Microsoft's Biggest Enemies: Its Greed and Market Reality

(MoneyWatch)  Microsoft is a company that has long had its share of doubters and detractors. And clearly it faces stiff competition in the form of various companies, depending on what market niche you're discussion. But if Microsoft has a single big danger, it doesn't come from a Google. No, its greatest adversary is the evolution of the PC market, which is putting pressure on its biggest product and weapon: Windows.

There's already a fight brewing between Microsoft and the big PC vendors over the pricing of Windows 7. Microsoft wants to greatly increase the OEM price of Windows:

Microsoft has much on the line with Windows 7, scheduled to be introduced in October. The Redmond (Wash.) company is counting on the new operating system to end years of complaints about its predecessor, the buggy Windows Vista, and to keep the Windows franchise churning out profits. While the early reviews for the new software are strong, many PC makers question the proposed pricing and features. Microsoft wants to charge about $50 for an entry-level version of the operating system, called Windows 7 Starter Edition, say analysts and PC makers. That's roughly triple the price the company gets for the cheapest version of Windows available now.

That number made my jaw drop. A three-fold price increase? It's easy to see a why Microsoft is pushing for a lot more money -- it took a beating on Vista sales and also faces a pretty mature market for both Windows and Office, the two Redmond cash cows. Although the company has expanded with some success in other areas, no other product or service lines even come close to the massive amount of revenue as these war horses. That's another way of saying that it can't grow at the rate investors in the tech space want, and when investors are unhappy, stock prices drop. When that happens, top executives suddenly find that their stock options are worth a lot less. No one is happy.

Apparently the $50 fee for the entry version is also not enough. Microsoft is disabling some key features and planning to charge consumers an additional $50 to upgrade. The PC vendors are unhappy because their customers will be screaming.

It's clear that the market is flattening and that the price of PCs continues to plummet. I think there is clear evidence that we're coming to the end of paying for hardware because the costs and margins are becoming too low for anyone to make much money directly. If I'm correct that the $100 PC with monitor is not far off, then Microsoft is talking about making the price half again as much so it can have what it wants. That isn't going to happen. People are used to using software out of browsers and are more increasingly comfortable with cell phones as a way onto the Internet. It will get to the point that for many, if not most, applications, Microsoft finally becomes irrelevant. The company will essentially lose its power in negotiations, and I suspect that there are a lot of hardware companies that have been waiting to get out from under that thumb.

Image via stock.xchng user lusi, site standard license.