Will netbook ubiquity hurt or help major PC vendors? 31 May, 2009 By Liam Lahey

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And that recognition carries power at the retail level. So it's fair to say a behemoth vendor like HP will undoubtedly be successful in the mini-notebook space but at what cost?

First, consider the question of product mix going to a lower margin mix, suggested Warren Shiau, senior associate and lead analyst, IT research, The Strategic Counsel. At one time, DVD machines used to be a source of profitability for manufacturers, he reminds us.

"DVD players; now you can buy them at Canadian Tire or on the street corner. They come from manufacturers you've never heard of. It's massive volume, cheap price, you buy it anywhere," he said. "HP is a very strong consumer brand, as is Dell. They may have come into the market later but they've got the (retail) shelf space. They have advantages that'll help them lead the market . . . but it's hard to make money when the product becomes the true mass market consumer good."

For traditional PC vendors then, the question becomes how to manage the shift towards lower-margin products.

Darren Leroux, product manager, commercial notebooks, HP Canada, said when HP first introduced its commercial line of netbooks in February 2008 -- the HP 2133 Mini Note -- it was on the premise of penetrating the commercial space. In December 2008, HP entered the consumer mini-notebook space and he admitted the vendor was slightly behind other competitors in doing so.

"But those vendors at that time weren't necessarily as well-known . . . since then it's gotten incredibly crowded in this market and there are some clear leaders of which we have our fair share," he said. "I wouldn't say we're the de facto leader in (the commercial space) at this time but it's not a market we're ignoring, that's for sure."

Leroux acknowledged HP's brand is a powerful launch pad for any new product but on the subject of netbooks, he said of greater importance in today's economic climate is price.

"We find we run into some very difficult decisions regarding price points," he told eChannelLine. "It drives overall average unit prices down and from a manufacturer's perspective it's not something you necessarily want to see. But we recognize it's a segment that's growing and it's a place we have to play in."

Michelle Warren, principal analyst, MW Research & Consulting, said HP has a couple of market challenges to face. For starters, HP isn't the incumbent in the consumer space. Acer and ASUS are and both of those companies continue to produce mini-PCs which garner accolades.

"As a result, HP, Dell and Lenovo have to prove themselves -- have to start from behind and work their way up to the top; which they have been doing," she said. "Compared to the more traditional notebook space, the purchase decision differs for netbooks. Purchasers (consumer and SMBs -- mainly small businesses) ask questions such as 'how much does it weigh?' 'what colours do you have available?' and 'how big is the keyboard?' Speeds and feeds are significant, but there is also an assumption that the netbook will be fast and efficient -- the excitement comes in the form factor and in how it is used."

Speaking of Lenovo, it too is forging ahead with its mini-notebook strategy. Jay McBain, the former director of North American channel sales for Lenovo was promoted to director, small and medium business for the Americas last January. He said Lenovo is diversifying its product portfolio while pushing channel reform.

"We've been extremely strong on notebooks and desktops in Canada, specifically in the large enterprise space . . . when you look at small and medium businesses . . . we have about six per cent share," he said. "Years ago, (SMB) wasn't a key focus as it wasn't our legacy . . . netbooks have become a very fast growing part of our business. It's one of the sub-segments during this economic downturn that has grown exponentially for us. Most of the (netbook) volume was consumer group . . . now we're starting to see SMBs figuring out ways to use them.

"For the first time we're seeing this concept of pervasive computing . . . our netbook sales so far have all been incremental. We haven't heard of customers that decided to not do a roll out of $800 ThinkPads and instead do a roll out of $300 netbooks; we haven't had that yet."

On the subject of pricing, Shiau said though netbooks are reasonably priced at the moment, he expects them to drop further in due time.

"True mass market volume; in order to get that . . . it's foreseeable in the next few years you'll be able to get a netbook that's similarly configured to a netbook today that costs $400 for $100 and then you're talking real volume," he said.

From there, it'll become a retail-buy, he added.

"That's exactly what it is; when it hit the $300 price point, that was consumer electronics," McBain remarked. "The reason netbooks took off as fast as they did have little to do with technology and more to do with price . . . it's the customer psychology of $300: if it's under $300 you can usually convince your spouse it's a good buy."

HP's Leroux said HP tries to maintain price consistency for the sake of the channel. "I eat more of my own margin on products like that which is fine for the reseller," he said. "It also means there's a certain threshold (we'll) hit with (our) price points before it becomes unappealing for (us) to go any lower."

If the price tag is boosted too high -- over $500 for example -- then it enters the realm of notebooks and not netbooks, added Warren. "The delicate balance vendors face is midsized businesses want more bells and whistles."

Leroux said one way HP would ensure profitability is by way of diversifying its mini-notebook product line to serve all corners of the market.

"We're focusing in on our innovation in terms of the design of the product and the quality of the build of our product . . . as we evolve, you're going to see more cross-pollination where consumer-type minis will come under the commercial product line and the mid-ranged to higher-end minis will go under the consumer line," he explained. "It's a very sustainable model as long as you keep the prices in line and it's a reasonable step up for the price . . . it's challenging and the market is crowded . . . eventually it'll plateau and you'll separate the wheat from the chaff."

A software designer won't be attracted to mini-PCs at all, but for standard office activity -- email, word processing, spreadsheets, presentations and Internet surfing -- they are great, Warren said. "Especially in the marketing departments -- as they look classy (the 'wow' factor) when used for presentations," she said, adding small businesses like the price tag and the simplicity of use."

Shiau said netbooks will require better performance and power to penetrate the SMB marketplace beyond the degree they have already.

"The general picture would be they need more power before they would be a general use business machine, one that might replace a traditional laptop," he said. "If you're talking a few years from now, God knows how much performance they can squeeze into those machines. Right now, they're sufficient for light use."

In terms of the overall market, Shiau says the market remains the wild frontier, but true ubiquity of mini-notebooks will have a greater impact on some vendors more than others.

"I don't think a single market leader can be identified. It's still wide-open . . . everyone has fairly significant sales," Shiau added. "For traditional PC vendors it may be more of a challenge . . . because it's going to hurt their margins more if the mix moves more towards netbooks versus PCs or laptops, for an HP or a Dell, it'll hit their numbers more than an Asus."

HP recently expanded its' HP Mini line with three new models, the HP Mini 110 XP Edition and the HP Mini 110 Mobile Internet Edition were designed for Internet-centric consumers, while the HP Mini 1101 is a companion PC for SMBs and business travelers, the company said.

And Lenovo unveiled the IdeaPad S12, the company's first 12-inch netbook, featuring a 12.1-inch screen, a full-size keyboard and the Intel Atom processor with Intel integrated graphics or the Intel Atom processor with Nvidia Ion graphics.