If you pick apart the recent set of Microsoft results (Q1/08) you discover that sales of Microsoft Windows fell by 24% (from $5.3 billion to $4 billion). When the PC market worldwide is growing at 12%, a collapse of 24% sounds disastrous, but those figures provide a distorted view. The $5.3 billion figure from a year ago included $1.2 billion of presales prior to Vista’s release, which actually took place in the previous quarter. So it is more accurate to view it as a revenue decline from $4.1 billion to $4 billion (2.4%) in a market that’s growing at around 12%.

Clearly Vista has not been a success (see 10 Reasons Why Vista Is A Disaster). It never provoked much immediate growth in PC sales when it was released, as previous releases of Windows did, and it isn’t particularly appealing to customers now that a year has passed. Aside from this, the decline is Windows revenues is caused by a combination of 4 factors:

1. Microsoft is probably discounting Windows in some markets.
2. There is an increase in the level of Windows piracy.
3. The growth in the sales of Apple’s OS X – it now accounts for about 3.5% of the market as a whole and 6.6% of the US market. OS X is currently growing at 51% by units.
4. Growth in the sale of Linux PCs – but no-one’s sure how much….

Linux in the PC Market

Linux PC market share and growth is difficult to gauge at the best of times. I’m not aware of any analyst company measuring units shipped directly, but I believe that the growth has now become significant. Figures from W3Counter.com, which counts by measuring Internet usage, indicate that Linux has undergone 61.6% growth since May of 2007 (from 1.25% to 2.01% of Internet users in March of 2008). This is a poor way of measuring numbers of users, but nevertheless there is no other explanation for the growth other than: Linux PCs are selling. Here are some other “straws in the wind”:

• The One Laptop Per Child (OLPC) initiative delivered over 200,000 Linux laptops to users, mostly children around the world last year.
• Asus has clearly had success with its Eee Linux PC. It is predicting it will sell 2 million of its Eee Linux PCs in 2008. The Eee PC has appeared at the top or near the top of the Amazon bestselling computer list for quite a while now. It is also sold by Best Buy.
• Sears now sells the Linspire Mirus PC, with Linux loaded.
• Wal Mart sells the Everex PC with the gOS version of Linux loaded.
• Both Dell and Lenovo now supply Linux laptops and PCs, and HP is expected to join them.

In the posting Has Linux Finally Broken Through? I suggested a number of things that needed to happen before the Linux PC could gain traction and most of them have now happened.

Linux has become a disruptive influence that is provoking innovation. Linux rather than Windows defined the category of the low cost laptop. The OLPC initiated this, but this in turn motivated Asus and now there’s a product category called “low cost Linux Laptop.”

Differentiation in the PC Market

Apple has smashed the homogeneity of the PC market with the success of the iMac and now its competitors are worrying about how to compete. In this they are no different to the vendors of mobile phones responding to the success of the iPhone – except for one thing. The ability of PC vendors to compete with the iMac is paralyzed by Windows. Right now PCs all run Vista, and they all live in little boxes and they all look just the same.

Vendors don’t have to be constrained in that way if they load Linux and it’s clear that some of them choose not to be constrained. Everex has just released a very differentiated Linux PC; the MyMiniPC. It’s offered as a “limited edition MySpace PC”. It runs the gOS (Good OS) version of Linux and the whole desktop environment is designed for MySpace users. You could think of it as a “MySpace appliance.”

There’s no reason not to produce similar PCs tailored to FaceBook users or eBay fanatics or surfer/shoppers or news junkies or some combination of these. In time there will be well crafted Office Linux PCs and Media Linux PCs.

With Linux, PC vendors can differentiate and given the dramatic growth in Mac sales, they surely will. They’re going to need some edge as they set out to kill the great white whale.