MIcrosoft WPC 2014: Microsoft plans price war to stymie Chromebook growth

In the U.S. commercial channel, Chromebooks accounted for 35% of all notebook sales through May, says NPD Group

Microsoft's COO yesterday promised that his company and its army of OEMs would compete on price with Google's Chromebooks, a milestone in Microsoft's battle against the small but encroaching enemy.

At Microsoft's Worldwide Partner Conference (WPC), Chief Operations Officer Kevin Turner, the executive who drives sales, both internally and through the firm's vast partner network, pledged that Microsoft would "redefine the value category" with notebooks as inexpensive as $US199.

"We are going to participate at the low-end," Turner said, as quoted by the Verge yesterday. "We've got a great value proposition against Chromebooks, we are not ceding the market to anyone."

(Computerworld was unable to verify those quotes as Microsoft has not yet posted a recording or a transcript of Turner's part of the WPC keynote, although it has for other executives who spoke yesterday.)

Turner's promise was just the latest tactic in Microsoft's campaign against Chromebooks, the inexpensive laptops powered by Google's browser-based Chrome OS, made and sold by vendors such as Acer, Dell, Hewlett-Packard and Samsung.

In the past, Microsoft has been concerned enough with Chromebooks' increasing popularity to target the devices with attack ads in the now-defunct "Scroogled" project, where it argued that they were not legitimate laptops. It backtracked later, however, by implicitly bestowing a productivity label on the devices when it added the free Office Online apps -- Word, Excel, PowerPoint and OneNote -- to the Chrome Web store, the main distribution channel for Chrome OS software.

Microsoft has also made other moves to wrestle with low-cost rivals, including Chromebooks: It has handed out Windows free of charges to OEMs building devices, including phones and tablets with 9-in. and smaller screens and it offers Windows 8.1 with Bing to OEMs either free or at a very low cost for use in the very cheapest hardware. Microsoft has also tweaked Windows 8.1 so it can be installed and run on devices with as little as 1GB of system memory, another way to drive down costs and, thus, retail prices.

Chromebooks are selling, at least in the US., said Stephen Baker, an analyst with the NPD Group. Through May, a little under 1 million Chromebooks were sold through U.S. commercial channels. That channel consists of large and small distributors -- of the former, CDW and Ingram Micro are examples -- that many businesses, government agencies, schools and other organizations use to buy personal computers. The figure did not include consumer sales, nor PCs sold by OEMs directly to businesses.

"And that's way before things are going to start heating up," said Baker of the nearly 1 million Chromebooks.

According to Baker, from January to May, Chromebooks accounted for 35 per cent of the year's commercial channel notebooks sales; in the first three weeks of June, that figure climbed to 40 per cent as school districts began placing orders for the 2014-2015 school year.

Most Chromebooks go to schools and government agencies, said Baker, along with a smattering of small- and medium-sized businesses. "There isn't a lot of Fortune 1000 companies in there," he said.

Baker wasn't confident that by going low would Microsoft automatically compete with Chromebooks, both because lower prices don't move the sales needle as they once did and because of the Chrome OS devices' inherent advantages. "At the beginning, I thought Chromebooks 2.0 would be as big a bust as Chromebooks 1.0," Baker acknowledged. "But looking back at it, they do offer a different solution [than a traditional Windows notebook], when whatever organization or person buying them wants a simple-to-use solution. They're a lot like tablets that way."

It's uncertain that Windows, the powerhouse OS for business and many productivity-oriented consumers, can compete on the simplicity front with Chrome OS, which is essentially a browser and little else.

"I don't think it's all about price," Baker asserted.

Nor are cheap Windows notebooks new. "There's price elasticity already. There isn't a week goes by that you can't buy at notebook for $US250 at Wal-Mart or Best Buy. That's not a new price point," said Baker. "And there's evidence that incremental price cuts don't help you as much as they used to. There a lot of different devices now [on the shelves], including low-priced tablets."

That's Microsoft's problem, essentially: If its anti-Chromebooks campaign is predicated on price, it's relying on an old-school strategy that may not work today. Things are different, Baker pointed out.

"Over the last few years, with tablets and smartphones, people have become comfortable in a multi-platform environment," Baker said, talking of both commercial users and consumers. "People are willing to use multiple platforms, an Android tablet and a Windows desktop, a Windows notebook and an iPhone, or a Chromebook with an iPad."

In other words, the days of Windows dominance, and thus device homogeneity at work or at home, are over.

But not everyone thinks a price war is a bad idea for Microsoft. "Price and positioning," said Rajani Singh, an analyst with IDC, when asked how the Redmond, Wash. company should respond to the threat, perceived or otherwise, that Chromebooks pose.

Unlike Baker, Singh is convinced that price is paramount for most Chromebook buyers, and so Microsoft's counter should also be based on the price tag. But she also stressed "positioning."

What she means by that ranges from collaborating with the very top-tier of OEMs to pick the right designs and selecting customer segments for marketing, to putting appropriate software on the machines.

"Microsoft has reason to get stressed about Chromebooks," Singh said. "Everyone is talking about Chromebooks. Intel is talking about Chromebooks, all the [OEM] vendors are coming out with aggressive forecasts for sales. What if those forecasts come through?"

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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