In a turn of irony Microsoft is starting to feel the pain of Moore’s Law that Sun has felt for years. A pain that largely led to the departure of Scott McNealy and to Jonathan Schwartz efforts to open up the company. The Guardian published an outstanding article on this future fate of Windows titled “Why falling Flash prices threaten Microsoft.”  In the article they describe “the price differential between the basic Eee PC running GNU/Linux and one running Windows XP is now significant as a proportion of the total cost. One of the main suppliers of the Asus Eee PC, RM, sells the GNU/Linux version with 4Gb of storage and 512Mb of RAM for £199. The cheapest machine running Windows XP costs £259, 30% more, not least because Microsoft’s operating system needs more storage and memory - 8GB and 1GB respectively. It is that difference, far more than any cost of licensing Windows, which means that Linux-based machines can remain consistently cheaper.” While the Guardian points out that Linux is more memory efficient it misses that Linux’s rate of change is also much better because so many people are worried about making it more so (for mobile phones and elsewhere), and anyone can contribute. By contrast, Microsoft has two totally different code bases for Vista and Windows Mobile and so laptops don’t get any efficiencies from the work being done on mobile phones. What is additionally striking is that the OS is now likely the single most expensive thing in a low-end Windows laptop, even though the cost of goods sold (COGS) of the OS is $0. All this adds up to fundamental problems for Microsoft in the world of the affordable PC.
Microsoft can always try to reverse this trend by reducing their prices. Coincidently this is something they just announced . The problem for Microsoft however is not just a matter of lowering costs it is a matter of who profits from a PC. The numbers are clear. Microsoft has profit margins in the 30% range . Intel, the guys who sell the chip are in the 15% range  while companies like Dell, Asus, Acer, and others are down in the 5% range . Something is fundamentally wrong. One company is making disproportionately higher margins in this game. IBM understood this so well they exited the PC manufacturing business entirely selling it to Lenovo. Gartner Group even went so far as to predict the “top ten companies in the computer manufacturing industry will exit the market by 2007.”  What Gartner did not predict was the role that Linux can play in turning this around. Fundamentally it makes sense for companies like Asus to bring some of that margin home by creating a PC with a custom Linux operating system which is exactly what they did with the Eee PC. Other manufacturers are following  including Lenovo, Everex, Shuttle, Dell, HP and others.
Could we be seeing history repeat itself? It wasn’t that long ago that we saw similar fundamentals killing Sun Microsystems in the enterprise. Back then the trend was comparable, Goldman Sachs reported in 2003 “companies may begin to use Linux on higher performance/ lower-cost Intel-based hardware (and, to a lesser extent, on existing mainframe hardware) as a platform for server consolidation.” What was happening then is starting to happen now. Back then the expensive operating system was Solaris and the expensive machines were Sparc boxes. Today the expensive operating system is Windows and the expensive hardware are high priced laptops out of reach of many consumers. Ironically, Intel which was a huge factor in competing against Solaris Sparc, is actually contributing to the pressure on the Windows OS with new low price chips like Atom  that support Linux. The brilliance of this move is that Intel is covering their bases in both the low end with Atom and in the high end with their dual core chips.
We’ve seen this story before and we know how it ends. Perhaps Microsoft can learn a lesson from history and Sun Microsystems. The lesson is not to wait. If Sun had open sourced Solaris and enabled its adoption on other architectures sooner it may have prevented the rise of Linux. Unfortunately for Microsoft it may be too little too late and the reality is that monopolies can’t last forever.