Microsoft sees the ultra-low cost PC market as a significant opportunity and plans to pursue it with vigor, according the Kevin Turner, Microsoft's chief operating officer.

The market for ultra-low cost PCs (ULCPC) also is drawing heavy interest from vendors using the Linux operating system that are manufacturing computers and devices based on the open source operating system.

"We see this as a serious space and we are gong to fully participate in ULCPC," Turner says. "We are spending a fair amount of time on it."

Turner says it isn't all about emerging markets, however, which is where the focus is now. "This may start in emerging markets, but it is not only an emerging market play," he says, adding that ULCPCs will likely become the third or fourth PC for some users.

He says Microsoft is evaluating what Linux on the desktop can do versus what XP can do. "We know that we have to innovate, but certainly we believe there is a big difference here: the elegance, the application compatibility, the familiarity," he says.

Turner says Microsoft is still evaluating which type of hardware will eventually be the most popular.

While those preferences will evolve over time, Microsoft is making sure it has an operating system option in the market. Two weeks ago, the company said it would make Windows XP Home available to OEMs for ULCPCs until 2010.

Microsoft was forced to default to XP given the fact that Vista is too resource intensive for the ULCPC platform.

Last week, Turner traveled to India to finalize a deal with India's HCL to have Windows XP Home as the foundation for "the world's cheapest Windows laptop."

The market for these low-cost machines is being driven by inexpensive bandwidth; the growth of services and cloud computing; and cloud-based processing, storage, management and associated IT services.

Experts have said that the big question is how big the market will become for low-cost computing devices. ULCPCs are drawing interest from governments, schools, emerging markets and developing countries. Microsoft is fighting against emerging interests in using Linux over Windows to keep development costs down.

The market has seen the recent introduction by Everex of its $400 Linux-based CloudBook.

Some manufacturers are hedging their bets. For example, AsusTek sells four versions of its "barebones" Eee PC with a Linux-based operating system, but lists in the computer's spec sheet that they all are Windows XP compatible.