Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The attraction of netbooks
The growth of the netbook sector has been an anomaly in an otherwise tired PC market. Netbooks are sub 3-pound (<1.5Kg) computers most often running lower-powered Intel Atom processors with 1 gigabyte of memory and a 160-gigabyte hard drive. For all intents and purposes, they behave as a standard “Wintel” laptop, except the smaller keyboard, smaller screen, and slower processing. The low-powered computers seem to have struck a sweet spot in the consumer market, and are displacing sales previously expected to go to laptop PCs. There has been ample speculation on the reasons behind the success, but I think most of the analysis on this subject is over-thinking. There is one, singular, and most obvious reason: price.
The biggest bargain in tech
In the laptop world, small has always cost money. A PC crammed into a lightweight package was seen as a premium product. Thus, as recently as 2005, Toshiba launched their R200 ultra-portable laptop, with very similar specs to today’s netbook for a price of … ready for this? $2,099! You can get a netbook from an online retailer today for as low as $250. Show me any other product whose price has dropped by seven-eighth in 4 years. Today’s netbook is basically yesterday’s premium product sold at today’s discount prices. No wonder people are paying attention.
Multiple segments
Another key element of the success of netbooks is that they target multiple segments of the market. Usually, a discount PC such as these would be marketed to students or such as cheaper machines. But in this case, the portability aspect of the device opens up additional targets. Many professionals are adding a netbook to their repertoire to use when they are making quick trips out of the office. These people are not replacing their powerful desktops or laptops, but adding a unit. Many people for whom mobile connectivity is a priority are looking at these devices as cheaper than many smartphones, with a great deal more power and a familiar user interface. These people might be interested in the netbooks sold and subsidized by cellular carriers with in-built 3G modems. Lastly, there is the “home PC” segment, in which the netbook makes sense as a roaming laptop about the home, for the kids or as a second to the busy home PC.
Basically, the point is, when you combine light weight, high mobility, low price, high compatibility, ample software, and familiarity, you shouldn’t be surprised that the netbook has market appeal across a wide range.
Intel cannibalism
In some senses, Intel needs to be given credit for pushing this category. They have been aggressive in offering their Atom range of processors to the market. At the Telecom Council of Silicon Valley’s Predictions meeting in January 2009, Intel’s SVP and General Manager of their Ultra Mobility Group, Anand Chandrasekher, explained how the company understands that they will lose some sales of higher-end processors to the cheaper Atom, but noted that it is far wiser for Intel to do so themselves than to wait for another company to attack.
Chandrasekher also stressed how Atom is a strategy ultimately expected to increase the total number of computers in the field, not merely substitute for faster machines. Certainly, it is also strategically important for Intel to start fighting hard for the lower-power, more mobile market, because even as Intel edges down the power continuum, it is no secret that the mobile processor giants are edging up. Qualcomm’s recent announcement around their SnapDragon chipset powering “smartbooks” being the best case in point. Rob Chandhok, Qualcomm’s VP Software Strategies CDMA told me that smartbooks will differ from netbooks, taking advantage of their heritage in mobility. Smartbooks will, by default, be enabled with multiple radios, cellular and Wi-Fi, and will share the low-power consumption of their mobile phone lineage. It should be an interesting battle, and the consumer is sure to win.
Are netbooks good for cellular carriers
Netbooks, by their mobile nature, are an obvious fit for “anytime, anywhere” connectivity. This kind of wide-area wireless connection is the forte of the cellular carriers, who are hoping to see netbooks drive 3G modem adoption. Their plan to bundle connectivity and a subscription with a 3G-embedded netbook has seen just moderate success. Attach rates of cellular embedded netbooks remain under 50% for the next 5 years. The subsidized netbooks are priced lower, but some customers may have trouble swallowing the total cost of ownership. It’s not difficult to take the monthly price bill of $60, and multiply it by the 24 month commitment to figure out where the real TCO is hidden. It’s $1,440, by the way. However, for those interested in a mobile data subscription anyway can consider it a pretty good bargain. But unlike USB 3G modems, a netbook subscription cannot be transferred to another laptop or to a Wi-Fi router for sharing. This is a somewhat limiting factor for those mobile professional who have a netbook and also a laptop for heavier lifting.
By and large, though, numbers of this type of netbook purchase are low. Light Reading says 3 million were sold in 2008 and projects 4.5 million in 2009. That’s to be expected when, as discussed in the second paragraph, the main appeal of the device is low price. With $1,440 tacked on, that appeal is … somewhat faded.
Netbooks are not the great hope of the cellular carriers. The TCO conflicts with the mass market price-appeal, professionals won’t like their 3G data embedded in just one device, and when a connected netbook is purchased by the consumer, the carrier will be the victim of its own success: PCs with modems tend to consume 5 times the data throughput of a smartphone, but only deliver 2 times the data revenue. The impact on 3G networks is severe.
Ultimately, as carriers’ relationship with netbooks mature, they will begin to manage the impact more intelligently, by offering different tiers of service. This will allow customers to select a subscription that more specifically meets their data needs, but also allows a carrier to manage traffic. We should expect to see caps, but also lower caps with lower prices, day-rates, and eventually time-of-day discounts. As we creep towards 4G networks, a selling feature of those pipes will be higher throughput caps at similar prices.
Derek Kerton, principal analyst and head of the wireless practice for the Kerton Group, a consulting firm focused on advanced telecom, is also the chairman of the Telecom Council, an association for global telco executives and their ecosystem counterparts. Internationally recognized for his telecom industry insight and consults for companies throughout the telecom value chain (NTT DoCoMo, SKTelecom, Disney, ESPN, Sony…) and the financial community on the telecom market issues (Credit Suisse, Merrill Lynch, Dow Jones, Morgan Stanley…). Mr. Kerton also sits on boards for Aegis Mobility, KeyZap, and envIO, and is frequent chair and moderator in telecom industry conferences globally. Mr. Kerton is quoted, published and interviewed globally on CNN, CNBC, BloombergTV, and Wall Street Radio, with his industry research and analysis available through TechDirt, articles, research reports, white papers and online at http://www.kerton.com.
