Netbooks Knock Microsoft On Its Heels

Microsoft's first ever layoff tosses more dismal job numbers onto the financial crisis heap, but it's not just the recession that's putting the screws to Redmond -- it's those pesky little netbooks.But wait a minute! Doesn't Microsoft dominate the netbook OS market? Pick your source: some reports have Microsoft at 80% market share, others have Linux shipping on 30% of netbooks (I was told there would be no math).

All the numbers have Microsoft leading the netbook OS derby. And netbook sales are on the rise. It all sounds good for Redmond until you reach the price point -- netbooks cost less and that means a smaller take for Microsoft.

In a master of the obvious moment, Microsoft CEO Steve Ballmer says, "We are not immune to the effects of the economy." You don't say. Netbooks had allure before the economy tanked, but with tight spending in vogue these daysthe come hither time is now.

In terms of the economics, one estimate claims Microsoft charges local OEMs $32 for XP Home on netbooks, compared to around $65 for XP Home on desktops. Easy to see how that adds up to a shortfall. Put more dryly (from Microsoft's 10-Q filing):

"The decline in OEM revenue reflects an 11 percentage point decrease in the OEM premium mix to 64%, primarily driven by growth of licenses related to sales of netbook PCs..."

So Microsoft makes less money on a product than it used to (sound familiar?) and it could get worse for Redmond as competition from other operating systems takes market share. I'm thinking of Linux netbooks, of course, but also the Android OS for netbooks rumored to arrive by 2010.

But how much money Microsoft makes is "inside baseball" for owners of small and midsize businesses. Why do netbooks matter to your business? If you'll allow me a digression, here's a take.

More From bMighty: 7 Netbooks For Your Business

I'm a news junkie. Every morning, I start the day with a cup of coffee and the morning paper -- several years ago, I gave up reading the paper newspaper in favor of reading my morning news online. The paper still arrives on our stoop each morning, mostly because the wife likes reading it (I read Sunday  usually). But that's changing for two reasons.

First, the paper keeps shrinking. One morning, the front page, the metro, and the business sections combined for a whopping 8-pages -- mocking the concept of paper newspaper as a source of news. Across the table from the increasingly small stacks of newsprint, I'd be perusing Google Reader on the beater Fujitsu laptop (it weighs more than my son at birth) we keep in the kitchen and more and more often I'd get up to top off my coffee and find the wife had commandeered the computer.

The second thing was a trip to Costco (aka The Big Store), site of so many life-changing moments. In addition to the pallets of shampoo and kegs of nacho cheese, Costco sells netbooks. Usually, the wife blows right past the electronics section, but not this time. From the Acer Aspire One to the Dell Inspiron Mini to the Samsung NC 10 to the MSI Wind U100, she was transfixed, mesmerized, and spellbound. She said things like, "Those are so small, I could take one anywhere," "those are so cheap" and "I like the red one."

Color choice isn't going to carry much weight with business owners and IT managers. But portability might curry some favor and cheap is always huge. And even if netbooks don't make sense for your workforce right now, odds are your customers are using them -- because in Costcos and Sam's Clubs and Best Buys across the country, people are saying "Those are so small, I could take one anywhere," "those are so cheap" and "I like the red one."

Seeing your spouse go gaga over netbook bling at the warehouse store is one thing. And not being able to go more than 48 hours without a co-worker mentioning his quest for a netbook doesn't make a trend either. (That would be bMighty publisher/editor-in-chief, Fred Paul, who at last check favored one of the models in our netbook slideshow; he hasn't pulled the trigger quite yet.). But when major software vendors start seeing their business change because of demand for netbooks, it's clear the time for netbooks is now.

Cost is everything right now. And cost is key to this netbook shift -- as prices on portable connected devices plunge, they move into the mainstream. But it also underscores our increasingly mobility. As a business owner that creates new challenges (your customer is a moving target) and opportunities (everywhere they go, you can engage them). And makes it even more important to meet them where they are.