Netbook Scoop

At Netbook Scoop, we’ve been spending some time contemplating what the future holds for netbooks.  We thought we’d share our thoughts with you.

A Quick History of Netbooks

You can’t divine the future without an understanding of where have been and where you are.  So let’s  do a quick recap on netbook history.

Asus Eee PC 700-Series Netbook

While the inspiration for netbooks can be traced to the One Laptop Per Child (OLPC) initiative, the first commercial netbook was the Asus Eee PC 700-series.  With a 7-inch display, underpowered Celeron M processor, 2-4 GB solid state drive, a tiny keyboard and a price around $300, it was an instant hit when it was first shipped in early 2008.

All of the early netbooks had Linux operating systems.  When it became obvious that netbooks were going to be hugely popular, Microsoft responded by announcing a special licensing program of Windows XP for Ultra-Low Cost PCs (April 2008).  To qualify for this special XP license, Microsoft placed restrictions on the hardware.  Over time, Microsoft has expanded the list of qualifying hardware.

Around mid-year 2008, netbooks with Intel Atom processors were introduced.  These netbooks were much more powerful, ran cooler and required less power.  Intel also placed restrictions on the hardware in which Atom processors could be used.

Why do Microsoft and Intel restrict netbook hardware?  Profits, of course.  Microsoft is rumored to be making only $15 per netbook XP license.  Intel makes a lot less profit from Atom processors and chipsets compared to full laptop CPUs.

Today’s Netbook Market

Our short history lesson explains why almost every netbook has the same basic configuration: Intel Atom N270/280 processor, Intel GMA 500/950 graphics, 160 GB hard drive, 1 GB RAM, etc.

Netbooks have been artificially constrained to these specs for over a year.  It is obvious to us that this situation can’t and won’t last much longer.

But before we start exploring the future, we need to observe a few other realities in the current situation.

The initial wave of netbooks that were so hugely successful were made by Asus, Acer and MSI.  The big laptop OEMs begrudgingly added netbooks to their portfolios to protect market share, while compaining loudly that profit margins were too small in netbooks.

With everyone jumping into the netbook fray during an economic downturn, we also have a glut of inventory in the market that netbook makers are working to burn off.

Many attempts have been made over the past year to move the price point up without success.  The bottom of the netbook price range has actually dropped from around $300 to around $275.   Buyers seem willing to pay up to $400 for quality and/or special features.  But anything over $450 was passed over by most consumers.

One other note, over the past year, Microsoft successfully beat off the Linux threat and once again has full control of the PC operating system market.

Other Market Forces

Before moving to our predictions, we need to recognize a few other forces at work in the market that may have some influence on future events.

Most notably missing from the current netbook products are AMD and NVIDIA components.

AMD was caught flat-footed by the success of the Intel Atom product line and spent much effort bashing netbooks (they clearly did not - and maybe still don’t - understand netbooks). Here is a video example of AMD’s take on netbooks:

AMD’s attempt to join the party with their NEO processor has been largely unsuccessful.

NVIDIA has wanted to play but has been frozen out by Intel’s forceful bundling of the CPU and GPU.  Recently, Samsung and Lenovo were rumored to have lost their discount on Atom processors because they offered netbooks containing NVIDIA graphics chips.   (We think there is an antitrust pot of gold awaiting NVIDIA down the road).  In an effort to find traction, NVIDIA has developed a CPU/GPU combination named Tegra, based on an ARM processor design, that will offer improved video performance compared to the Intel Atom.

Google decided that they wanted to play in the smartphone business and introduced the Android operating system (based on Linux).  A group of netbook users quickly had the new OS running on an Eee PC.  Several netbook makers have hinted at plans to introduce netbooks based on Android.

Google Chrome OS Logo

Google has since announced that they are working on a new netbook operating system named Chrome OS.

Wireless carriers have begun carrying netbooks pre-configured with 3G chips offered at low-prices to customers purchasing a cellular data service contract.  These large powerhouses are accustomed to deep hardware discounts with exclusive rights and/or private branding of the hardware they sell.  Those terms are unacceptable to their new laptop OEM partners who are accustomed to being in the driver’s seat.  The arrangement creates rather strange and uneasy bedfellows.

A new group of producs dubbed “smartbooks” have appeared at recent trade shows and press releases.  Smartbooks are basically scaled-up smartphones/PDAs (built on smartphone processors and operating systems).  While a number of different form factors have been demonstrated (screens from 5″ to 10″, touchscreens vs. keyboards, etc.) there are several consistent themes:  price points significantly below netbooks,  smooth HD video (720p or better) playback, all-day battery life and built-in broadband cellular support.

One last note about the current market situation, Steve Jobs is back to work at Apple.  His primary focus is said to be the new Tablet PC that Apple is preparing to introduce.

Our Predictions

So, where does this all lead?

Windows 7 Logo

Microsoft will introduce Windows 7 in October.  They will offer a netbook version that will be somewhat crippled and that Microsoft will exert pressure on users to purchase an upgrade.

We also expect that even the netbook or Starter Edition will be more expensive than XP, adding about $25 to the cost of a netbook.

Based on what we have seen of Windows 7, we believe it will be a big hit and Microsoft will be able to retire XP in short order.

Intel’s next-generation Atom processors (project named Pine Trail) will see their way into the market around the first of the year.  The advantage they offer is integration of the graphics processor (GPU) into the CPU, which will yield improved video performance while drawing less power.  We think it is a no-brainer that the new Intel Atom processors will be successful.

Desperate to differentiate their products, netbook manufacturers will finally break the current netbook mold.  Starting in the fourth quarter and really exploding in 2010, we will see a plethora of new netbooks and ultralight laptops in the $300 - $700 price range.  So much so that the line between what is a netbook and what is a laptop will become completely blurred.

While the PC makers are totally engrossed in trying to profit and protect marketshare in the netbook space, smartbooks will surprise them by creating a whole new market niche in the $200 - $400 range.

Smartbooks will arrive in a wide variety of sizes and flavors.  We expect the most popular to be smaller tablet-style (think iPhone on steroids), but we also expect versions with keyboards that resemble current laptops.  Both will run some flavor of Linux operating system (Android, Chrome OS, Moblin, etc.).

Smartbooks will be marketed in two channels.  Wireless carrier like AT&T, Verizon and Sprint will drop their current netbooks and offer private-labeled smartbooks at prices just above smartphones. Here is a promotional video from Qualcomm (a longtime player in the cellular device market).

Other smartbooks will find their way to retailers.  The mini-laptop style will be sold in direct competition with netbooks.  The tablet style will offer an interesting alternative.

Final Prediction - Apple Wins

Our final prediction is that Apple’s much-rumored tablet will be a smartbook.  We predict that this new product (iPad?) will follow in the footsteps of iPod and iPhone and take the market by storm.

That is what our crystal ball says.

Right or wrong, we think this should be fun to watch!

We are almost sure that we won’t be 100% right.  You must have some ideas of your own.  Drop us a comment below and tell us what you see as the future for netbooks.