Netbook market earns XP reprieve

Microsoft, looking to tap a new market and fend off competition from open-source software, is extending availability of a basic version of Windows XP on a new class of low-end hardware.

The company announced Thursday that it will allow computer manufacturers to put Windows XP Home on so-called ultra-low-cost PCs (ULPCs) such as the Asus Eee PC until at least June 30, 2010.

These machines, also called "Netbooks," just came on the market in the last quarter of 2007. They can cost as little as $300 and typically do not have enough memory to run even the most basic version of Windows Vista, the latest version of Microsoft's flagship operating system.

Windows XP will no longer be sold at retail after June 30, and most PC manufacturers will have to stop installing it on new machines at that time. Smaller, independent system builders have until Jan. 31, 2009.

Those deadlines left manufacturers of ULPCs with scant operating-system options from Microsoft, opening the door to competitors.

Bob O'Donnell, who tracks PC hardware trends for analyst firm IDC, said nearly all of the 430,000 units sold in 2007 were loaded with the open-source Linux operating system.

That's troubling to Microsoft, which expects many ULPCs to be sold in emerging markets. Those markets represent the best opportunities for growth as mature markets in the U.S. and Western Europe max out.

Microsoft previously said an even more stripped-down version of XP, called Starter Edition, will be available in emerging markets until June 30, 2010. But the ULPCs with XP Home can be sold anywhere in the world.

"These are machines that represent net PC growth overall," said Michael Dix, general manager of Windows Client product management. "Primarily, in emerging markets, a lot of first-time PC buyers find these attractive because it's an inexpensive way to get a fully functioning PC."

O'Donnell questioned whether the category would gain favor in these markets.

"Our belief is that this is primarily going to be successful in established markets as a secondary, gadgetlike device," he said, referring to the category as "the world's first disposable notebooks."

"The buyers [in developing markets], even though they're on limited budgets, aspire to full-blown PCs and these are seen as cheap PCs," O'Donnell said. "They don't want a cheap PC."

Also, the devices are very Internet dependent and, in developing markets, Internet access is expensive and hard to come by, he said.

Still, the category is poised for substantial growth as manufacturers launch devices based on Intel's new low-powered Atom processors.

IDC estimates that manufacturers will sell just under 3.6 million low-cost notebooks this year. It defines the category as "clamshell" notebooks with seven- to 10-inch screens running a full operating system and selling for less than $500.

By 2012, sales are forecast to hit nearly 9.2 million units — a number far lower than what some manufacturers are aiming for.

Still, that would be a significant chunk of business for Microsoft to lose. Even though the company is likely getting much less revenue per copy of XP Home from the ULPC manufacturers than it did when the operating system was introduced, it benefits from getting PC users started on its software rather than competitors'.

Ben Gray, an analyst with Forrester Research, sees "self-preservation against open-source alternatives like Linux" behind Microsoft's announcement, he said in an e-mail.

Even with the XP news, Intel expects manufacturers to offer both Linux and XP.

"For this Netbook category, XP is certainly one of the choices and that's why this is good news today ... but there are other operating-system choices out there," said Intel spokesman Bill Calder.

The operating-system choices for other categories of PCs are getting slimmer, however.

Microsoft took pains to emphasize that this extension for XP applies only to the ULPCs.

"We are not announcing a change to the general availability of XP across all categories," Dix said, adding that the company is "very confident" about the dates the company announced last September.

Businesses held on to Windows XP in 2007, according to a report from Forrester released this week. The study of 50,000 users at more than 2,300 large companies found that Vista is having a hard time gaining traction.

"Adoption of Vista among Windows users increased by a little more than five percentage points during 2007 to end at 6.3 percent. But, much to Microsoft's dismay, even this conservative growth cannot be attributed to upgrades from XP, which remained fixed at 90 percent throughout 2007," the study's authors wrote.

Dix disputed the notion that businesses want to stick with Windows XP.

"[W]e think it's the right time for the mass market to make the switch over to Vista," he said.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com