Microsoft's chief executive, Steve Ballmer, is no stranger to controversy.
This is, after all, the man who once said "to heck with Janet Reno" during the early days of the company's antitrust saga, and who more recently has called Linux a "cancer".
So Ballmer's remark last month that a $100 computer would help alleviate software piracy and spread computing to developing nations seems tame in comparison.
"There needs to be the equivalent of a $100 computer, not just a $400 computer, if this stuff is really going to go down-market in some of these countries," Ballmer told attendees at a conference last month sponsored by Gartner.
But by suggesting that the industry needs to offer a cheaper PC, Ballmer puts himself and his company in an awkward spot: will Microsoft take additional steps toward making low-cost PCs a reality by sacrificing some of its fat profit margins on Windows? Or will the software giant leave it to the hardware makers -- already operating on paper-thin margins -- to give back some green?
Let's take a look at where things stand. Microsoft currently charges PC makers anywhere from $50 to $75 per computer to license Windows, according to analysts' estimates. While Microsoft points out that the price hasn't changed much -- in actual dollars -- in years, hardware costs have been plunging. So the cost of Windows as a percentage of a PC's cost has actually grown significantly.
In recent months, Microsoft has introduced low-cost versions of Windows, called Windows XP Starter Edition, especially for developing countries such as India, Indonesia, Malaysia, Russia and Thailand. Word is that PC makers are paying roughly $36 per copy for the software, which can only be sold on new PCs.
Likewise, while top-shelf chips from AMD and Intel can cost upward of $1,000 each, both companies are working on low-cost chips for developing countries. For instance, AMD's Sempron CPU can be had for as little as $39 when purchased in groups of 1,000.
AMD has even gone so far as to make available a blueprint for how to build a PC for as little as $185. Called the Personal Internet Communicator, the machine is geared toward families that make the equivalent of between $1,000 and $6,000 annually. AMD says that three companies in India and Latin America are already signed up to market versions of the machine. But that system wouldn't include a monitor and would run a variant of Microsoft's Windows CE, not the more capable Windows XP.
Similarly, Intel is investigating ways to make low-cost PCs available in Eastern Europe, India and other developing areas. The company, sources say, has been selling a special low-priced processor-and-motherboard combination as part of a project code-named Shelton. The ultimate goal is to produce a PC for as little as $199.
Talkback
Of, course Balmer is probably right! Software piracy would fall when we get the $100 machine. Such a PC will likely be unable to run Windows and may mean Linux being the only sensible option!
Sure it is. Say $70 for the low level hardware (without monitor because you wouldn't require a new monitor with each new PC) and $30 for a non bloated Operating System (including some basic services, support and programs).
But for that we'll need to get rid of vendor tax, paying twice for your OS, 80%+ profit margins, more or less required vendor services for a price, new proprietary "standards" with each new version of whatever, patent restricted formats of data and ways of communication and authentication, fines that are way lower then the profits gained from practices for which the fine is given, software vendors selling hardware by means of releasing ever more bloated software, hardware vendors selling software by means of releasing "works only with" hardware, software that is so closed that most professionals can't dig in deep enough to troubleshoot and identify the causes of problems rather then the symptoms, etc, etc.
In fact, we could have already been there if the improvements and price drops of, say, electronic equipment like handheld noice makers, TV's and VCR's in the last 10 years are any indication. It's even safe to say that the biggest difference is in quality of service there. You're either a number put at the end of the queue, or a respected customer helped almost immediately , or somewhere in between. But still with enough choice to choose from that'll fit in almost everyones needs, budget and capabilities.
In short, either Mister Ballmer (Microsoft) has a dramatic attitude change real soon or consumers looking for a $100 PC will have to look elsewhere. Like not buying new hardware (investment $0) and using that hardware to install non Microsoft products (along with services like helpdesk support and access to a members only ok-what-now website) on for no more then $100.
Microsoft know that the price disparity between software and hardware is not sustainable, in the long term.
They also know that Windows and Office markets are fairly saturated and can only go down, in terms of revenue. How much more can be added to Word that the average user really needs?
They milk the cash cows whilst they can and try diversify into other markets., e.g. phones, multi-media, appliances, services etc.
Also there are patent and litigation possibilities. Sure MS have suffered by being litigated against but this will change. Thier patent portfolio is impressive and should provide plenty of revenue streams in the future. (Also it is virtually free money.)
Additionally MS have one big plus in the favour. A huge war chest. If they don't think of it first, they can buy the revenue stream.
The one area they have not really cracked which may be a problem for them is the entreprise level systems. Since they are not really a hardware company, they may find it hard to provide the "whole system" often required by such buyers. Maybe if they have an interest in e.g. an ailing Sun Microsystems...
In conclusion, the $100 PC is probably something that is not in Microsoft's favour at the moment. Certainly you don't want to be in the hardware business with the kind of margin $100 implies.