Microsoft is still dominating the growing netbook market with its Windows operating system achieving 90 percent of netbook sales in November, December and January, according to research firm The NPD Group.
The same research also showed that Linux has only gained a 10 percent netbook market share.
But Linux-based netbooks may encroach on Microsoft's success in the near future. Two looming threats: Google may decide to run its operating system, Android, on netbooks and low-power processors from smart phone chip licenser ARM may take off in netbooks.
Despite hints that Google may compete on netbooks, nothing is confirmed. For the time being, Linux flavours such as Ubuntu will struggle for consumer and corporate attention on netbooks against the comfort of the Windows brand, analysts say.
The software/hardware architecture behind those "90 percent" of netbooks are Windows XP Home Basic and x86-based Atom processors - Intel's smallest and lowest-power microprocessors, which now live inside nearly every netbook on the market.
Although neither Microsoft nor Intel is getting the big profit margins they want from such a low price-point market as netbooks, the two companies do have a good thing going, analysts say.
"Microsoft and Intel are winning a market using an old OS and its smallest chip, respectively," says Roger Kay, president of consulting firm Endpoint Technologies.
One company eager to change this dynamic is ARM Holdings, a UK-based intellectual property company that designs, licenses and sells processors that are used in nearly all smart phones and most recently in Amazon's Kindle 2 e-book reader. ARM processors are lauded for their power efficiency, long battery life and low price.
For these reasons, ARM is transitioning its CPU core to netbooks and plans to bring with it the company's many licensees such as Qualcomm, NVIDIA, TI and even Apple. Ian Drew, vice president of marketing at ARM, said there will be ARM-based netbooks arriving in the second half of this year. He declined to mention from which computer makers.
Microsoft is missing out on a growth opportunity by staying exclusively with the x86 architecture, Drew says. "It has been their way historically, and the cost of change to ARM processors may be what's holding them back."
Microsoft does not currently configure Windows to port to ARM processors and did not immediately respond to a request for comment for this story.
Industry analyst Kay says that lower netbook prices will be an advantage for ARM and Linux distributors, but still says the "smart money" is on Windows sticking with Atom processors because of their history and market presence.
Yet Microsoft's move to get versions of the upcoming Windows 7 on netbooks could raise prices, says Kay.
"Microsoft has said that it will offer both Starter and Home Premium for netbooks," says Kay. "Starter will be cheap, but it's unlikely that Home Premium will be sold at the same price as XP Home Basic is now selling for netbooks."
This is the wrong direction to go in a market driven by low price, and represents an opportunity for Linux, says Kay.
"Linux could compete here, but it will have to win converts one at a time," says Kay. "What happens with Google remains to be seen, but Android on netbooks will have to deliver an experience, not just brand name comfort."
Kay adds that ARM has some power in numbers and will benefit from all its licensees. "You have all these phones guys [Qualcomm, NVIDIA] excited to try netbooks," he says.
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