With Apple Looming, Microsoft Embraces Netbooks

Microsoft is taking steps to ensure that it's not left behind by rivals such as Apple in the burgeoning market for netbooks -- a new class of low-cost, low-powered notebook PCs optimized for basic tasks like messaging, e-mailing, and Web browsing.

"Just look at what we are seeing with new low-cost PCs today -- so-called netbooks -- and what they are enabling you to do in addition to the PCs and the phones that people own," Microsoft CEO Steve Ballmer said last month at the Mobile World Congress in Barcelona, Spain, signaling a keen interest in the sector.

Microsoft is refreshing its software and hardware lines with an eye toward becoming a major player in netbooks -- a market that in many ways is naturally more suited to free and open source software, such as Linux, tailored for budget-minded consumers in North America and mainstream computer users in developing markets.

But Microsoft insists there's a place for its relatively pricey Windows OS in the netbook category, where systems from vendors like Asus sell for as little as $300 or less. The forthcoming Windows 7, expected to ship later this year or early next, will include a Starter Edition that's light-footed enough to run on netbooks, according to Microsoft.

The downside: Windows 7 Starter Edition will reportedly run only three apps at once.

Still, it's a smart -- and necessary -- move, as consumers gravitate toward mobile computing devices that in some cases aren't capable of running Windows Vista. Market watchers at NPD Group say notebook sales outpaced sales of desktop PCs 3-to-1 last year.

Vista's inability to fit on netbooks has crimped Microsoft's revenue, with Windows sales down 8% in the most recent quarter.

Microsoft's interest in netbooks comes amid reports that Apple may be working on such devices. A head start by Cupertino in the netbook market could further gains that the Mac OS has made against Windows in recent months.

Beyond software, Microsoft is positioning itself for a larger footprint in the market for netbook and notebook hardware accessories. On Tuesday, the company unveiled a line of add-ons that includes a base with a built-in fan to prevent overheating, a mouse that can be folded in half to reduce size, and a wireless mouse that's available in multiple colors, including eggplant purple and olive green.

"There are many things that I think will emerge from this world of pervasive computing, and the opportunity for us all to take advantage of it is really incredible," Ballmer said at the Mobile World Congress.

InformationWeek has published an in-depth report on Windows 7. Download the report here (registration required).