As the popularity of low-cost laptops increases, Microsoft is faced with a decision. Should it extend the life of Windows XP, as most of these machines are not powerful enough to run Vista, or possibly let Linux have the run of the low-cost laptop market?
How Microsoft can stay in the low-cost laptop market
That small amount of storage rules out the use of Windows Vista on these machines. Even Vista Starter, the stripped-down, low-cost version intended for sale only in developing countries, is out.
Moblin.org provides developers with resources to develop mobile versions of Linux, including efforts to improve power management and develop a Mozilla-based browser that relies on a touch interface. Much of this work, including Canonical's Ubuntu Mobile Edition, will run on laptops and desktops, as well as mobile internet devices (MIDs).
In addition to its large footprint, Vista may not be a suitable option for low-cost laptops because of its price, according to Navin Shenoy, general manager of Intel's Asia-Pacific operations.
"I don't think you'll see a lot of Vista in this space for cost reasons," he said in a recent interview, noting that 25 low-cost laptops based on Atom are being developed by various companies.
PC makers are also saying that Vista is not a good option for the new class of products. During a recent press conference, Asus executives predicted that of the 5m Eee PCs it expects to sell this year, laptops running Windows XP Home edition will outsell their Linux-based counterparts by a ratio of three to one.
While Linux is generally the preferred OS for low-cost PC maker Everex, the company has sold low-cost laptops with Windows XP in developing countries. Vista isn't an option since Everex's Cloudbook laptop laptop doesn't meet the minimum hardware requirements prescribed by Microsoft for Vista.
"Even 512MB of RAM with [Vista] Home Basic, it's a slow machine - underpowered and underperforming," said Paul Kim, director of marketing at Everex, adding that when it comes to low-cost computers, Windows XP "still seems to be a better path at this point".
Industry analyst Roger Kay, founder and president of Endpoint Technologies Associates, agreed that the cost of licensing Windows Vista will prevent Atom-based PCs from reaching Intel's target price of $199 (£100) to $250 (£125).
"Given the cost of the Windows licence, which hasn't decreased anything like the rate that hardware has... that makes for a greater incentive for customers and [PC makers] to look for an alternative," he said, calling Linux the best option.
If Microsoft makes an exception to its plans and offers Windows XP licences for low-cost computers in the US and other developed countries after June 30, the software maker may not have to worry about eroding sales of Vista. Intel is working hard to segment low-cost laptops and mainstream laptops to prevent any overlap in sales.
To do this, Intel has set guidelines for low-cost laptops based on Atom, restricting the features they offer. For example, Intel has told hardware makers they can only use the chips in laptops with smaller screens, preventing vendors from producing a 14in laptop based on the Atom.
The goal is to protect the mainstream laptop segment for more powerful and costly processors, like the Core 2 Duo, while catering to consumer demand for smaller, inexpensive laptops that complement, but do not replace, their main computers.
Perhaps Microsoft will realise that if Intel is comfortable segmenting the market in this way, it can be comfortable, too. It may not have another choice.