Netbooks Damaging The Tech Economy? Say What?!?
from the a-little-tech-economic-history,-please dept
Well, here's an odd one. Apparently, an analyst at NPD Group, Stephen Baker, is worried that the rising popularity of netbooks is bad for the tech economy. He's claiming:"History tells us that when we offer lower-priced products, it tends to drive down the average selling price across the board. The net result is to drive down revenue overall, even if there are more units out there."I'm curious which tech history books he's reading, because that seems to go against pretty much every history of technology evolution I've ever seen. If you've watched the tech industry over the past few decades, things always get cheaper. It's the whole Moore's Law thing at work -- and every time things get cheaper, it allows for more to happen, making products more valuable to more people, and tends to expand, not contract, the wider overall market. Yes, the average selling price decreases, but that's a tautology. Of course if you decrease price, average selling price goes down. That's not analysis, that's saying 2 = 2. But to then say it means overall revenue goes down isn't necessarily true -- and in many tech sectors isn't true at all. In the end, providing a good product, at a reasonable price that many, many people want, is never "damaging" to the economy. It may shift things around, but it always opens up new opportunities.
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don't want to drive down profits......no no.
I hope they don't pay this guy too much, he's wasting their money.
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You should be fair to Baker. His argument wasn't that decreasing price for a single product causes average selling price to go down for that product, it was that selling prices would go down across the board, including desktops and laptops.
In the original article you can clearly see the context of his quote was in reference to fast laptops: "In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks."
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Well, in that case, he is just wrong. High-end laptops don't compete with netbooks. Someone looking for a high-powered laptop won't even glance at a netbook as a possibility. Only the "value" laptop (previously aroung $500) will see a significant price drop. And even those give you something substantial for the price difference: a larger, higher-resolution, more vibrant display.
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welcome to the industry. the bathroom is down the hall and on the left.
the price of computer hardware is constantly falling, netbooks are just the current indicator. in the past it was cheap desktops, server appliances, shared web hosting, or $500 laptops.
when you consider that in the 50's a computer was tens of millions of dollars, the race to the bottom becomes apparent.
my netbook, an EEE 700, purchased last christmas for $350, is less than half the machine that you can get this year for the same price. in another two years, a $250 netbook will have more power than my current gaming rig.
the internet was invented essentially because it was cheaper to connect research computers together than it was to buy them for the research teams that needed them:
http://www.amazon.com/Where-Wizards-Stay-Up-Late/dp/0684832674
now the cellphone that you got for free from your carrier has more power and functionality than was available to NASA during the apollo program and with nice desktops hovering around the $500 mark, the idea of multiple people sharing time on a single system seems barbaric.
it seems that about every 5 years, some new thing shakes up the hardware market and people talk about the end of the industry as we know it. in a sense they are right.
i remember when the sub $1000 desktop was a big deal in the mid 90's, right around the time that consumer access to the internet became commercially viable.
the price of a desktop fell below $500 a few years later when ISPs started subsidizing the price with service contracts. coincidentally, this is when dial-up internet access fell bleow $20 a month and DSL made AOL pretty much irrelevant.
in 1999, e-machines made the infamous "E-one" which was a computer built into the monitor for $399 when subsidized by the ISP.
http://lowendmac.com/imac/eone.shtml
http://en.wikipedia.org/wiki/EOne
the only difference between now and a decade ago is that that ISPs are no longer subsidizing the cost of the PC and netbooks offer a much smaller form factor than previous low end notebooks and desktops.
the $500 laptop was a reality around 2002 which is when they started being a fixture in every classroom.
that's the way the hardware industry works, as the sale price falls you have to sell more and more units. this is why blade servers were so popular a couple of years ago (double the servers in half the space!!1!) and why "teh cloud" is such a big deal this year.
with evdo, 3g, and the prospect of wimax or ubiquitous wifi, i think the Next Big Thing will be the tiny laptop as a replacement for a smart phone, and/or the super smartphone as a replacement for a laptop.
the redfly mobile companion is not yet ready for prime time, in my opinion, but it's a signal of what's to come in mobile computing:
http://www.celiocorp.com
imagine a device like that for the iphone. there would be little need for a macbook.
i would also put the safebook in this category as a device that's ahead of it's time:
http://www.devonit.com/products/products_Safebook.php
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It's About Margins
On the software side, it's really hurting Microsoft's profits. The hardware is so cheap that the cost of a Windows licence is becoming the single most expensive item on the bill of materials. This is why you see so many netbook vendors offering Linux as an alternative, either as cheaper models with the same spec, or as higher-specced models at the same price.
Microsoft's current resource-hungry Windows Vista OS is totally unsuited to running on these low-power machines. So it's been forced to keep its elderly Windows XP version hanging around, to offer at a cutthroat price. The upcoming Windows 7 version will apparently run OK on netbooks, but that doesn't solve the problem of the price that Microsoft will be forced to offer it at: does it let netbook vendors bundle full-function Windows 7 at a cut-down price, and run the risk of buyers of more expensive hardware wonder why they're suffering price discrimination? Or does it produce a cut-down version of 7 to justify the lower price, and end up making the Linux option look more attractive?
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Re: It's About Margins
the PC hardware market for traditional desktops and traditional laptops is about as big as it's going to get.
how do you convince people to buy an extra laptop or desktop when they already have budgeted (money, space, and in some cases, power and cooling) for a desktop and/or a laptop?
one option is to make models that cost less and use fewer resources (space, power, etc.) and are engineered for specific uses (set top box, portable email/surfing).
intel knows this and so does microsoft. that's why vista included [unsuccessfully] so many media features, like the media extender for the xbox 360 and why they made windows FLP to compete with linux and piracy in the third world:
http://en.wikipedia.org/wiki/Windows_Fundamentals_for_Legacy_PCs
does it let netbook vendors bundle full-function Windows 7 at a cut-down price, and run the risk of buyers of more expensive hardware wonder why they're suffering price discrimination? Or does it produce a cut-down version of 7 to justify the lower price, and end up making the Linux option look more attractive?
for all of it's failings, vista represents microsoft's concern with security and stability, which are two of the biggest reasons people switch to linux or mac OS.
microsoft looked at the competition and tried to respond. it failed miserably, but at least it responded. a great many american companies could learn something from microsoft.
an example of where microsoft has succeeded in addressing these same concerns are on the server side, with the windows server 2008 core install. the core install is dedicated to a single function and has almost no gui. this is said to take up less disk and memory, to be more stable and secure, and to require less maintenance.
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some merit
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Re: some merit
i don't think that many corporations will be deploying netbooks since the typical road warrior has a very specific idea in mind of what a laptop is and should be.
now, the idea of a netbook as a supplement to a desktop might have some value to corporate users, especially if it can add low cost mobility to people who do things that require high end desktops (engineers, graphic artists, etc.) rather than trying to solve both problems with a high-end laptop.
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Finally facing the truth
I bought a netbook this month that is the same spec as my 4 year old Dell notebook (which by the way is still absolutely fit for the purpose I got it for), but half the size. It fits on a fold down seatback tray table easily, (& in my small backpack) and has superb battery life. The netbook has XP which is fine (why would it not be, my job requirements have not changed).
Finally they are going to have to start investing in things that users need, rather than just pushing new technology at us because they can.
(I also recently got a new cell phone that is JUST a cellphone, not a camera - what a refreshing change that makes !)
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I'm not seeing it
The other thing is that the economy is in the toilet right now. Tech sales would be decreasing anyway. Selling netbooks at a lower price than laptops is a GOOD thing, because it means that manufacturers can meet a lower price point without having to cut prices on their laptops too much. Would a manufacturer prefer to sell a netbook at $350-$400 or a full-featured laptop at that same price?
In the original article you can clearly see the context of his quote was in reference to fast laptops: "In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks."
That's a bullshit statement. If you're a laptop maker you don't lower your laptop prices to compete better with netbooks. You make a netbook of your own to compete with everyone elses netbook, and almost all laptop manufacturers are already doing that already. This actually insulates you from having to lower full-fledged laptop prices, because you now have a lower cost product to compete with everyone else.
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Re: I'm not seeing it
But we've seen this point discussed on this site before. Some economic trends can be bad for individual sectors of the economy, but can be good for the economy as a whole.
Stephen Baker believes that offering the best product at the best price is a bad thing.
He needs to remember that in his business two things are constant. Change and competition. He may be at the point where he wants both to stop so he can just cash his checks.
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Netbooks are taking off because they offer a cheap piece of hardware that's light and small. That means that makers of "traditional" laptops and desktop need to come up with something compelling to justify the extra expense, weight and lower battery life.
If the tech industry starts shrinking as a result of netbooks, it just means that people aren't convinced they need the bigger hardware. Historically, the increase in tech power has been driven by new consumer needs or compelling breakthroughs. With the PC games market shrinking and the power-hungry Vista being a complete flop, many people simply don't need the more expensive hardware to do what they want to do.
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econ 101
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ok so netbooks are cheaper but in his statement he is assuming that netbooks are a good alternative to notebooks.
IE instead of buying notebooks that are more performant and can handle tasks netbooks cant ppl will stick to netbooks and forget the rest.
but that is not what will happen, ppl that a laptop with high graphics capabilities aren't interested with netbooks (granted those cut in the Market share of the higher performance Laptop but not that much).
In fact as always lower priced items will allow ppl who cant afford or not willing to pay for Notebooks to get a netbook.
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hmmm
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Backwards Tech
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Apple?
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This Computer
2X Quad Core Intel Xenon @ 3.0 GHz
3 GB RAM @ 2.99 GHz
NVIDIA Quadro FX 1700
Dual 21 inch monitors
yada yada yada
Point is that this machine will likely be replaced within 3 years and I'd guess it costs 3 - 5 grand and will save my company A LOT of money in the long term by allowing me to work that would be impossible without a high end machine, like 3D CAD, FEA, CFD, and so on. We buy lots of these guys and will continue to do so forever and computer manufacturers will continue to charge us lots and lots of money for them. Companies will provide lots of revenue for computer manufacturers.
Personal computers might be another story, but would you buy a netbook to game? No, you buy a high end desktop not unlike my work computer. You let a kid have a netbook or laptop? no, you give them a cheap laptop or better yet a shared family desktop.
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Re: This Computer
Or, you buy a netbook and an XBox 360 or a Wii. Doesn't help your PC manufacturer, does it?
"You let a kid have a netbook or laptop? no, you give them a cheap laptop"
You might want to proofread a little as that makes no sense...
Anyway, you're missing the point, as a lot of people whose livelihood depends on having an up-to-date machine do (who do you think will care about your desktop specs anyway?). 90% of the general population, especially those who don't use such a machine for work, don't think like that. they look at price, and want light, portable machines.
The issue here isn't whether netbooks are going to take away the demand for high-end workstations. Of course they're not! The demand for that type of technology is still going to be there, but how much of the "traditional" tech market is people buying machines to write letters and surf the net compared to gamers, CAD artists, etc.?
I'd be willing to bet that the clueless parent who used to buy the more expensive machine makes up the larger segment. The question is what happens when those people stop buying the $599 laptops in favour of netbooks. Up until netbooks came along, "desktop replacement" laptops were the fastest-growing domestic PC market. Think about that...
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Netbooks =
- more wireless data connections and service sales
- bigger investment in 3G and 4G technology
- increased use of cloud computing due to the limited horsepower, but high portability of netbooks
- increased competition between linux and MSFT
- New runtime environments competing with Windows, like Splashtop, and Phoenix Technologies HyperSpace
- Portable computers more and more affordable, getting into the hands of less affluent people in developed countries.
- Netbooks, continuing the trend, will soon be cheaper than Negroponte's OLPC computers. Netbooks may bring the world's poor online.
- Many wealthy people will buy this as an adjunct to their existing PC or laptop, for mobility, or "for the kids" or for the family room.
Overall, this will open up a new category, get more laptops in the hands of more people, make data more mobile, drive cloud computing, and further ingrain technology into the lives of people. Not sure how this harms the overall industry!
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Odd. I would suggest this might say more about your reading comprehension skills than my writing style. I have never written a single post asking for free music or pirated software -- that's because I don't want either.
This post, in particular, has to do with netbooks. I'm not sure why you would bring up the issue of piracy on it.
But, my point (as I *thought* was clear, but apparently only to those who read) is to talk from the perspective of the content creators. It's got nothing to do with encouraging piracy. It's got everything to do with teaching content creators how to take advantage of new distribution and promotional means.
How that comes off as petulant over not being able to get free stuff... I really can't say.
Though, I really am curious... what possibly gives you that idea?
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$100 price point coming.
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Netbooks being bad
Charlie said "we are making this chip at 9 cents, and it sells for 5 cents, but we will make it up on volume!".
Wall Street was aghast, and panned what turned out to be one of the most successful chips (in profits as well as volume) in the history of the industry.
If you don't know where your mouth should be, it is easy to get your foot in it.
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Prices
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