The Perfect Storm for Netbooks

Gartner just announced it: Netbooks (or mini laptops) are driving the bulk of the PC industry growth in Eastern Europe, and possibly worldwide. In their latest research, Isabelle Durand and Ranjit Atwal commented: “The market position of vendors was largely determined by those that shipped mini-notebooks and those that did not”. Is this a surprise? Not really. The rise of Netbooks was in the making ever since Asus launched the Eee, a laptop for emerging market that is selling like hotcakes in the world’s most affluent cities. However, the mere presence of low-cost hardware is not sufficient to explain the explosion of this market.

We are currently in the perfect storm for Netbook. The storm feeds from several elements:

• The rise of consumer-level cloud computing that makes the network, not the hardware, the slowest link.
• The failure of Windows Vista to excite customers, which means a lost cycle of hardware upgrade.
• The stagnation of consumers software needs, that leads to a lack of software upgrade
• The difficult economic conditions that make customers question what their “needs” are.

In February, we posted an article titled “Why Are PC Manufacturers so Afraid of the Asus Eee?“ in which we explained that without steady software innovations to create new needs for more complex and costly hardware, average selling prices (ASP) were bound to spiral down. In the PC space, this falls largely on Microsoft’s shoulders. Right now, it is scary to see customers willing to pay $50 for an “upgrade” to XP, from Vista.

Back in February, some dismissed the idea that Netbooks could basically cannibalize entry-level laptops, but PC makers ended up flocking into this market because they know that the Netbook trend is inevitable. Netbooks are a compelling product that will become even more compelling every year as hardware gets better and cheaper – especially if there’s no significant software innovation (understand: “why should I upgrade to Vista?”).

But necessity is the mother of all inventions, and PC makers still have the opportunity to make a good case for more expensive laptops. First, laptops need to have 8GB of memory, a 64-bit OS and a fast hard drive. That alone would improve today’s experience by a huge margin, and justify a premium price. Secondly, laptops need to have a better industrial design. That’s the number one reason why Apple is taking market share left and right. Finally, Windows 7 might get people excited, especially if it could boot a lot faster than Vista.

With the current economic conditions, things aren’t bad for everyone. As the market changes, new opportunities appear. For example, Acer shipped more computers than everyone else in Western Europe, including Dell and HP, thanks to its Aspire One Netbook. Asus went from being a contract manufacturer to become a leading brand of computers, thanks in part to the Eee cute design. However, you can be sure that big PC makers have learned their lesson and they are coming back strong, especially Lenovo and HP.

One thing is certain: “small laptops” will never mean “expensive laptops” again – something that was unthinkable just a couple of years ago.

Hubert Nguyen
Categories: Computers, Featured, Top Stories
Tags: Thoughts