We’re in the throes of one of those major discontinuities that occur in technology evolution periodically. Actually there are two occurring concurrent and affecting one another. Entrenched suppliers hate such events because they are forced to develop new business models for producing revenue. One discontinuity happened with the announcement of the iPhone, which heralded the age of the mobile Internet. The second, precipitated by a genuine desire to bridge the digital divide between the first and third worlds, markedly drove down the cost of computing and heralded two new classes of computing device: the netbook and the smartbook.
The two computing devices are entirely different creatures. The netbook is the product of the traditional PC business, caught unawares when a social experiment got terribly out of hand: an experiment to create a low-cost product for the third world and somehow prevent it from being purchased by the first world. The smartbook is the result of the social networking explosion on the web spurred on by the iPhone creating a web application epidemic.
The netbook came out of the “One Laptop Per Child” initiative that Nicholas Negroponte, started while head of the MIT Media Lab. The program was a noble, well-meaning effort to provide a computer to every child in the third world: roughly a half a billion for an unachievable price of $100 each. That meant open source software and the lowest cost silicon—Linux instead of Microsoft, AMD instead of Intel. The nonprofit organization Negroponte formed, One Laptop per Child, to distribute the PC, shipped its first product the XO-1 at twice the target price: $199. Quanta Computer Inc. based in Tao Yuan Shien, Taiwan manufactured the unit with production stumbling along in fits and starts beginning in November 2007.
Quanta also announced plan to build a version of the laptop for the commercial market, something Asus International also had in mind with its Eee PC, which Asus showcased in two versions at Computex in June 2007. (Negroponte’s hardware and software reference design was well known and easily duplicated using an Intel CPU instead of the AMD unit.) The Asus offering initially contained a Celeron M mobile processor. Asus has since shifted to the Atom CPU, which is the main engine in nearly every netbook currently on the market as is Windows Vista—Microsoft couldn’t be shut out of a major class of portable computing platform. (Search “netbook” on net retailer’s tigerdirect.com and every unit displayed will feature Intel Atom and Windows Vista.)
The price tag on the Eee PC when it shipped in September 2007 ran $349—nearly twice the price of an XO-1 but still pretty inexpensive for a web browsing PC. Needless to say, Asus had plenty of orders to fill when production began. A rush of competitors hurriedly jumped on the bandwagon and the rest is history. The low-cost PC intended for the third world had jumped into the first.
Meanwhile, Intel shut out of the OLPC project in a disagreement with the organization set about building a comparable unit called the Classmate PC. In August this year, CTL Corp. of Portland, OR introduced its 2Go version of the Intel design priced at $399. The design is sold under other brands worldwide. Intel wanted the hearts and minds of the next generation of computer users. Building brand awareness and familiarity in school ensures loyal customers later in life.
As to which has come out the winner, the OLPC organization estimates around 750,000 XO laptops installed worldwide through March this year. Intel says it has shipped 700,000 Classmate PC’s in 2008 alone and predicts it will sell over two million Classmate PCs in 2009. Capitalism triumphs over socialism but at a cost. Negroponte’s social experiment had the consequence of lowering computing cost for both the first and third. The average selling price for netbooks today is around $350, according to Taipei-based tech publication, Digitimes. The ASP for a notebook at the start of this year had been pushed down to around $795 according to Port Washington, NY-based market research firm NPD. And the lower priced netbooks are eating into notebook sales.
Figures from market research firm DisplaySearch shows netbooks represent 22 percent of the portable computer shipments the second quarter this year, up from 6 percent in the second quarter of last year. One reason for the popularity of netbooks could be the economy; consumers are opting for the lower priced computer while corporate buyers prefer to hold off replacing laptops until a better economic climate arrives. By then Intel and Microsoft and PC hardware OEMs can return to business as usual. Right? Not if Cambridge UK-based, ARM Ltd and Sunnyvale, CA-based Google and their allies have their way.
The advent of the low-cost netbook almost coincided with the arrival of the iPhone in June 2007 and the birth of the web browsing smart phone. The proliferation of web applications that followed the iPhone introduction cried out for a platform with a larger multi-touch, touch-screen display and keyboard. Enter the smartbook, which is an ARM-based smart phone in a PC enclosure. It runs Linux, Android, or eventually Chrome not a Microsoft OS—all but Win CE having not been ported to the ARM processor. However, the version now being showed doesn’t pose much of a threat. The platform that will challenge the Intel-Microsoft dominion is the +1 GHz-ARM-9 Cortex running the Google Chrome operating system expected out mid-2010.
Smart phone users wanting the web-friendly experience they have come to expect will now find it on a smartbook: instant on, day-long battery life, multi-touch touch-screen display, immediate access to social networking sites like YouTube, MySpace, Facebook, Linkedin, SMS, and a full up Qwerty keyboard all with a price tag much lower than a netbook. To be fair, network service providers will subsidize that lower price. And the subsidy will apply to netbooks and smartbooks, but the user experience will favor the latter over the former. The remaining questions are will the netbook close the user experience gap by the time the killer ARM-Google platform rolls out and will the ARM-Google solution deliver a compelling enough reason to switch.
Regardless of the outcome of the struggle between the Intel-Microsoft and ARM-Google camps, the bottom line is that hardware prices will be reduced. Scottsdale, AZ-based market research firm, In-Stat has suggested that pressure from some of the ARM chip vendors may push Intel to further lower prices on some of their computing devices in the future. That reduction will come from fiercely competitive market share battles in the growth regions of China, India, and South America—where price is a major concern. It will also come from competition for buyers in the U.S. and Asia Pacific. The high-tech world is changing quarter to quarter and the netbook-smartbook evolution is accelerating the process.
