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Microsoft plans price war to stymie Chromebook growth

Gregg Keizer | July 16, 2014
Microsoft's COO says his company and its army of OEMs will compete on price with Google's Chromebooks, a milestone in Microsoft's battle against the encroaching enemy.

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 $250 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?"

 

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