During the first days of the netbook computer model these small and cheap computers mostly ran Linux instead of Windows. Some claims go as high as a 90% market share for Linux at a particular moment.
Nowadays the Windows/Linux rate is almost comparable to the desktop market.
Some claim that this shows that Linux has failed.

In my opinion it shows that Linux has reached the "good enough" stadium. When there were no netbooks with Windows available, people were happily buying Linux netbooks. If those machines have been unusable they would never have become so popular.
Microsoft must have felt very scared when that happened. Afterall, a netbook is just a small computer. If Linux is good enough for a netbook, people might start also using it on their desktops.

Microsoft took an unprecedented step by offering Windows XP again. They realised that Vista had not been accepted as a viable operating system for netbooks. Windows Mobile, on the other hand, was to limited. Their only option was to bring back Windows XP. This led to a huge price-cut for XP. People don't want to pay the full price for an 8 year old operating system, even if they prefer it to Vista. Especially when their is an (almost) free Linux alternative.
In the end Microsoft was able to conquer the netbook market.

It's not that surprising. As I wrote before, in the end a netbook is just another computer. Despite claims that netbooks should only be used for web browsing and other light activities, people use it as a "normal" computer.
Given that most people are fairly resistant to change; it's not surprising that they chose Windows over Linux when both were offered at pretty much the same price.

If you only see that Linux failed to become the dominant netbook OS you may be looking in the wrong direction. The really interesting part is that Microsoft had to do real work to claim their usual market share. For years it has been a no-brainer that Microsoft Windows would be the operating system on any (non-Apple) computer targeted at the general public.

This time Microsoft was able to remain in the saddle, but it should no longer be taken for granted that any computer-like device will run Windows. The mobile phone industry already seems to have given up on Windows Mobile.
Microsoft will have to be very carefull to maintain their position. At any mistake people will happily use an alternative such as Linux. It is expensive to lure them back, and if it happens to often they may never come back.