Light and Cheap, Netbooks Are Poised to Reshape PC Industry (New York Times)

If, for example, Microsoft was selling XP for 0 dollars then essentially each time somebody 'bought' a copy legally then then Microsoft would be forced to pay a certain amount.

I think so anyways. Microsoft pays royalties and such on media codecs and patent licensing on each item that they sell. I don't know the numbers and I don't know exactly how it works, but I think that they are required to pay a certain amount to third parties.

Even if they didn't the OEMS would.

There is a common misperception that Windows is able to play things like DVDs or other types of media out of the box. Most versions of Windows cannot.

I am not exactly sure about MP3s, but Windows XP and most forms of Vista cannot play DVDs on their own. The only versions of Windows that can actually play DVDs and such out of the box that are currently getting sold are Vista Premium and Vista Extreme. XP, Vista Home, Vista Business, etc etc. lack that sort of ability.

Therefore when OEMs sell computers with Home on them, but provide DVD players and such they pay the licensing costs themselves and provide the software necessary to play that stuff. I don't know how exactly that works either, but I expect it is tied into the ability to advertise DVD support and provide logos on packaging and their websites.

Dell, and probably a few others, do that also for Linux. When Dell sells a Ubuntu laptop they provide support for most popular codecs and DVD playback support of the box. For them to do this they have to pay the patent licensing costs and the costs of the proprietary software and that sort of thing gets passed along with the price of the computer.

So to Dell the amount of money they save by using Ubuntu over XP or Vista is actually very minor. Hell they could possibly be losing money compared to Windows simply becasue Microsoft is going to absorb some of the cost associated with it and I am told that they make some money off of bundling things like anti-virus and such.

This is also possibly one of the reasons why Vista Premium is sold with so many laptops.. With Premium it is Microsoft that is worrying about things like codecs and DVD playback and other things like that and amount of money they pay on Vista Premium's premium is offset by other reduced costs.

Of course there are other associated costs selling computers.

A major one is going to be support costs.

I would expect that having a person call Dell (or other OEM) a single time would quite easily blow away any possible increase in profits that Linux would have over Windows. A single person confused about the location of the start menu, or whether or not they should need anti-virus, etc etc. A single call probably completely blows away any cost savings, maybe even end up costing a quite a bit more then if they just went with Windows to avoid the support call in the first place.

I am pretty sure that Microsoft makes next to nothing on their OS licensing sales to OEMs for the consumer market. The 30 dollars (and do not bother comparing it to OEM or Retail prices in online stores... Dell, Lenevo, and friends have special high-volume contracts) or so they charge per copy is probably completely blown away by licensing and support costs on Microsoft's end. It is entirely like that Microsoft's entire consumer operating system business is ran at a _real_ loss already.

Microsoft makes the majority of it's money from business sales of Windows Server/Desktop, and Microsoft Office.

Here is another example on how Microsoft works:

The whole point behind Software Assurance programs is to simply garrentee regular revenue for Microsoft. Regular revenue is MUCH MUCH more important to stock holders then big sales. The intellegent ones couldn't give much of a shit on how many Vista licenses Microsoft sold in the first six months.. what they care about is how much average monthly income is Microsoft going to generate over the next 5-10 years. The kicker behind that sort of approach is that businesses get Windows/Office/etc licensing at a fraction of their retail price as long as they keep on paying support and regular subscription prices... if they abandon the program they lose all their licenses and would be forced to purchase full retail prices.

This is another huge reason why businesses are not going to see licensing costs as a advantage for Linux. Since Linux cannot replace Windows completely then businesses would be forced to keep maintaining their subscription prices anyways, unless they wanted to lose all their licensing and pay full retail. So the price advantage for Linux for those types of businesses is simply non-existant.

...

The sales and support for Windows for the home/consumer market is probably a loss leader designed to suppress potential competitors and provide a compelling reason why businesses should license Windows and Office for their internal use (no user training required, everybody already uses it).

I don't think that Linux probably offers any real substantial cost savings over Windows just based on licensing.

Asus shipped EEEPC with Linux because it was easier to make Linux run well on a 600mhz Celeron processor with 256MB of RAM and customize the UI to make it fit a 800x480 screen.

Netbooks now can run XP quite nicely. However Microsoft restricts it's XP licensing so that OEMS cannot provide XP on netbooks with more then 1GB of RAM.

So on netbooks with 1GB+ it is Vista vs Linux. And the nicer netbooks being sold, and by next year ALL netbooks being sold are going to be able to run Vista well enough and Windows 7 even better. By the end of next year even the very cheap netbooks should be able to run Windows 7 "good enough".

So Linux can't really compete in terms of pricing (it can a little bit, but it's not that huge of a deal people hoped it would be), nor can it really stand out in terms of lower resource usage (a extra 1GB of RAM costs about 10-20 bucks now and it's only getting cheaper) in the long term future. Linux desktop needs have lower support costs and run all the software that users demand to make it truly compelling for OEMs to start replacing Windows.