Is the success of Linux and open software a hardware issue?

Or is the decreasing price of hardware about to kick Microsoft in the nuts?

This year there has been focus on possible opportunities for low-cost basic computers. There is the one-laptop-per-child (OLPC) project, the Chinese Longmeng (Dream Dragon), Intel's Classmate PC, the Nanobook, and now there is the ASUS EEE laptop with a supposed release date early November.

The concept is essentially the same – a simple, barebones system which almost anyone can afford. For example the ASUS EEE seems to be marketed towards people who just need a small light trashable WiFi capable laptop to take notes, email, use Facebook, look at photos, play some MP3s, skype with mates or browse the net. You know, the 95% of things that most people do on a computer. It's not for playing Bioshock or editing HD movies (you've probably got another computer if you're interested in that stuff). Perfect for students, as an inexpensive second machine or for anyone who only needs to do basic stuff (like your mum).

In previous years, if you were spending US$1500 and up on a laptop, the Microsoft tax you were paying didn't seem like such a big deal. XP or Vista was preinstalled, fairly convenient and face it you didn't really have any choice. But as the price of hardware for these small basic machines comes down, (think under US$250 by the end of next year) then software price starts to become a big issue. Why would you pay the price of your new laptop again just for the software, when all you want to do is really basic things?

Should Microsoft be worried? It seems there could be a blossoming consumer market for very low-cost computers next year, and with hardware prices so low, they almost all run a version of Linux. So after long years of crying in the wilderness and wailing and nashing of teeth there is finally a realistic chance Linux on the desktop is going to take off. Previously Microsoft could "hide" the cost of its operating system within the greater cost of the hardware. As hardware prices have come down they just can’t do that anymore.

If you just paid $250 for a shiny basic laptop, how much would you pay extra for the software to do basic things like surf the web? Not much I suspect. Another issue is that most of these basic systems save money by sporting very small harddrives (down to 2Gb for the ASUS EEE). The minimum system requirement for Vista Home Basic is a 20 Gb harddrive with 15 Gb available space (ouch). Plus you need a CD-ROM drive to install it...

As I see it, Microsoft has a couple of choices and none of them look good for shareholders.

1. They can lower the price of their software so it fits into the new low-cost computing market (how much is their dominant marketshare really worth to them?).

2. They can release lower capability lower-cost versions of existing software (think Vista Poverty edition).

3. They can concede the low-cost computing market to Linux and open software and concentrate on large consumer areas like gaming and multimedia (yeah right!).

4. They can pursue legal avenues to crimp the capability of open software on low-cost computers (because the whole point of a doomsday patent machine is lost, if you keep it a secret).

So it looks like next year is going to be quite interesting…