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


This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

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