 7 to its full potential, says Enderle.

"Most netbooks don't have the hardware power for features like Aero and Windows Media Center to work correctly, no matter what version of Windows 7 you're running," he says.

Forrester analyst Gownder mentions that higher-end netbooks in the $500 range are using more powerful versions of Intel's Atom microprocessors and advanced Nvidia Ion graphics to make it easier to run Windows 7 Home Premium.

At Least It's Not Windows XP

With Windows 7 Starter, Enderle says, Microsoft has created something that's a little better than the eight-year-old Windows XP at roughly the same cost to the OEMs.

"I think Microsoft is just happy Windows 7 Starter is not XP," he says.

Enderle adds that if Microsoft had its way more consumers would be buying standard-size and ultrathin laptops, but the software giant has been forced to play the netbook game.

"Microsoft is certainly not excited about the revenue from netbooks," he says. "I think they view them as a necessary evil."

Shane O'Neill is a senior writer at CIO.com. Follow him on Twitter at twitter.com/smoneill. Follow everything from CIO.com on Twitter at twitter.com/CIOonline.

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