Lost in the market panic last week were some critical details on Microsoft’s conference call. In our opinion, these offered tangible evidence that the Windows monopoly that has carried the company since its inception is beginning to erode.
While explaining why its Windows Client business grew only 2%, Microsoft noted a shift in the mix of the PC market away from “traditional PCs” toward “net books”. SeekingAlpha:
We estimate that the PC unit growth rate for the quarter was between 10% and 12%. While this tracks to the overall forecast we provided in July, the underlying mix was different than we expected entering the quarter. Specifically, growth of traditional PC units was several points lower than we expected. This was offset by growth in the new low end, netbook segment.
Despite healthy unit growth, OEM revenue declined 1% year-over-year as the average selling price declined. This was primarily the result of two factors. The mix shift in netbooks and continued mix shift to emerging markets, both of which have lower average selling prices than our historical average selling price.
At this stage it is too early to determine the extent to which the new netbooks segment is cannibalising the traditional consumer PC market sales or simply capturing a new market opportunity, so we believe that there are likely aspects of both.
What is a “net book”? A cheap, low-end laptop that doesn’t need a full-featured Windows operating system. At best, these net books carry a cheap version of Windows. At worst, they run Linux. (In the future, we expect they will run a version of Google Gears, which will come preloaded for free).
Of the top 10 bestselling laptops on Amazon today, 7 are netbooks (70%). The other three are Apple Macs, which also don’t ship with Windows. None of the 7 net books costs more than $500. Of the 7, only 1 (one) runs Windows Vista. Another runs Windows XP Home (a cheaper, simpler operating system). And one runs Linux.
Top 10 Laptops (Amazon)
- 3 Apple Macs (No Windows licence)
- 5 Windows XP Home
- 1 has Linux (No Vista)
- 1 Vista
Desktops, obviously, are a different story. But most of the growth in the PC market is now coming from cheaper, lower-end computers that are mostly used to go online. And those “net books” just don’t need to run fully featured versions of Windows. At the very least, therefore, Microsoft will likely increasingly see pressure on average selling prices, as PC makers opt for lower end versions of Windows.
Will this kill Microsoft overnight? Of course not. But, in our opinion, we’re seeing the beginning of the end.
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