Microsoft has been talking about the benefits of Windows 7 for netbook owners for what seems to be months now. Microsoft has even said so on its blog:

Looking forward, we can confidently say that no matter how netbook PC hardware evolves, we’re gearing up to ensure that Windows 7 will run great on them.

There is no doubt that Microsoft is feeling the pressure in this hot market. Netbooks are expected to outsell laptops in the new year. While Microsoft can sell Windows XP on netbooks and still compete with Linux, I doubt it is ready to give up Windows 7 for $25-50 on netbooks. That puts it in a significant disadvantage against the free Linux. Microsoft has never paid Linux too much respect in the past, but there is no question Linux has been a nightmare for Microsoft. It’s hard to compete with a free product, and it’s even harder when it is darn good!

By taking into account the cost of the OS, Linux netbooks are going to be sold for $50 to $100 less than their Windows counterparts. And for netbook’s target audience, that’s a significant plus. Unless Microsoft can demonstrate the true benefits of using Windows 7 on a netbook, it is going to struggle to compete. Will Microsoft come up with a Windows 7 lite? That’s a whole other story.