I'm still not seeing the correlation here...
From ZDNet: Ballmer: We Need A $100 PC
"The biggest problem we have right now is that people who should be paying for software aren't," Ballmer told an audience of technology executives at an industry conference here sponsored by market researcher Gartner.
One way to stem piracy is to offer consumers in emerging countries a low-cost PC, Ballmer said. "There has to be...a $100 computer to go down-market in some of these countries. We have to engineer (PCs) to be lighter and cheaper," he said.
People in poorer countries have one low-cost computing option, Ballmer said. "They have a leased-PC concept: the Internet cafe. Pay-by-the-drink computer use--that has a very important place in the market. (Microsoft) has five times as many Hotmail users in India and China than there are PCs because of this," he said.
Ballmer said piracy of Microsoft's Windows and Office software in emerging markets has become a major concern for the software giant, especially among business users who can afford to pay for software.
"PCs are not selling to the lower end of the population in China and India. People buying machines there are relatively affluent. So...should the prices be lower? Not really. Until government and situational factors reduce piracy...those people...don't pay," Ballmer said.
But lower prices have become part of Microsoft's strategy for gaining market share in developing nations. In recent months, the software maker has announced plans to introduce low-cost "starter editions" of Windows XP into countries including India, Russia and Thailand. These versions will be bundled only with entry-level PCs and will not be available for retail sale.
This seems to be a trend that is gathering steam at Microsoft... Offer cheaper, less feature-rich versions of software in order to get emerging countries to pay for it instead of pirating it. And now it's proposing cheaper hardware to drive the demand for Microsoft's software. And I guess I'm just not making the connection...
If I can buy a $5 copy of Win XP SP2 on the street corner and I don't care about piracy, why in the world would I want to spend more than that to get less? And if I can get a $100 PC, I think this means I can now have my own $5 copy of Win XP *and* my own $5 copy of Office XP. Also, I don't see how offering software with little profit margin means that you'll gain the margin later. If I *do* choose to buy your crippled $15 version of Win XP, does this necessarily mean that I'm now willing to buy Longhorn in x number of years for $300? I doubt it. I'm going to demand a $15 version of Longhorn or I'll go buy the $5 version on the corner.
While Microsoft can currently afford to *buy* market share due to the incredible margins on their software cash cows, I believe this is the beginning signs of a desperate effort to avoid a downward trend. Once you set lower price expectations, that becomes your new baseline...