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Drastic price cuts may damage PC industry, jeopardize Microsoft's hopes for Windows 10

Gregg Keizer | Nov. 11, 2014
Microsoft's strategy to kill Chromebooks could come back to haunt it in 2015, says analyst.

Flooding the market with cheap products has also affected sales of Windows 2-in-1 devices, hybrids that boast traits of both tablets and notebooks. According to NPD's U.S. retail sales data, the 2-in-1 market remains stalled at 11% of sales.

The price cuts will benefit not only consumers, but also Apple, Baker argued.

Although Apple has cut prices in the last year, its Macs remain premium machines at premium prices. With Windows PCs, especially notebooks, being designed and marketed -- explicitly or not -- as disposable, buyers looking for a longer-lived, higher-quality system will increasingly turn to Apple's MacBook lines, Baker said.

Apple's job will be made all the easier by a decay in the higher-priced Windows PC market. "How do you maintain a premium product segment when most of the entry-level stuff is good enough?" Baker asked. "It's all about managing prices. And that's exactly what Apple is best at. It doesn't get enough credit for how smart it is on pricing."

Discounts have spurred sales -- no surprise -- and have been largely possible because Microsoft launched Windows 8.1 with Bing, a subsidized OS offered to OEMs so they could sell notebooks at prices competitive with Chromebooks. While that strategy has worked to some degree -- Chromebooks' share of the U.S. entry-level notebook market is now under 20%, said Baker, compared to the high 20s this time last year -- it may hurt the Redmond, Wash., company's Windows 10 effort next year.

"What does the Windows PC market look like when we come out of the holiday season, and what would a permanent decline in notebook ASPs do to the market ahead of the launch of Windows 10?" Baker asked. "I suspect the answer is a significantly weaker PC business, less able to support Windows 10."

Baker based his take on a belief that by heavily discounting prices, and so sacrificing features, performance and build quality, OEMs will have an even harder time convincing consumers that PCs have something to offer that tablets or even smartphones cannot provide. "[OEMs will be] less able to clearly differentiate what makes a PC a compelling choice against a tablet or a smartphone," Baker said.

But pervasively cheap PCs may cause other ripples, too.

Minus touch-enabled hardware in consumers' hands, Microsoft's continued -- albeit de-emphasized -- pitch for touch in Windows will be made increasingly irrelevant, perhaps putting an end to the company's experiment with building two input user interfaces (UI) in one desktop OS.

Low-priced PCs could also reduce spending for software and services to the detriment of the Windows application ecosystem and even Microsoft's attempt to shift revenue generation from the operating system to other avenues, such as Office 365 subscriptions. People who pay little for their hardware typically pay little for after-market software or services, as many Android smartphone makers have discovered


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