Why Small is Beautiful

Glyn Moody of Digital Life essays the affect of the Asus Eee PC and other low-cost ultra-portables on the fortunes of Microsoft in the article Why Small is Beautiful.

As he noted, until the Asus Eee PC burst into the picture, Linux was perceived as being too complicated to ever become mainstream. The Eee PC's Easy Mode revised that perception, and with the product's success, enabled Linux to gain market acceptance with the average user - a very significant breakthrough given Linux's lack of retail history.

Asus expects to sell 3.8 million units this year alone. That's 3.8 million reasons to force Microsoft to buddy up to Asus and encourage it to bundle Windows XP as well. But because Windows XP requires considerable more computing power, Asus had to beef up the models that will be bundled with the Microsoft OS. Consequently, the Windows-based models will generally cost 30% more than comparable Linux-based models. The disparity will increase more if Microsoft replaces XP with Vista as originally planned.

What is even more worrisome for Microsoft is that several companies have introduced products intended to compete with the Asus Eee PC - all using the same production model, specifically the choice of Linux as the bundled OS. As a Sony executive put it, it is a race to the bottom, referring to the downward trend in price.

And that downward trend in hardware price invariably means a downward trend in software price. The pressure is even greater in developing countries, where the low-cost ultra-portables have huge appeal, so much so that Microsoft has started to sell Windows for about USD3 as a means to discourage sales of pirated copies. Obviously Microsoft's profit margin is taking a huge cut, and this could eventually affect how it conducts its business, including plans for buying out other companies.

But the more lasting effect is that if the low-cost ultra-portables succeed in establishing Linux as a mainstream OS alternative, Microsoft will find itself competing with open source software that are essentially free. That indeed, is something to think about - especially for Microsoft.