The Weight Of Windows Crushes Low-End PCs
September 23, 1998
COMPUTER RETAIL WEEK via NewsEdge Corporation : As PC
prices plummet, the disproportionately high price of Windows 98
has begun to weigh heavily on PC makers' cost structure. The
question: Will Microsoft address the low end or will vendors seek
alternatives?
In the lowest-priced PCs, for instance, Windows 98 comprises
roughly 20 percent of the cost, leading some to conclude that
market pressures will force Windows to go on a diet.
"I believe Microsoft will port a desktop version of Windows CE
or develop a Windows 'Lite' to respond to the low-end PC
market," said David Goldstein, president of Dallas consulting firm
CMC. "They won't let this market slip through their fingers."
"Microsoft needs to adjust the pricing on Windows 98 or
develop Windows 'Lite,'" said Bill Lynch, president of PC maker
Proteva, which markets $599 systems.
For the time being, however, Microsoft doesn't think it has a
problem. A spokeswoman last week said the company does not
anticipate lowering the price of the Windows OS in the
foreseeable future.
Microsoft's apparent unwillingness to embrace the low-end PC
market's needs stands in stark contrast to Intel's recent Celeron
chip releases-a response to eroding market share.
Windows, which runs more than 90 percent of the world's PCs,
costs OEMs and small PC vendors from $60 to $80 per copy. It
is among the most expensive elements of low-cost PCs.
While PC makers are unhappy with the price, some said the lack
of alternatives leaves little choice.
"Out of all the components in the system, the software is the
least expensive to make and ends up being the highest priced in
royalties. But where else can we go?" asked Randy Scott, vice
president of IBC, a PC maker in Simi Valley, Calif. "We're the
new kid on the block and have to conform, and Windows 98 is
the standard."
IBC recently introduced a $599 PC based on Windows 98.
Although several alternative operating systems for
PCs-including Linux, Be Inc.'s BE OS and Brother
International's GEOS 3.0-are available, none is positioned to
challenge Windows. Many low-priced PCs will hit the market this
holiday season-including models from IBM, Packard Bell and
Compaq-but all will use Windows.
"I don't think vendors will apply more pressure on Microsoft to
decrease pricing or use anything else because there's no major
competition coming out, " said Cameron Duncan, PC analyst for
ARS, Irving, Texas. "It would be a support nightmare for them
[to support multiple operating systems] and will remain this way
for the foreseeable future."
According to Dataquest, San Jose, Calif., Microsoft's market
share is expected to peak at 95 percent in 1999, the year its
next-generation NT and Windows 2000 operating systems are
scheduled for release. Worldwide shipments of non-Windows
operating systems-including DOS and OS/2-are expected to
dwindle from roughly 8 million units in 1997 to 6.9 million units in
1999. Meanwhile, shipments of Windows will increase from 85.6
million in 1997 to nearly 122 million next year.
"Part of reality is there isn't a lot of alternative software," said
Dean McCarron, a principal for Mercury Research, Scottsdale,
Ariz. "We might see Windows CE make inroads, and Java is one
possibility, but [Java] needs to be more developed in terms of
system services and become more widespread."
Several vendors have attempted to chip away at Microsoft's
lead in the OS market by releasing versions of Linux, an open
operating system. Sophisticated PC users have embraced the
stable, Unix-like environment because it's easy to program and
customize.
However, the two leading retail versions, Caldera Linux and
Simon & Schuster's Complete Red Hat Linux 5.1, hold only 1.6
percent of the U.S. market, according to PC Data, Reston, Va.
Meanwhile, IBM's 32-bit OS/2, which picked up steam prior to
Windows 95's launch, now owns a market share of just 0.4
percent, PC Data reported.
Brother and Be say they don't compete with Windows.
Brother International, Bridgewater, N.J., licensed the GEOS 3.0
operating system from Geoworks for a fraction of the cost of
Windows 98 to use in its color GeoBook systems, which were
launched six months ago, officials said.
The GeoBook, based on AMD's ELAN SC300-33 chipset,
comes with a full applications suite and e-mail for $599.
"Windows is Windows, and there's no way to compete against
it," said Dean Shulman, senior vice president for Brother
International. "We offer a low-cost alternative for people who
want a notebook and want to write newsletters or do e-mail."
Geoworks, the maker of GEOS 3.0, is targeting the
smart-phone industry. The company has no plans to license the
operating system to another notebook PC vendor or to a
PC-like product, said a Geoworks spokesman.
Officials at Be Inc., Menlo Park, Calif., said their aim is to
coexist, not compete, with Microsoft. Be Inc.'s multimedia BE
OS targets developers and is designed to run on top of
Windows and Macintosh environments. It is available only from
the company's Web site. Be released its first PC version in
March. The company has not yet licensed the OS to any
hardware vendors.
"We're positioning ourselves as a multimedia OS mainly, so we're
not in direct competition with Microsoft," said Sylvie Pelaprat, a
company spokeswoman. "We have no will to do that."
--
H.Cross
NT Server/Workstation MCP
Linux Advocate
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