Despite the flagging economy, the netbook category has shown encouraging growth over the past year. Well, it's been encouraging at least for companies like Asus and Acer that have built tiny notebooks that people are eager to buy. Netbooks have mostly been a challenge for Microsoft, though, which has struggled to find a version of Windows that will run on these tiny systems.Windows Vista just didn't cut the mustard on netbooks because of its excessive resouce girth, especially on first-generation netbooks. Initially the vendors chose to use Linux to solve this problem. Once Microsoft realized they were in danger of losing the entire netbook category, they brought Windows XP out of mothballs. As a result the netbook category quickly returned to being dominated by Windows -- even if it was creaky old Windows XP.

Microsoft doesn't want to make a netbook misstep again with Windows 7. As far as performance goes, they're in good shape. Tweaks that Microsoft made since Windows Vista help this cause significantly, as do the hardware advances in recent netbooks. The challenge that Microsoft faces is how to price Windows on netbooks. There isn't a lot of room for an expensive operating system on a PC that costs just $299.

One option that OEMs have with Windows 7 is something called Windows 7 Starter Edition (W7SE). Just the name alone is a turn-off; they might as well have called it Windows 7 Training Wheels Edition. But the name is just the beginning. In order to offer W7SE to OEMs at a good price, Microsoft intentionally crippled it by only allowing three applications to be open at the same time. It has nothing to do with whether the hardware is capable or not. It's just a limitation meant to create an attractive price point.

Netbook makers can choose W7SE for reportedly around $15, as opposed to $50 for a non-crippled version of Windows. The question is, how many netbook makers will take the bait and save a buck? At netbook price points the difference in price can be significant, but consumers have shown that they really do prefer Windows versus Linux.

One really scary scenario for Microsoft is that OEMs go for W7SE, but in the process it tarnishes the reputation of Windows 7 with consumers, and perhaps even with businesses. There could be a lot of negative feeling if people unbox their neat and inexpensive netbooks, only to find that they can't easily use all the apps they are used to running at once. Most people won't want to pony up for a retail upgrade to an able-bodied Windows 7, given the cost of the whole system in the first place. Is it possible that this is another opening for Linux-based netbooks?