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Portables Businesses Hardware

The Future of Subnotebook Pricing 145

Corpuscavernosa recommends a story from InternetNews about the development of the subnotebook market. The author notes the beginnings of a trend toward selling the devices bundled with certain services rather than as standalone products. He notes two examples; a free Asus Eee PC with a broadband package, and another for opening a bank account. Quoting: "Soon, the market will be overwhelmed by what I like to call 'mini me too' laptops -- commodity Asus clones that will drive margins for all players toward zero. There will be no real money to be made in direct sales of cheap mini-notebooks to consumers. I'm predicting that the successful pricing model for 'mini me too' laptops will look nothing like the notebook pricing model (where you always pay full price for the hardware), and a lot like the cell phone pricing model where you buy a service, and the hardware is heavily subsidized or given away free."
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The Future of Subnotebook Pricing

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  • Cell Phones (Score:4, Insightful)

    by mixmatch ( 957776 ) on Saturday June 07, 2008 @10:18AM (#23693137) Homepage
    People still buy unlocked phones don't they? Last time I checked, some of those suckers have pretty hefty price tags!
  • by saterdaies ( 842986 ) on Saturday June 07, 2008 @10:29AM (#23693219)
    In any truly competitive market (like the market for bulk, wholesale USDA Grade A Wheat where there is no product differentiation and lots of buyers and lots of sellers), sellers make zero economic profit. Economic profit is the profit above the profit you could make in another industry - so, if you build a computer business with 100,000 and get a 20,000 profit and that 100,000 would only have gotten you a 5,000 profit in the pizza business, that 15,000 difference is the economic profit).

    Over the long-term, companies don't play in markets that don't have zero economic profit or better - because they have better options to put their time and money into.

    Now, these mini notebooks aren't going to be a truly competitive market because, like standard laptops, there is significant product differentiation. People do have a certain amount of brand loyalty, they want different features (20GB vs 16GB, Windows vs GNU/Linux, screen size, subjective thoughts about aesthetics and the like). This is very similar to the laptops most people use today - they're vastly the same, but have little tweaks to them that cause consumers to favor one over another.

    If these mini notebooks achieve the same level of product differentiation as current laptops, margins should be similar. In fact, if the mini notebooks are sold with service, that offers the chance for more differentiation. I mean, when people buy mobile phones, they usually choose their carrier first (usually). That means that the margins for the device can be higher because the different service is adding another level of differentiation.
  • by Creepy Crawler ( 680178 ) on Saturday June 07, 2008 @10:29AM (#23693221)
    I dont think so. Cell phones have something on computers: they have a service that can go away if you dont pay the monthly fee.

    Computers one buys from a store does not. Microsoft and a few other companies have played around with "software as a service", but the smart ones snubbed it. Instead, it'll stay Linux and get cheaper and cheaper.
  • Stupid argument. (Score:2, Insightful)

    by Vellmont ( 569020 ) on Saturday June 07, 2008 @10:38AM (#23693267) Homepage
    The comparison to cell phones is rather poor. A cell phone is almost totally worthless without the service attached to it (and vice versa). The implication is the two are linked together, where the provider benefits by reducing a high barrier to entry (initial high cost).

    A portable computer is tied to no such service. It's useful without any internet service in particular, and there's thousands of FREE places around the world to get free Wi-Fi internet. So tell me again why this bundled business model is going to take over?

    If you want to make a comparison, compare it to banks giving away free junk, like a toaster. Hardly anyone that wants a toaster goes to open up the bank account just to get the toaster. I don't see why the ultra-mobile laptop is any different.
  • by maxume ( 22995 ) on Saturday June 07, 2008 @10:48AM (#23693341)
    Amazon's Kindle is basically exactly the opposite of the argument being made in the article. The service is rolled into the purchase price of the device.
  • by SandyBrownBPK ( 1031640 ) <sanfordbrown@earthlink.net> on Saturday June 07, 2008 @11:12AM (#23693459)
    I kinda like the "free with" concept, except... a PC, even a mini, is still a LOT more complicated than, say, a toaster! And something like THAT is what is really needed for people who just want to browse the Internet and do e-mail! As a retired former software support engineer, it is painfully apparent that a Windows PC or even a MAC requires more tech savvy than your average consumer is ever going to possess! (Consider managing the backup process, for example.)
  • by Cerebus ( 10185 ) on Saturday June 07, 2008 @11:16AM (#23693485) Homepage
    Consider a mini notebook with only 3G or WiMax. Now you're tethered to the service.
  • by SunTzuWarmaster ( 930093 ) on Saturday June 07, 2008 @11:53AM (#23693735) Homepage
    You are correct. Economics not a science because it is not correct all of the time. Real sceinces like physics (black holes, wormholes, ultra-small interactions, anti-matter), chemistry (bonding theory, atomic model), biology (the issue of the appendix, 'natural' supplements, numerous other things they have been wrong about), microbiology (advancement of certain fungi, spread of disease, availability of microbiologies in harsh environments), and geoscience (plate tectonics, changing weather patterns, ice ages, global warming) are correct 100% of the time and do not change their theories.

    Do you honestly believe that because we switch dominant economic theories every "few decades" that it is less of a science? I mean, we flip-flop on issues like anti-matter every few years for physics.

    Of course, I'm replying to an anonymous coward, so I get no mod points and no one ever reads my refutation. *Sigh*
  • Re:Cell Phones (Score:5, Insightful)

    by nurb432 ( 527695 ) on Saturday June 07, 2008 @11:55AM (#23693755) Homepage Journal
    That was my thought too.

    Going the route of the cell phone means there will be few 'unencumbered' laptops floating around and they will all be tied to some service, which will limit what you can and cant do with them.
  • Low end minis (Score:3, Insightful)

    by nurb432 ( 527695 ) on Saturday June 07, 2008 @11:56AM (#23693773) Homepage Journal
    I think they are of value to some techies, and with a lot of non techies they are even overkill.

    Ever lug around a heavy laptop all day on service calls? Id have loved to have some of these things back then..
  • by wilder_card ( 774631 ) on Saturday June 07, 2008 @12:07PM (#23693835)
    WRONG^H^H^H^H^H Permit me to respectfully disagree. Walton did two things with Wal-Mart: He differentiated his product with superior selection and service at reduced prices, and he developed a more efficient enterprise. By the way, IT was critical to doing both at the same time.

    Now that's classic economic theory. The reason an economist didn't do it? Translating theory into practice is a whole 'nother ball game.

  • by FooAtWFU ( 699187 ) on Saturday June 07, 2008 @12:20PM (#23693905) Homepage

    There are no billionaire economists - but they know it all, don't they?

    Most of the big billionare money (the new money, not the stuff you inherit, at least) is in organizing people to actually get stuff done, making big deals with other companies (and, for that matter, convincing people to put you in charge and pay you money if you're not there already). Anyone can learn how business works. It's another thing to actually pull it off. That's people-skills.

    I'm sure there's nerds who could tell you all about, oh, say, the physics of football, the biological processes that occur, the strategy, the statistics. That doesn't mean they could survive a tackle.

  • by Anonymous Coward on Saturday June 07, 2008 @01:00PM (#23694161)

    Economics not a science because it is not correct all of the time.
    No, economics is not a "hard" science because, like psychology, its theories are based on unquantifiable parameters.

    For example:

    if you build a computer business with 100,000 and get a 20,000 profit and that 100,000 would only have gotten you a 5,000 profit in the pizza business, that 15,000 difference is the economic profit
    "would only have gotten you a 5,000 profit" looks suspiciously like a number, but in reality, it's made up. It's an astrological prediction based on guesswork and extrapolation.

    In a real science, when your prediction is different than the outcome, you have to fix your theory. In economics, when your prediction is different than the outcome, you can probably just revise your parameters, post hoc, and save the theory.
  • by Fantastic Lad ( 198284 ) on Saturday June 07, 2008 @01:17PM (#23694255)
    Sorry. Let me tell you about a hard and fast rule of reality:

    The things which I think are cool, either die early or succeed only in limited niche markets with other don't-quite-fit people like myself.

    Stuff which I find lame and un-appealing, (like iPods, cellphones, Facebook and instant messaging, for instance), go gangbusters and change the shape of reality as we know it.

    I think the eee PC is super-cool, therefore it is doomed to be an awesome device which will enjoy a respected but mediocre public presence at best. --And I can see the pattern emerging already; a massive squirrely investment panic by all the big companies based on early excitement for a market model people are already backing off from. Read the engadget comments under the UMPC's sometime. People are already bitching about the various decisions made by Asus and the new designs put forth. That must-have magic is already kaput, the market force now running on the steam from geeks like myself and that's it. Sure, they've sold a million or so units already. But there are a million or so geeks in the world. I said 'niche'. I didn't say non-existent.

    The only way UMPC's will take over on the kind of level the big players are all terrified of missing out on is if the average girlfriend can't live without one. --And they're Oh-So-Almost, what with their lids which beg for stickers and funky colors. Sadly though, Hello Kitty, and Power Puff Girls, and Sailor Moon are old hat and there's nothing new driving sticker sales at the moment. And girlfriends, pardon the sexist broad-stroke generalization, aren't practically minded when it comes to tech gear. They want to talk and squeal and giggle over dramatic fluff with their friends and they want to have what their friends have and they want fashion statements. The UMPC come SOOO close, but sorry. Mini PC's which take half a minute to boot up, and need to be fiddled with and need to be sat down with and don't fit neatly into a purse aren't cool. They're lame. Sitting down and focusing is for when you're at home after work or school, and you already have a PC for that.

    The eee PC came close, with their pink 700's, but they've moved in a direction which pleases people like me; better screens, better keyboards, better functionality, etc. I am very happy about this. But take-over the world appeal? Neh.

    Now if there was an animated TV series sensation featuring empowered teen-age girls in cute outfits and dippy soap-operatic themes which sported hundreds of brilliant stickers which desperately needed to be affixed to a shiny mini laptop lid, then perhaps AT&T would have a chance to get their evil claws in. But until then, nope. Cell phones do it better, faster, longer, cuter and easier. And you don't have to wait thirty seconds for them to boot up. (Though, hopefully before the other shoe drops and the UMPC market is abandoned, somebody will have worked out the 'instant-on' thing.) --But I do find it wonderfully amusing to see all the big manufacturer's lose money because of catastrophic mis-readings of the market. Frankly, that's the only real way for me to get the device that I want at the price I want; for big companies to mis-read things. Seriously, this is enormously fun to watch, and by the end of it all, I'll have a cool little writing tool with a decent battery life and internet access for maybe $350.

    Of course, I could be wrong. It's Mercury Retrograde month, so I probably am, and in directions I can only guess at now even as I reach to click the 'submit' button. . .


  • by jonbryce ( 703250 ) on Saturday June 07, 2008 @01:25PM (#23694315) Homepage
    Because it's not really free.

    You can get 3G internet for £15/month if you take the modem on its own. Taking the "free" laptop alongwith it pushes the cost up to £35/month, and you are tied into a two year contract. In other words, the "free" laptop costs £240. You can get it for £220 elsewhere.
  • by Vellmont ( 569020 ) on Saturday June 07, 2008 @01:28PM (#23694339) Homepage

    Honestly, how long do you think the open nature of personal computers is going to last?

    Forever. How long do you think the open nature of lumber is going to continue?

    The only reason personal computers have become as popular as the are is because of the open nature of them. Take that away, and the gravy train is over. Honestly, any market moves towards being MORE open and less proprietary as time goes on. 30 years ago you couldn't buy a non-AT&T approved phone and attach it to your phone line. People got tired of that, and AT&T eventually lost that battle. Do you think we'd ever go back to that kind of policy?

    People have already tried those lock-in models with computers and internet. They didn't work. They're even less likely to work as computers become less and less expensive. 20 years ago lots of network providers tried to close off computer networks into proprietary ones (Compuserve, Q-Link, Prodigy, AOL). Those all failed to an open model. Trying to create a proprietary solution when an open one already exists is going to be near impossible.
  • by Anonymous Coward on Saturday June 07, 2008 @02:03PM (#23694555)

    There are no billionaire economists - but they know it all, don't they? And yet, an uneducated man from Arkansas became one on the richest men in the World from making zero economic profit: Sam Walton founder of Walmart.
    Physicists know it all too, yet it's poorly educated jocks that make millions hitting a baseball. What you point out is the difference between creating a model, and actually doing things.
    As for Wal-mart, they are close to 0 economic profit, given they have a net margin of 3.3% while Federal bonds are ~3%
  • by gad_zuki! ( 70830 ) on Saturday June 07, 2008 @02:14PM (#23694615)
    The problem with this analogy is that you only need x amount of processor power to run a calculator. Im sure I could get a free laptop that ran Windows 95 fairly quickly but couldnt run Vista at all. Laptops are forever a moving target. The scales of economy keep up, but not to the point where they will be commodity give-aways at conventions.

    If someone really wanted to build something that ran, say Puppy Linux, fairly well with a small screen then it seems pretty doable if someone was willing to gamble to put such a thing in mass production. The amount of people who want or need a portable Puppy Linux machine probably isnt very high.

    The OLPC people are also banking on this, but with the assumption that the demands of the market are not important when dealing with socialized top-down educational programs. Although lately the education administrators from the countries they market their product to are demanding XP thus killing the "we can sell a low-powered machine with a custom OS" assumption.
  • Re:Cell Phones (Score:5, Insightful)

    by cayenne8 ( 626475 ) on Saturday June 07, 2008 @02:59PM (#23694975) Homepage Journal
    "People still buy unlocked phones don't they? Last time I checked, some of those suckers have pretty hefty price tags!"

    Not in the US they don't...most people in the US have no idea what a 'locked' phone means. They just accept it as normal that you sign up for 1-2 years, and each time you do that...you get a free, or cheap (price wise) phone.

    If you tried to sell my US citizens a unsubsidized phone at what they really cost....they'd be flabbergasted...and then ask why the hell you'd want to do that?

  • by Kent Recal ( 714863 ) on Sunday June 08, 2008 @06:25AM (#23699301)
    3G doesn't need to "convince" anyone, it's just the first step towards "internet everywhere".
    Imagine just opening your device anywhere and "being on" without further research into free Wi-Fi or hotspots. That's where we are heading, internet is becoming a commodity like radio or TV. 3G is most certainly not the end of the story but an important step towards bringing the infrastructure into place and providing gapless service, at least in urban areas, for a start.

    Landlines at home will eventually die out just like phyiscal phone lines are dying out today. Offices, bigger institutions and power users will still have them but joe average will just use the "air service", paid through a flat fee to his provider of choice.

    Consequently I can very well imagine providers starting to subsidize laptops and PCs just like they do with cell phones today. Most people really don't care about hardware specs, they just want to buy (or rent) "a computer" or "a laptop" to use google, e-mail and ebay and maybe write the occassional letter. Even today hardware has already become so advanced that the deciding factor for buying a computer is not CPU speed, RAM size or other performance metrics anymore. The deciding factors are screen size, "style" (see Apple) and battery lifetime. Now compare that to any contract-phone advertisement that you have seen recently? The similarities are not a coincidence.

Never buy from a rich salesman. -- Goldenstern