Microsoft doesn't think "it is sitting pretty because Best Buy has a 17-inch Dell for $650." I can assure you that internal talks at Microsoft include very worried discussions about how they're going to deal with Apple's quickly growing market share.
Microsoft's response to "Macs are better" is "PCs are cheaper", not because they think more PCs will sell because of these ads, per se, but because they want computers to be cheaper. They want to frame the buying decision in terms of price so they can drive prices down further. Oddly enough, this kind of worked. Apple lowered their prices.
As Joel Spolsky says, "Smart companies try to commoditize their products' complements... Microsoft's goal was to commoditize the PC market." (http://www.joelonsoftware.com/articles/StrategyLetterV.html)
Microsoft does not think that it's OK to be inferior to Apple as long as they're cheaper. They just really really want computers to be cheaper. They always have. That's how they've made billions of dollars over the years. They tie the success of their software business directly to falling prices in the computer hardware industry. If they see any hint of that trend reversing (rising prices in hardware), they're going to fight it tooth and nail.
I think what they really need to understand is that the race to the bottom in the computer hardware market is generally over. We've arrived at (or near) the bottom. People can afford just about as many computers as they could possibly want now. If they want to further commoditize the personal computer, they should be doing what Google is doing and writing a stripped-down OS that runs on much weaker hardware but relies on the web for processing power. Insisting on machines that are both cheaper and more powerful than the PCs of yesteryear has reached the point of diminishing returns.
And the computer at the bottom are netbooks and smartphones, markets that MS is not strong in.
Was that a serious comment?
> As of January 2009, over 90% of netbooks are estimated to ship with Windows XP
Also, count me as a person who bought a netbook that shipped with XP and immediately installed Linux on it - the company no longer offered the model I wanted with Linux. So as always Microsoft is pushing Windows on people whether they want it or not and then turning around and screaming MARKET SHARE MARKET SHARE!
One market Microsoft is weak and being forced out (phones), another is very low margin, and dragging down Microsoft's overall revenue and profits (netbooks).
Though I didn't know MS's share was over 90%. It will be interesting to see what Windows 7 brings to this.
As for windows mobile - the less said about that the better.
I think Microsoft should do two things:
1. Push Windows 7 as superior. In my experience and that of others who have used it, so far it really is. (NB: The people that have used it were not die-hard fans either way, so naturally there will be Mac fans who disagree but this isn't the point).
2. Offer a Mac-Only version of Windows at a cheaper price to get more windows installs on mac (price of Windows OS for someone using it as a second OS is quite prohibitive).
When you add Linux snapping at their heels with a free desktop, I think they've got real problems. Especially when Shuttleworth is calling on Linux developers to make something prettier than OSX. They won't necessarily succeed, (although I hope we do), but simply playing in the space greatly complicates Microsoft's issues.
I'm not sure Linux will ever pose a serious threat to the "home-user" market - even developers I know tend to agree that Linux has never taken user-interaction seriously. It might be prettier these days but that isn't the concern, it's genuine "getting things working" and "using this day by day" that is the problem. Most Linux users live by the terminal but home users moved to the GUI a long time ago and aren't going back.
OS X success is not about "pretty", not in a fonts, colors, and visual design kind of way. I'd warrant Vista is much "prettier" in that regard.
What is "pretty" about OS X is the capital D design of the overall user experience. Achieving this requires deep integration of goals between developers, ui experts, product managers, and yes, visual designers.
Otherwise it will only be like, shall we say, lipstick on a pig (a very tasty and fine pig, or good pet pig if you aren't into the swine flesh, at that).
The first argument would be terribly hard for them to win, but the second they might be able to credibly argue. I don't think there are many who dispute that Win 7 is better than Vista, the only issue is if it's better than XP. That likely depends partially on the hardware you run it on.
Microsoft has been pushing the xbox to game studios like crazy. In effect, that move alone might help in their decline; if individuals who would otherwise play games on Windows have no real need to play games on Windows (they have a console), they have no need for Windows, either!
So, perhaps MS' game division is culling the OS division.
Microsoft's Revenue Drop
* PC buyers care about their computers less than Apple buyers, so in a global economic downturn, they cut back on new computer purchases moreso than Apple buyers
* PC buyers are waiting on Windows 7 (mentioned in passing by Gruber)
* PC buyers feel higher levels of satisfaction with their computers than in previous years, and feel an unusually low need to upgrade
* PC buyers have consolidated their personal inventory, perhaps owning only a single laptop (maybe work issued) as opposed to a laptop and a desktop
* Microsoft is not attracting first-time computer buyers as much as in previous years
* PC buyers are switching to Apple
Apple's Growth in >$1,000 Sales
* There are fewer PC competitors in the market
* PC buyers feel that equal or greater value is achieved in the <$1,000 market
* The >$1,000 market has contracted around Apple
* Apple is attracting more first time computer buyers than in previous years
I don't know how probably true these explanations are, before or after reading Gruber's article.
I've also assessed things Apple/MS in a post of my own. I don't think it's become public realization yet, but Microsoft is scared. Apple poses a serious threat, and they have recent experience in starting the long and dreadful decline in the browser space to help them get a taste of the backlash that's coming.