How Microsoft Is Fighting Back - BusinessWeek

) was nearing a double-digit share of the PC market. At the same time, a new generation of sub-$500 "netbooks" that ran on the free Linux operating system was taking off.

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Now, Microsoft has launched a determined counteroffensive. Its uncharacteristically cool TV ads emphasize the affordability of PCs vs. Macs. And it has started offering PC makers a version of Windows, normally around $70, for as little as $15. Mac sales are sliding, and Linux is disappearing from most netbooks. Researcher NPD says 95% of PCs with a small screen and a sub-$500 price tag run Windows today, up from 10% in early 2008. "Microsoft has driven Linux off the lot in netbooks," says Roger Kay, founder of tech research firm Endpoint Technologies Associates. Microsoft CEO Steve Ballmer and his top lieutenants say they're not done yet. They predict the introduction of the next Windows upgrade this fall will spark a renaissance in the company's flagship business. Named simply Windows 7, the program promises greater ease of use and reliability, rather than new bells and whistles. And while every major Windows overhaul in the past has required more powerful computers, Windows 7 can work with slower microprocessors and fit into less hard-drive space. That means it will run on a full range of PCs, including netbooks. "Although we make less per unit, we're making very decent money" on lower-price PCs, says Brad Brooks, Microsoft's corporate vice-president for consumer-product marketing.

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