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Microsoft Plays Hardball With Windows 7 Versions

When Windows Vista proved too big to fit early netbooks, Microsoft resurrected XP at a lower price to satisfy that market. Microsoft would only sell XP to an OEM if the system was sufficiently underpowered that it couldn't run Vista. Microsoft has already said that all versions of the slimmer Windows 7 should run on netbooks, so what will happen with Windows 7?

Microsoft has been mum on details, but there have been some worrisome rumors that the company might come out with a "Windows 7 Starter for Small Notebook PC" and limit its use to netbooks. (Given that they did it with XP, it's not a stretch to think they'll try it with Windows 7.) Let's go back to the charges leveled against Microsoft by the Department of Justice in the 1990s. In that document, you'll see this claim:

66. Furthermore, Microsoft expends a significant portion of its monopoly power, which could otherwise be spent maximizing price, on imposing burdensome restrictions on its customers [OEMs] — and in inducing them to behave in ways — that augment and prolong that monopoly power.

One of the outcomes of Microsoft's consent decree was that OEM pricing was based on volume; OEMs that have the same sales volumes pay the same price. It was intended to prevent Microsoft from playing favorites -- rewarding or punishing OEMs for other related actions that pleased Microsoft. In this case, Microsoft would be pleased if competing operating systems didn't take over on netbooks. Before Microsoft brought back XP, Linux had a huge market share on netbooks. If Windows 7 is to maintain a hold on the netbook market, Microsoft has to offer OEMs a price that won't kill their budgets.

Microsoft has every right to do crazy things with feature sets in order to segment the market and produce a Windows 7 version they can sell at a low cost. The three-running-application limit in Windows 7 Starter is one such crazy thing. Microsoft crosses the line by attempting to contractually limit OEMs on the hardware that Starter can use. That shouldn't be Microsoft's decision. If Starter is good enough for netbooks then it should be available to OEMs for whatever hardware that can run Windows 7. If Microsoft fears Starter will hurt the reputation of Windows 7, they shouldn't offer it.

Naturally it would be good for Microsoft if they could charge different prices depending on the final cost of the product. That would be too obviously predatory, though, so a hardware-limited Starter is a "subtle" solution they hope will pass anti-monopolistic muster. The use of netbook hardware requirements to set prices and limit the use of Starter sure looks like it's just a diversion for the real issue, which is the threat of other operating systems gaining a foothold on netbooks. Besides all the Linux competitors, arch-enemy Google may be getting Dell to deliver an Android-based netbook, which must have Microsoft concerned.

Microsoft wants to maintain its market-share lead on netbooks without sacrificing profit margins on full-sized PCs. But OEMs should be able to buy any Windows 7 OS for the same volume-defined price and use it on any hardware with no restrictions. Allowing Microsoft to adjust pricing and limit distribution based on target hardware is a page from their old mid-1990s monopoly playbook, this time intended to muscle out OS competitors. If Microsoft does try such a ploy, it should be stopped.

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