Netbook Scoop

How ULPCs will disrupt the entire PC industry

Posted by Tom Greer on July 14, 2008 in Acer Netbooks, Asus Netbooks, MSI Netbooks, Netbook Market

The Ultra Low-cost PC (ULPC) craze started with the One Laptop Per Child (OLPC) and Asus Eee PC products.  These have forever revolutionized the low-end of the PC industry.  Over the next several years, the impact will reverberate all the way to the top of the food chain, shaking the allocation of power and influence along the way.

ULPC Wave 1

You don’t believe me?

Consider this, mighty Microsoft suddenly awoke this spring to the fact that millions of PCs were shipping without *their* operating system.  Those darling little Eee PCs and their friends were shipping with Linux.  Worse yet, customers were happy!  This forced Microsoft, in April, to extend the retirement of Windows XP exclusively for ULPC products.  See what I mean?

Not only that, but Microsoft was forced to revise the program in June to cover a wider range of hardware including touchscreens, larger displays and disk drives.  The program was expanded from mobile platforms (netbooks) to include desktops (nettops) as well.

Microsoft’s low-cost XP licensing program for ULPCs is not a long-term fix for the company.  It was like putting a band-aid on your skin cancer.  It keeps the public from viewing the wound, but it doesn’t make the problem go away.

ULPC Wave 2

Here is what happens next.

A group of Taiwanese electronics manufacturers will introduce the next wave of ULPC products.  Unlike the current batches of ULPCs that have a toyish appearance, these second generation ULPCs are polished.  Business travelers will fall in love with these and millions will be sold by the end of the year.

I’m talking about the MSI Wind, the Acer Aspire One and some new version of the Asus Eee PC.  (Asus is struggling to find the right package of features, but they will field a competitive version very soon.)

These second-generation ULPCs will sell for around $500.  They all will have 10 inch displays, keyboards big enough to support touch typing, 80 GB hard drives, speedier CPUs, plenty of RAM and batteries that last 4 hours or more.  There will be Windows XP and Linux versions for all of these.

As I discussed in my recent post, business travelers will be enamored with these because they are so small and light.  Most business travelers use their notebook computers primarily for email and attachments.  Many will also drive a presentation to a projector from their computer.  These new ULPCs are perfect for this.

Existing notebook computers will suddenly seem like luggables in comparison (they are at least double the weight).  As a result, the existing notebook computer industry will be shaken.  The existing players will all eventually respond with competitive products, but their business infrastructure is built around a different, higher-cost model.  They will be forced to adapt or die.  Some will, some won’t.

ULPC Waves 3+

Future waves of new ULPC models will move up the chain eventually encompassing high-end notebooks.  In addition, nettops will begin to fill the low-end desktop market.

Consider, for example, that MSI has already demoed a desktop version of the Wind.  For $300 or so, you get this tiny nettop appliance with:

• Windows XP
• 1GB RAM
• 160GB hard drive
• DVD drive
• Wi-Fi

These will probably be marketed to home users first.  But these will do everything that a typical business user needs.  It won’t be long before MSI or someone else markets a similar product to businesses.

Like Microsoft, Intel will attempt to limit the performance of nettops to prevent them from harming sales for the rest of its products.  But the effectiveness of this will be limited, because AMD will have no reason to play along.

While the low cost of netbooks and nettops will be appealing to businesses, the reduced energy requirements will be attractive too.  Imagine replacing a hundred or so old PCs in a call center with these Intel Atom-based systems.  Besides less power to run the PCs, imagine how much cooler the call center will be.

Intel and Microsoft Affected As Well

What I have described so far would only appear to impact PC manufacturers.  But the affect is much, much more profound than that.  These changes will significantly impact Intel and Microsoft. Here is how.

The fundamental change here is that many consumers and business are realizing that they don’t need the latest Intel CPUs or Microsoft OS to get the job done.

Increasingly, users will find that these new products have all the processing power they need.  They will be willing to abandon multiple core processors for less weight, less power consumption and longer battery life.  Oh yeah, and less cost.  Think about what that does to Intel’s business model.

But Intel has been dealing with Moore’s Law for years and will adapt.  Microsoft, however, has a much more serious problem and history of being much less adaptable.

With the new low-cost program for XP, the lion’s share of the new ULPCs will ship with Windows.  This will create the impression, in the short term, that Microsoft has beaten back the Linux monster.

But the new reality is that operating systems are now commodity products.  For most users who need to surf the ‘net, do email, edit an occasional document, spreadsheet or presentation, their work can be performed equally well using a Microsoft, Apple or Linux OS.

This means that over time, Microsoft will be forced into more rounds of price cutting.  At some point, Microsoft will need to restructure to lower their cost infrastructure.

Summary

The first wave of ULPCs (the EeePC and OLPC products) swept the world, the entire PC industry was impacted.  Like an underwater earthquake, those in the PC industry felt the ground shake at the time and took notice.  Now things are beginning to return to normal.  But be on the lookout, the ULPC tsunami containing netbooks and nettops is coming.