by Tim Bajarin
One of the big debates these days here in Silicon Valley is whether products such as the Asus Eee PC, or netbooks in general, will actually take off and, if so, whether they will encroach on the low-end value laptop market where close to 50% of all notebooks sold today reside.
While the original Eee PC was not a threat in this space, Asus’ recent moves to create Eee branded laptops with 10in screens and sporting an Intel Atom processor, and pricing it in the $499 (£255) range has caught a lot of the mainstream laptop vendors by surprise. In fact, HP and Lenovo have already countered with netbooks of their own and Dell is expected to launch one this autumn.
The big players have been forced to do so since Asus is nipping at their heels in an attempt to steal part of this value-based notebook market and they do not plan to give this part of the market to these start-ups if they can help it.
But I believe this move by the big vendors to create new products at even lower prices than their current value line notebook models will lead the major manufacturers to blend netbooks and low-cost laptops into a single product category.
The current trend in netbooks is to make them more powerful so that they can compete with the bargain laptops on the market today. But this value notebook category is important to vendors, as they use lower-priced models to attract customers and then try to upsell them to more powerful, pricier models. I believe they will soon realise that the two categories are really just one, with sliding prices and features, and will try to use the low-end models in the category to attract consumers and then tempt them to buy a more expensive notebook in the process.
However, as the big PC players enter the netbook market with products that have similar power to their lower-end notebooks but are still priced under their value line of notebooks, that will put pressure on their ability to make their low-end laptops more profitable. Of course, this is good news for consumers. We could end up with some really powerful laptops priced in the range from $499 to $699, and they could end up being the largest segment of the more than 130 million laptops being sold today. While this is great for consumers, it is tough for the top vendors to squeeze any serious profits out of their laptop business.
Let me suggest one other thing that could happen. At these prices, vendors will need to find other ways to make money. This will probably have to come from online applications and cloud-based services that can be charged for on a monthly or annual basis – something like an applications store and MobileMe – to give their customers a complete ecosystem of solutions.
In fact, given the low prices of netbooks and low-cost notebooks, the PC could eventually be seen as the razor and the applications and services the razorblades that eventually drive the technology market. If this happens, the consumer PC market could be in for some dramatic changes over the next few years.