Netbooks: good for consumers, bad for the tech economy?

When Microsoft said today that revenue from its core client business (Windows, Office, etc.) fell 8% in the last three months of 2008, it blamed a familiar culprit: the fact that companies and consumers are buying fewer computers. But Microsoft also attributed the revenue shortfall to growing demand for the stripped-down laptops known as netbooks. Say what?

Netbooks are generally defined as clamshell computers with a 10-inch or smaller screen, a lightweight processor such as the Intel Atom and no optical disk drives. They have zoomed out of nowhere -- manufacturers shipped just 450,000 units globally in 2007, but 10 million units in 2008, according to the Consumer Electronics Assn. This year, netbook sales are expected to grow 80% to 18 million units.

Isn't that good news for the economy? Not necessarily, said Stephen Baker, an analyst with the NPD Group. Though netbooks may increase the overall number of computers sold, they could very well drag down the PC industry's overall revenue. That's because netbooks tend to cost $300 to $500, far less than laptops or desktops. In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks.

"History tells us that when we offer lower-priced products, it tends to drive down the average selling price across the board," Baker said. "The net result is to drive down revenue overall, even if there are more units out there."

Netbooks cut into Microsoft's revenue too, to the tune of about $30 to $40 less for each one sold, Baker estimated. That's because netbooks don't have ...

... the horsepower to run the Windows Vista operating system, so nearly all ship with Windows XP. And Microsoft can't charge as much for XP as it does for the newer Vista.

The netbook effect is more pronounced outside of the U.S., in markets such as Asia and Europe, Baker said. In the U.S., only about 8% of computers sold in December were netbooks. He estimated that half of netbooks sales came at the expense of higher-priced laptops. The other half was incremental, meaning sales to consumers who wouldn't otherwise have bought a computer.

The netbook phenomenon is a good example of what's happening in the broader marketplace: Spendthrift consumers are looking for ways to cut back, and retailers and manufacturers are sometimes having to settle for lower profits as a result. Many shoppers are making do with the things they already have and favoring lower-priced alternatives -- rather than splurging for features they may not use.

"There's a very high saturation of tech products right now," Baker said. "In many categories, the impetus to upgrade isn’t all that great. This year's model isn't all that much better, faster or cheaper than last year's model. So there's not as much imperative to get the latest and greatest."

-- Alex Pham

Photo: Samsung NC10 Netbook. Credit: Samsung
 

Comments

[Marvin Price]

Why are tech reporters so freaking clueless?

No one wants so called "Netbooks." In truth, we've been there done that. We've done dumb terminals, we've done Thin clients, and we've done netbooks. People don't want devices that are good for nothing but accessing the Internet.

Look at the iPhone for instance. When Apple attempted to allow only net based applications on the iPhone, the user based and development community balked. We wanted to deliver native applications and consume native applications.

Microsoft's problems aren't due to people wanting Netbooks. Microsoft's problems extend from being a big lumbering lethargic organization run by individuals {cough}Ballmer{cough} with as much imagination as a can of shoe polish. This has nothing to do with people wanting netbooks.

People simply have 3 year old laptops that still work just fine. Not to mention businesses that have massive infrastructures built on top of Windows XP. You've got 50,100,1000 clerical workers using Word, Excel, PowerPoint, Outlook, Lotus Notes, whatever. 99% of the time those 3 year old computers are twiddling their virtual thumbs. Buying new computers means that you spend a crap load of money so the computers can twiddle their thumbs faster. A secretary that goes from a 1GHz laptop to a 3GHz laptop won't finish typing a letter any faster.

I'm a Mac guy. I used to buy a new Mac laptop every year. Then one day the incremental performance increases just didn't justify selling my old one and buying a new one. Only the new 17" laptop has changed significantly enough to make me bite. I'm poised to purchase one the minute they hit the stores. My current laptop is 3 years old and I will be keeping it.

I don't know anyone who is going to buy a $200 or $300 "netbook" just to surf the web and send e-mail. That market (if it exists) is so ridiculously small that it might as well not exist.

If Apple came out with a netbook today, I would have absolutely no interest in it.

I'd be willing to bet that if people bothered to actually do some research instead of echoing crap about netbooks, they'd find that most people have computers with a typical lifespan of 5 years now, instead of 3.

Outside of gaming, no applications are pushing the envelope for computer performance.

[bruins103]

not sure what planet mr price has been living on, he's the one thats clueless about netbooks demand. asus and acer has been laughing their way to the bank, while dell, HP, lenovo, and every other big name pc/laptop manufacturers are trying to play catch up and netbooks are all the buzz at CES this year.

of course mr price is a mac guy, and even if pc's market share is 100 times that of macs, he would still choose to ignore the obvious since he lives in his own mac-centric universe, utterly oblivious to the other 90% of pc consumers.

sadly it's this type of selective bias or extreme ignorance that has reinforced filtering out 90% of the opinions of any mac enthusiasts, at least in the areas of computers or tech anyway.

[Chris Gaither]

Marvin, thanks for reading our L.A. Times Tech Blog and for commenting. You made it pretty clear that you're not interested in netbooks. But it seems unfair to call Alex clueless. Manufacturers shipped 10 million netbooks in 2008, which was a huge jump over 2007.

[JAGADEESH VENUGOPAL]

As it turns out, many consumers love a small device that allows them to type a document, browse the web, check email and listen to music. And BTW it appears that they are willing to trade CPU and Screen size for long battery life and carry-anywhere convenience. With much functionality migrating to the web, the demand for power hungry but beefy machines appears to be on the wane.

Is it that difficult to understand? Already the analysts are talking about the demise of the netbook, but I believe it is here to stay. It is the new niche between a PDA and a full sized laptop that weighs a score pounds and has battery life of a couple hours or so. Time was when you would pay more for smaller size. Now you pay less!

I write this on an ASUS netbook whose performance is just perfect for the tasks I do most often. I think it is the wave of the future. Netbooks will sell in huge numbers to add mobility to many people that wouldn't have otherwise considered putting a PC into their briefcase or office tote. As long as they can keep the power consumption low, I think manufacturers will crank out a good many of them.

I can't help but think that a netbook with WiFi is the realization of Larry Ellison's network computer for a sub $500 price. It turns out that Mr. Oracle was a few years ahead of his time.

[John M]

For goodness sake. Balmer can't be using the same operating systems we are using. Google "Outlook 2007 slow" and find out how many hits you get! Office 2007 is hopeless as is Vista. Ask any IT manager if he's going to deploy either of Office 2007 suite or Vista & there's your real reason for poor sales growth. The customers don't like the product! Go figure! I am glad I am not a MSFT shareholder or I'd be very upset.

[JoetheplumberNOT]

The market that's really going to dissapear is the laptop market. Now with netbook, who needs a laptop? Netbooks have better portability and battery life than a laptop while a Desktop has more power than a laptop.

I would rather spend $1500 on a $1200 desktop and a $300 netbook than $1500 on a laptop that would be less portable than my netbook and less powerful than my desktop.

[Rick]

Technology is for sure slowing down. America lost the tech-lead by moving all the production overseas. People like me in the tech field, economists and investors predicted that and nobody listened. This was made all over not only Tech. but all kinds of industries, now of course, we have an economic meltdown. With no way of coming out of it because we have no high paying jobs. The netbook is the only PC that we will be able to afford that is the reason for its popularity.

[DrDave]

Mr. Price must hang out in an environment that is a LOT different than mine! I bought an Acer Aspire One netbook for $350 back in October and I'll bet 10 have been sold just from people admiring mine. In one instance, while passing the netbook around so people could view pics that were just taken, a gentleman immediately got up and drove to Costco to buy two for himself and one for another person. I've had people approach me in airports just to talk about it. I fully believe that personal computing will eventually shrink to something about halfway in-between an iTouch and a netbook. Watch, you'll see.

[S L]

I don't understand the point that netbooks are worthless when the supporting statement is made that 99% of the bigger computer's capacity remains unused and that only games ever come close to maximizing that capacity. Because that is the point of the netbook - why keep buying more than you use, let alone need? That's a thousand dollars a lot of us will gladly spend somewhere else, thank you very much. In these new days of frugality, I'm just saving mine.

And from the redundantly obvious department, it went without saying Marvin would be a Mac guy. New mac laptop every year? Going to buy one just for the 17" screen? Enjoy ! The only thing you share in common with everyone else is a nice little pile of debt, I'm thinking...

Some of us have looked forwad to the day the computer's evolution progressed to the appliance state, and we're almost there. For this person who remembers the climate controlled rooms, the suitcase-sized Osborne vyingwith Kaypro II, the shift-apple days of VisiCalc, the system disk on a floppy and thewonder of a 10 MB hard drive, spending 300 bucks on an Office-loaded web surfer with DVD drive is absolutely astounding. Keep your Mac, Marvin. I'll be at the beach working from home.

[Benny Gunns]

I guess I am in the minority because I like Vista AND Office 2007 -- I have been using both at work and home since they were released, and I can't imagine having to go back to XP. Vista, if you give it a chance and don't let yourself be swayed by all of the bias comments out there, is superior to XP.

Now work and home are two different things. I don't need all of the power of my work PC at home. Most of the things I use my laptop for at home are word processing and internet, both of which can be done through a web browser. Then you have the occasional photo uploads, and music player, and video streaming (netflix, hulu, etc.). I don't think I will be buying another laptop after my current MacBook expires -- and definitely won't load Office onto any future home computer, with alternatives like Open Office or Google Docs, which can easily run on a netbook.

So yes, money makes a difference, but it's also a realization that the performance specs required to perform most of our daily tasks were reached several years ago, and a cheap device like a netbook is more than capable to handle the majority of tasks we throw at them.

[John Riley]

I'm a mac guy and I've been looking at buying an Asus or Acer netbook. I'd use it for web browsing and carrying around town. I have an iPhone, a 13" Macbook and a desktop Mac Pro. The iPhone is incredibly awesome, but not good for long periods of web browsing (although I still do). The Macbook is just big, heavy and expensive enough that I rarely ever take it outside the house, and even then only to client meetings.

A small $400 netbook loaded with RAM would be a nice truly portable computer that I wouldn't have to worry about too much. I'm not a big fan of Windows, but I can handle using Firefox and the Google apps in XP.

[Tsiong]

I own several laptops: 17, 15, 14, 12, and a 12 in dedicated tablet pc. Since I travel periodically and the netbook came out I aquired the 10in Acer netbook which really helped in cutting down my carry-on bag wt. This netbook size was just perfect relegating my 12in laptop to home use.There is an ideal size laptop for a particular application and the netbook is here to stay. Its strengths are portability and affordability.

[fezco]

I agree with Marvin. New laptops (lenovo) perform the same or worse than the fleet of laptops I purchased 4 years ago. Software is far less reliable and all the added 'features' simply cause problems and take up resources. I like the idea of netbooks, however, there is no substitute for local applications.

[Bill H]

I am in the minority I am sure, but I believe that computing has become so ingrained and is so essential that it should be, like transportation and communication, as simple and inexpensive as possible. That is why netbooks are such a good product. The notion that they are only good for surfing is completely false. Install Ubuntu or Kubuntu, Openoffice, Firefox, Thunderbird and other similar applications that are designed to be functional instead of flashy, and you have an efficient tool that not only gets the job done but is independent of the Microsoft Empire. As far as buying those expensive and artsy iproducts, leave the macs, ipods, iphones to the iphools. That Apple company will never figure out if it is selling computer or art, so it gives you both: ordinary computing at art museum prices.

[Eraldo]

Hello fellows I'm Eraldo from Brasil. Here, like in other markets around the world (except some people in the U.S ) we are looking for less weight, low prices and, of course versatility, so the netbooks has all this features. You can have a good PC or laptop in your home, but to carry to all places which you go, the netbooks are the best. They are limited, of course they are, but it is a good tool nowadays for everybody, mainly students. Congratulations for the reporter Alex Pham

[Daniel]

There is a valid point to the longer life cycle of the product. Back when I was hand building Pentium 166 MHZ desktops, you really had to gut the thing and start over every six months, first there was PII 200MHZ then came PIII, 667 MHZ and so on. At the point we have reached now with computing power, a user really doesn't need to update their equipment but once every 5 years. I am still using the 2005 laptop I was provided and the 2006 desktop, and I have no need to replace either, as they run everything i could ever possibly hope to run. The laptop has a 2 GHZ processor and a gig of ram, do I need more to run word and excel? The desktop is a Pentium D 3.2 GHZ, what current software can I not run on that system? Nothing. The computer industry has now successfuly made such a good product, that like the American car buyer, their consumer does not need to buy as often, reducing their profits.

I hope no executive from either industry reads this though, because like the stride gum commericals, I am sure someone would figure out a way to engineer in some obsolescence or fragility!

D

[Bill H]

The only negative about netbooks is their small keyboard size. For most men they are at the limit of utility. Anything smaller would force many male users to switch to hunt and peck typing and that would defeat their usefulness by a large factor.

[Lisa]

It seems like most of the negative comments are posted by people who are in the tech or computer industry, or are computer aficionados.

Laptops are expensive and most everyday 'you and me' citizen will not use applications that use significant processing power. The internet has become a necessity in today's society, and we need that internet access with minimal hassle and expense. Regardless of the current ecomonic situation, netbooks are the next logical step into providing consumers with what they want rather then what the computer industry wants them to want.

A computer's processing power, ram, video cards and whatnot have always been a competition amongst my techie brothers and friends; they always know the latest and best in the market today and, like adding parts to your Acura Integra, boosting it's capability to excessive levels.
But not everyone wants a sports car, most people just want a car to use it for it's most useful and basic function; transportation. Same with computers, consumers want simplicity and accessibility, not a new OS every 3-5 years that require costly upgrades. Such changes are inconveniences to the masses, and inconvenience is not what we want to spend our money on.

[mike]

My wife has a netbook and personally I can't stand to use it. The 10 inch screen hurts my eyes after using it for a while but luckily we have a 20 inch monitor on our main desktop that suits me nicely instead. It stinks that my eyesight has started to go already but there is no way I could consider a note or netbook with a screen smaller than 14-15 inches.

[Jonathan]

I'm surprised not to see GNU/Linux mentioned in this article. I own an Asus 900 and run an Ubuntu GNU/Linux variant, EEEbuntu (http://www.eeebuntu.org/). This operating system does everything I need, is free, and customized for my machine. Netbooks are perfect for people who run basic office applications (word processors, spreadsheets, email) and surf the net.

Netbooks are not a niche product and I think they're impact will cross over into the PC and standard laptop markets. You'll start seeing cheaper, stripped down products that have what consumers need without all the useless (and expensive) bells and whistles.

For one, I like my netbook and would recommend one to anyone interested in a portable light work / web machine.

[Jonathan]

I agree with Lisa, especially when it comes to what she wrote about OSs:
"...not a new OS every 3-5 years that require costly upgrades."

Which is why these little machines are great! They're cheap, you can find customized and free OSs that provide upgrades, support, and do everything that MS XP can do.

People are tired of being charged for upgrades and unnecessary clutter on computers. So many programs are bundled with every new machine and people don't have much of a choice... they have to pay if they want a computer!

I just hope netbooks don't start to become cluttered, thereby raising the price. I bought mine because of it's size, but also because of the price and the freedom to put whatever OS and applications I want without having to pay Microsoft for something I'm not going to use.

[Joe Robinson]

I was in the market for a new laptop and ended up with a netbook. It runs XP and has a 160GB HD. What more do I need? I hook it up to a external monitor when at my desk and it is so portable and has a longer battery life than my other laptops. I already had a USB DVD and floppy, so the lack of a DVD doesn't hurt me.

[Tech User]

According to this theory the computer industry would be better off if the cheapest computer's price tag was $1,000,000 (and they sold collectively a few thousands per year). Even if the makers would be better off (which I doubt), would the society in general be richer? If you believe so, imagine replacing all personal computers with abaci (google them up if you are lucky not to know what it is) and decide whether we would be better off.

[Tech Maker]

Here is the fundamental fallacy of the article: Microsoft is the tech industry. It's all downhill from there. The fact that Microsoft is a lumbering dinosaur, unable to meet this new market opportunity is not a cause for tears. Well, not for anyone but the obscenely over paid marketing executives at Microsoft. A good many netbooks are being sold with a tailored Linux distribution pre-installed, without any stain of Microsoft. The shadow of the empire still remains as hardware vendors are limited by agreements with Redmond relating to what hardware they can sell without a Windows operating system. Consumers are still unable to purchase a netbook (or laptop or desktop for that matter) without Microsoft's bloatware in the exact same configuration as one sold with it. Please tell me how this is _good_ for anyone but Microsoft? This does not benefit the hardware manufacturers nor the consumers because it reduces customer choice.

The rest of the tech community (ie. the not-Microsoft part) still benefits from netbook sales: customers still need printers, mice, keyboards, internet access, USB peripherals - pretty much the same hardware and services that any modern computer user requires. But what a shame, the consumer is now getting more for less. With the money saved on the compute platform, people may even be spending more on other devices and services. I suppose if Microsoft had its way, this would end and people would continue to pay more for less - back the the buggy whip era, Jeeves! Redmond simply feels entitled to fat cuts of consumer spending and can't deal with the changing market.

Isn't that the point of the article?

[Happy parent in ct]

I think it is a great idea to sell pc's so cheap because what do teenagers do but surf the web and send e-mails