Can the dog start wagging the tail?

The continued heating up of the UMPC market has shown a couple of things. The first being, that despite all the "opinions" to the contrary, an OEMed Linux install is a breeze to use and comes with a lot of productive software. The second, and probably most important thing it has shown is that MS can and will give in to price pressure and is not nearly as powerful as everyone thought.

Instead of retaliating against Asus, reducing "advertising incentives" and other perks at being a "Tier One" OEM, the net result that MS caved (because it has to) and offered it's XP Home for cut rate prices on the UMPC line. I am sure other OEMs were watching intensely on how it would pan out, and to their surprise, nothing happened. It then started a landslide of computer manufacturers diving into this market, all knowing they can offer Linux and not be penalized and get a cut rate price on XP.

This kind of revolt would have been unheard of 3-4 years ago and it showed a weakness in Microsoft's position. Simply put, MS needs, absolutely needs OEMs as a primary revenue stream and any threats or punishments implied by not toeing the line are empty. Let's be realistic here, MS is smart, they won't cut off their nose to spite their face and any one of the top 4 OEMs would not have to be all that worried about MS retaliation.

Now, as has been seen countless times, any time a corporation or government entity says anything along the lines of "ODF will be our format" or "OpenOffice to be deployed" or "Linux migration pending" can be guaranteed of instant and deep cuts to the price of a Microsoft solution. With margins so razor thin on the Windows side of the PC market (Apple commands and gets great margins), what is to prevent OEMs from putting the same kind of pressure on MS.

What do you think would happen if any of these headlines showed up today?

"Dell to pre-install Open Office across product line"
"Lenovo to offer Suse Linux Enterprise across product line"
"Acer in talks with IBM for pre-installed Symphony"

Well, here's the likely scenarios.

Dell would be offered $30 Office if pre-installed over Open Office
Lenovo would see it's effective price of Vista dropped to make SLED more expensive
Acer would be offered $30 Office if pre-installed over Symphony

See, there is a trend that is not that great for Microsoft, but very good for consumers in general happening right now. Despite massive campaigns stating otherwise from the entrenched MS ecosystem, Linux is a completely viable OS, with quality applications, that satisfies the vast majority of consumers (that try it). Cross platform Open Source Applications (VLC, OpenOffice, FireFox, Gimp...) compete quite well with their proprietary counterparts. Also, the internet is making the operating system not nearly as important as it used to be.

With these kinds of developments in the computing world, it is very very hard to command the kinds of margins you used to.

So the simple question is, for how much longer can the tail wag the dog? It won't be all that long until the dog realizes that hey "I can wag it myself".

Update: Well what do you know, my $30 guess for Office was bang on. Hey HP, you looking for a competitive advantage? For all the folks paying retail, or subsidizing these markets, when might you ask why not me?

TripleII