By STEVE LOHR
Published: February 13, 2011
Remember the Last Big Thing in computing? You’ll be forgiven for having forgotten it was the netbook — a small notebook computer with a slender price tag, about $300.
Harry Cabluck/Associated Press
Today, tablets are all the rage, including the iPad from Apple and a host of new entries starting to come from rivals like Dell, Hewlett-Packard, Research In Motion and Samsung. But less than two years ago, in 2009, netbooks were seen as the earth-shaking force in the industry, potentially changing the economics of the business and undermining the technology leaders, Intel and Microsoft.
Things didn’t work out that way. Netbook sales were meteoric in 2009, jumping eightfold in the United States, to 7.5 million devices, and tripling worldwide to 34 million. Yet the torrid growth stalled last year.
The extent of the changed fortunes for the product became truly evident recently, when year-end sales tallies were calculated. In the holiday season, for example, retail sales of netbook computers in America fell 38 percent from a year earlier, according to the market research firm NPD.
The netbook story, according to industry executives and analysts, offers real-world lessons in technology innovation, business strategy and marketing.
To some degree, the new thing — the iPad — supplanted the not-so-new thing — netbooks. Still, analysts say, the tablet effect is only part of the answer. Sales of netbooks, they note, were slowing even before the iPad went on sale in April. And the products themselves are hardly substitutes for each other; one is all no-frills efficiency, the other more an appealing luxury, priced at $500 and up.
Instead, it is more likely that makers of netbooks oversold a product that underperformed. In the United States, analysts say, early adopters of new technology helped propel the netbook surge, attracted by the new entrant’s feather-light weight and low cost. But early adopter buyers, analysts say, tend to be picky consumers. The netbooks they bought were underpowered PCs that performed sluggishly and could not handle many popular software applications.
“The seduction was ultraportable, inexpensive computing, but consumers found there were too many tradeoffs,” said A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company. “Ultimately, it just fell short.”
The vision of a very low cost, portable personal computer has been around for decades. But the impetus that prodded the development of today’s netbook computers came, as it does so often, from outside the established industry. In this case, it was a nonprofit, One Laptop Per Child, which in 2005 declared its intention to make $100 computers for children in poor countries, without using technology from the industry’s dominant chip and software suppliers, Intel and Microsoft. It was a stretch goal, and still is, with the rugged laptops for children costing about $200. But it was an appealing idea that attracted corporate support and a team of scientists, and spurred the industry to rethink its designs and pricing.
Intel and Microsoft first resisted the idea of such very inexpensive computing, for the obvious reason that it would potentially put a dent in their profits. But eventually, they embraced the concept, tailored for a broader commercial market. Intel deftly coined the term “netbook,” as a new category of “companion PCs” segregated from its more profitable notebook PC business.
Both Intel and Microsoft created lower-cost offerings — Intel’s stripped-down Atom processor, introduced in 2008, and Microsoft’s expanded menu of software versions at varying prices.
One result was a sharp drop in the price of notebook computers, also known as laptop computers. In 2005, notebooks on average cost roughly $1,000. Today, the average price is about $465 (that excludes Apple’s higher-priced notebooks, which account for about 5 percent of the market worldwide).
“We had an impact across the broader industry by helping drive prices way down,” said Mary Lou Jepsen, former chief technology officer of One Laptop Per Child. “We showed that innovation can come up from the bottom.”
For the most part, analysts say, netbooks enlarged the computer market rather than eating into sales of conventional notebooks. And the industry leaders, Intel and Microsoft, succeeded in adapting to the netbook challenge, assimilating it and containing it, preserving their lucrative profits.
The PC powers, said Bob O’Donnell, an analyst at IDC, were “deathly afraid of the cannibalization of the regular notebook market, but it really didn’t happen.”
While sales are slowing, the netbook business is far from dead. The market research firm IDC predicts that worldwide sales will fall in 2011 by about 7 percent, but that would still be 32.9 million netbooks. They account for roughly 10 percent of the total PC market.
But the engine of growth for netbooks, the technology enthusiasts, analysts say, disappeared. Ryan Champlin, vice president for operations at Cook Children’s Health Care System in Fort Worth, considered buying a netbook and tried out a few owned by colleagues. But Mr. Champlin, who has a conventional notebook and a smartphone, decided against the purchase, seeing it as an underpowered PC.
Six months ago, though, he did buy an iPad because, he says, it provides a different computing experience. “I turn on my iPad and my e-mail is just there, no waiting for a PC to boot up,” said Mr. Champlin, who uses the tablet for e-mail, Web browsing, watching movies and playing the popular game Angry Birds.
Netbooks continue to enjoy brisk sales in cost-conscious markets, including China and Latin America, and in sales to schools, which want an affordable way to equip students with computers.
Companies are pursuing new netbook technology and software support, and industry executives say those advances could reinvigorate the category. The AppUp online store from Intel, which offers software downloads for programs that run on Intel chips, last month added a netbook version of Angry Birds. Intel keeps improving its Atom chips for netbooks. The Fusion chip sets from Advanced Micro Devices, introduced in January, promise to bring sophisticated graphics-processing to the netbook market.
Indeed, A.M.D. executives say the time has come to bury the name “netbook.” “The marketing no longer needs to suggest ‘buyer beware,’ ” said John Taylor, director of product marketing at A.M.D.
In the future, Mr. Taylor says, most PC sales will be machines costing $200 to $500, notebooks of varied sizes and designs, that deliver impressive performance, low energy consumption and 10 hours or more of battery life.
Does that mean $1,000 notebooks become extinct? Not at all, Mr. Taylor replied. But the more costly machines, he said, will have to move to new horizons of computing. Artificial intelligence features like computers that understand speech, gestures and facial expressions, he said, may become part of everyday computing. You talk to your computer, or direct it with hand gestures, while making coffee in the morning, for example.
“You finally transform the user interface, among other things,” Mr. Taylor said.