August 12th, 2009

Windows 7 Starter edition introduces genuine "Microsoft tax"

Posted by Adrian Kingsley-Hughes @ 7:02 am

Categories: Microsoft, Windows 7

Tags: Tax, OEM, Microsoft Windows 7 Starter, Microsoft Corp., Netbook, Microsoft Windows 7, Microsoft Windows, Netbooks, Nettops & MIDs, Operating Systems, Software

At its annual financial analyst day last month, Microsoft CEO Steve Ballmer confirmed that the Starter edition of Windows 7 would be limited to devices with small screens, small keyboards and low-power processors. Say hello to the “Microsoft tax”.

Here’s what Ballmer had to say:

“Our license says it’s got to have a super-small screen, which means it probably has a super-small keyboard, and it has to have a certain processor and blah, blah, blah, blah, blah.”

The reason for this restriction … money:

“We want people to be able to get the advantages of lightweight performance and be able to spend more money with us, with Intel, with HP, with Dell and with many, many others.”

Details of these restrictions had been leaked earlier, but this serves as confirmation, although the “blah, blah, blah, blah, blah” bit is worryingly vague. Although I think that’s what’s behind this vagueness is the fact that Microsoft has had to change plans. Because of bad publicity, Microsoft had to abandon the idea of the three-app limit. This made Starter edition pretty much all the OS that most people would want, especially on a portable system. But the problem with that is the fact that Starter edition is the budget edition, so it doesn’t help Microsoft’s bottom line.

This is a worrying development. Why? Well, it’s because Microsoft is using the different editions of Windows 7 as a “Microsoft tax”. I know we’ve talked about this tax before, but this time it’s for real. The tax is based on how expensive or fully-featured the system that you buy is, and not based on a feature of the OS that the user wants access to. A cheap system, you get access to a cheap OS, but on more expensive systems (basically anything that’s not bottom-end budget), Microsoft wants to sell you basically the same OS for more money. How much you pay for Windows now depends on your hardware. It’s so blatantly obvious that it’s a tax that I’m surprised Ballmer even said the following:

“With today’s netbooks, we sell you XP at a price. When we launch Windows 7, an OEM can put XP on the machine at one price, Windows 7 Starter Edition at a higher price, Windows 7 Home Edition at a higher price, and Windows 7 Professional at a higher price.”

So, you can get XP, which basically does everything you need, or you can go with Windows 7 and enter a minefield of choices. It also lays bare the fact that the real reason behind having a plethora of Windows 7 editions is to allow Microsoft to sell higher-priced OSes on more expensive systems.

It might seem like more editions gives us more choice, but these restrictions at the bottom end of the market, creating little more than the illusion of choice.

Another issue here is how much this move will increase the price of netbooks. Since rumors and whispers have it that Microsoft wants to push even the Starter edition of Windows 7 for around $30 to $40 more than the price of XP, that’s a significant price bump already. If only the smallest of netbooks will be allowed to have Starter edition pre-installed, higher-end systems could be priced out of existence. Given the poor margins on netbooks, it’s clear that both OEMs and Microsoft hates the fact that systems have become too cheap and there’s an obvious desire to artificially bump the price or encourage users to by notebooks and desktops instead. Good for OEMs and Microsoft because the margins are better, but bad for consumers because it stifles choice. And that is a very bad thing indeed. In fact, it’s darn right sinister because it opens the door to Microsoft having much finer control over how much you pay them based on how powerful your PC is. Mark my words, while this is now only being talked about in relation to netbooks, the folks at Redmond are already thinking about ways to squeeze you based on how many cores you have or how many GBs of RAM or storage you have in your PC.

Could Linux step in to fill the gap at the extreme bottom end of the market? Maybe. Is there a chance that OEMs could embrace Linux as a cheap alternative to Windows? Maybe, especially if they can see a way to make more money from cutting out Microsoft. Offered alongside Windows, and properly marketed, Linux could be a viable alternative to Windows on lower-end netbooks, and offer OEMs a way to play it safe by offering a choice, but not upsetting any business relationships in the process. We’ll have to wait and see …