How Will Microsoft Handle Ultra-Low-Cost PCs?How Will Microsoft Handle Ultra-Low-Cost PCs?

I understand why Microsoft wants the world to move to en masse to Vista with all deliberate speed, and they are all good business reasons. The problem is that the world isn't cooperating. The latest speed bump to Vista's world coronation is the rise of the ultra-low-cost PCs.When I was constantly on the road, I loved to use small and light notebooks. Until recently, light and cheap didn't go together. Most so-called ultralight PCs still command a price premium to cram lots of functionality into a small package. It's hard to explain to corporate bean counters that tiny is a feature -- essentially, paying more for less.

Newcomer ultra-low-cost PCs, which have their own acronym of ULPC, are not only small but also cheap -- as little as $299 for the Asus Eee PC. They're a step below typical low-cost notebooks because they generally have small displays and very little expandability. There's no doubt that ULPCs have limitations, but for the combination of price, performance, features, and size they're amazing.

ULPCs change the whole value equation and the way people think about portable PCs. Any portable computer that gets a lot of mileage is likely to break after a year or so. With a $2,000 computer, you're likely to buy an extended service plan for $200-$300 to protect the investment. The cost of a ULPC can be as little as the "protection plan" on an ultralight! There's no doubt that ULPC will be an important product for users that want something more than a handheld PC but don't like the dead weight of a mainstream notebook.

The problem for Microsoft is that they don't have an operating system that runs well on ULPCs. Both Vista and Office 2007 are designed for powerful systems with big displays, powerful graphics, lots of memory, and plenty of hard drive space. Windows CE could be used, but it's not binary-compatible with Windows apps so it's not a very compelling choice. For that reason, the Asus Eee PC shipped with a version of Linux, not Windows.

Oh, sure, there's XP, but that old thing is dead as of June 30 when Microsoft stops selling it. Except that it's not. When Microsoft belatedly realized that ULPCs might be important, they resurrected XP in limited cases. But those cases are indeed limited; you can only use XP on computers where Vista doesn't run well by Microsoft standards. But the XP price also is low, in keeping with the price of the system.

There are good reasons for Microsoft to play a part in the ULPC market. Businesses and users want a low-cost way to run Windows applications and edit Office documents. When Asus releases its latest Eee model in Australia, there is going to be a Windows (XP) model. What's more interesting, the XP model is cheaper than the Linux model. Asus did this by reducing the amount of flash memory used in the hard disk on the XP model (12 GB versus 20 GB), so you're not getting as much hardware, either.

Even with XP's reprieve on ULPCs, Microsoft's long-term strategy on these tiny computers is far from clear. The ULPC phenomenon is likely to last a lot longer than Microsoft's plans for XP on life support, and it points out a critical weakness in Vista. Perhaps the next version of Windows will be modular and shrinkable enough to handle ULPCs well. If not, Microsoft will be ceding an important platform to Linux.