Elgan: Why netbooks will soon cost $99

By Mike Elgan

October 31, 2008 (Computerworld) Subnotebooks like the Asus Eee PC, the Dell Mini 9 and the HP 2133 Mini-Note will soon cost as little as $99. The catch? You'll need to commit to a two-year mobile broadband contract. The low cost will come courtesy of a subsidy identical to the one you already get with your cell phone.

The Wall Street Journal reported yesterday that HP is already talking to carriers about such an arrangement but didn't say which carriers. And you can bet that if HP is talking to carriers, so are the likes of Dell and Asus.

It's likely that HP is talking to AT&T, which has already inked a deal with Lenovo and Ericsson to sell full-size ThinkPads at a $150 discount if customers sign up for a two-year contract. That discount brings the price of a ThinkPad with Ericsson built-in mobile broadband modules down to essentially the same price as one without that capability.

The ThinkPads in question are not netbooks. But the deal shows in concrete terms what a mobile broadband contract is worth to the industry: $150. If you were to apply that figure against the total price of the cheapest netbooks today -- which are about $300 -- you can assume that under existing circumstances, a subsidized netbook would cost you out of pocket about $150.

AT&T also announced a major strategic shift a couple of weeks ago that should result in AT&T stores selling nonphone gadgets that can take advantage of mobile broadband, including netbooks. In other words, the cell phone sales model, where hardware is steeply discounted to encourage wireless contract commitments, is going to be applied by AT&T to devices that are not cell phones.

While AT&T leads the U.S. market in pushing for subsidized notebook deals and also at least talking about mobile broadband netbooks that may be sold like cell phones, the carrier's competitors have their own special incentive to get on the subsidized netbook bandwagon.

AT&T holds a monopoly on Apple iPhone sales in the U.S. According to comScore, low income and cheapskate buyers are starting to use iPhones as replacements or substitutes for netbook, notebook and even desktop PCs. The report says iPhone sales for this purpose are "the strongest part of the iPhone's growth since July."

What that tells me is that a very large number of people are increasingly looking to buy a single device -- or, at least, subscribe to a single wireless account -- for all their computing and communications needs, and at the lowest possible price.

One way other carriers can compete with AT&T for these contracts is to offer very low-cost netbooks outfitted with VoIP capability or, more likely, cell phone/netbook combo deals where for, say, $200 you get a cell phone, an Asus Eee PC and a wireless contract that covers both devices.

The idea of subsidizing laptops and netbooks isn't new. Such subsidies are common outside the U.S. In Taiwan, you can buy an Asus Eee PC for $29 with a two-year contract from carrier Far EasTone. And in the U.K., free laptops have been used for more than a year as an enticement to sign up for mobile broadband contracts.

The U.S. has long resisted this model. But I think this is about to change because of seven recent trends:

The economy will squeeze carriers. Budgets are tight. Credit has dried up. Layoffs are already happening. The economy is shrinking. Naturally, consumers will start looking for ways to reduce costs. One of the most accessible areas to cut is cell phone bills. Millions

1. of people will downgrade their wireless plans over the next year, which will squeeze carriers and panic them into hunting for revenue alternatives.
2. Cell phone sales are crashing. IDC reported this week that cell 0phone handset sales have fallen because of the economy. For carriers, that means fewer upgrades to costlier plans and fewer new customers walking in the door.
3. Notebook sales are rising. For the first time in the history of the PC industry, notebook sales have officially exceeded desktop PC sales. IDC reports that notebook sales accounted for a whopping 55.2% of all PC sales in the quarter that ended in September. And the fastest-growing segment of notebooks is netbooks.
4. The netbook market is overcrowded. A year ago, it was all about the Asus Eee PC. Because of its initial and surprising success, everyone has jumped into the market in the past year. Lenovo, Dell and HP already have products in the market. Fujitsu, Packard Bell, LG, Toshiba, Samsung, Sharp and others will add their offerings soon. With margins already very thin and vendors looking for ways to differentiate, you can bet that companies will become very cooperative in working with carriers to make subsidized deals a reality.
5. The "subnotebook" has been reconceptualized as a "netbook." Notice how the word "subnotebook" has been dumped in favor of "netbook"? It's not just semantics. The industry wants to tie tiny laptops to mobile broadband in the minds of buyers.
6. Mobile broadband is disappointing. Apple iPhone users who upgraded from the old-and-busted iPhone to the new hotness iPhone 3G have expressed disappointment in the 3G experience. The same is true for mobile broadband users of all kinds. As the reality dawns that 3G is nice, but not as nice as people hoped, subsidized netbooks will sweeten the proposition.
7. Moore's Law. The price of mini electronics, including the price of screens, processors and, most importantly, solid-state flash storage will keep coming down. And as those prices drop, the cost for carriers to subsidize these devices drops as well.

The age of the subsidized netbook is almost upon us. The next major milestone -- and the one that will bring customers in by the millions -- is to get netbooks down to the magic $99 price point. All the stars are aligned. All that remains to be done is for netbook makers and carriers to embrace the inevitable.

Mike Elgan writes about technology and global tech culture. He blogs about the technology needs, desires and successes of mobile warriors in his Computerworld blog, The World Is My Office. Contact Mike at mike.elgan@elgan.com or his blog, The Raw Feed.

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