The shape of the coming netbook revolution

Tomorrow's portables won't just be smaller, lighter, and cheaper; they could also carve out a whole new niche in computing

The netbook you know today gives just a taste of what's to come.

Cheap, portable, and packed with features that cater to Net-savvy consumers, netbooks are the darlings of today's computer buyers. While overall PC sales have slumped in the current recession, demand for netbooks is actually growing. In a recent ChangeWave Research survey, only 12 percent of respondents said they were planning to buy a new computer in the next three months, but among those who were, nearly one in four were considering netbooks.

Worldwide, that demand could add up to big numbers. According to Qualcomm CEO Paul Jacobs, the global market for netbooks could be "substantially larger" than the current notebook market. Some analysts predict that as many as 18 million netbooks will ship this year alone.

[ What netbooks should your business consider? The InfoWorld Test Center uncovers the best netbooks for business. ]

For hardware makers, however, the netbook success story has been bittersweet. Whatever else netbooks bring to the table, the category's strongest selling point has been its low cost. Where once speed was everything, today's recession-rattled customers are willing to trade the power of full-fledged PCs for rock-bottom pricing. That's troubling news for some vendors. Some analysts worry that manufacturers have trapped themselves in a race to the bottom, with netbook sales cannibalizing sales of their traditional, higher-margin notebook offerings.

But fear not. If low cost is what customers want, low cost they shall have -- and if all goes according to plan, those sales won't come at the expense of traditional notebooks. Major vendors have begun experimenting with new chips and technologies that could soon push netbook price points to $250 and below. When this new generation of netbook hardware arrives, it will bring with it new software, new UIs, and new form factors that will challenge the idea of netbooks as mere cheapo notebook replacements.

Netbooks: Getting past today's crippled notebooks
Other than cost, there has been little to distinguish the current generation of netbooks from earlier portables. Netbooks have small screens and keyboards, and they typically lack optical drives, but otherwise they resemble most laptops. And while most manufacturers offer some form of Linux pre-installed on their netbooks, it's mainly a marketing strategy: According to Microsoft, fully 96 percent of netbooks actually sold ship with Windows.

But users who approach netbooks as they would any other laptop are likely to be disappointed. Netbooks' tiny screens and cramped keyboards can be fatiguing to use for long periods, and their low-power processors struggle under heavy workloads. Business users will be dismayed by their lack of security features, such as fingerprint readers and drive encryption. And with their closed hardware designs and limited drive space, most models have short upgrade lifecycle.

Flush with their initial successes, however, manufacturers have responded to these complaints with variations on the original theme. Asus, arguably the creator of the netbook category, now lists no fewer than 14 models of its Eee PC portables on its Web site, including some with 10-inch screens and nearly full-size keyboards. Both Asus and Acer plan to ship netbooks with 11.6-inch screens in the near future. But as netbooks' capabilities have inched closer to those of traditional laptops, so too have their prices. Some models list for $700 or more, leaving many customers wondering where the netbook category ends and where laptops begin.

Apple, which so far has stayed out of the netbook market, thinks the distinction is clear. "It's a stretch to call [a netbook] a personal computer," Apple COO Tim Cook said at a recent earnings conference, citing low build quality, inadequate software, and poor usability.

But in the Windows world, few PC manufacturers seem to share Apple's pessimism. On the contrary, there is every indication that the battle for the low end is only just beginning. As the netbook market heats up, the pressure is on to drive prices even lower.

New processors could boost netbooks -- and lead to new devices
So far, the big winner in the netbook stakes has been Intel, whose low-voltage Atom processor now powers most netbook models. Rival microprocessor vendors, such as Via, have enjoyed only limited success. But as the netbook market matures, other chipmakers are expected to piggyback on Intel's good fortune. For example, Nvidia's Ion platform combines an Atom processor with Nvidia's GeForce 9400M GPU, a combination that Nvidia claims offers better performance than Intel's own integrated graphics.

Perhaps the most anticipated development, however, is the impending release of new netbooks based on ARM processors. ARM is a low-cost, low-voltage chip design that has enjoyed widespread use in consumer electronics devices such as MP3 players, PDAs, and mobile phones. If ARM chips can be adapted to deliver adequate performance for mainstream computing tasks, some analysts believe they could drive the cost of netbooks down to $250 and below.

The advent of ARM is also expected to bring new devices that offer similar capabilities to current netbooks, but in very different form factors. Qualcomm, for example, is working an ARM-based chip platform called SnapDragon, which it says is intended for ultramobile PCs and "pocketable" Internet devices -- form factors where the current Atom chips could prove too power-hungry. But Intel isn't resting on its laurels, either. It's readying a new generation of the Atom called the Intel Z Series, intended for palmtop Internet tablets, rather than laptop-style netbooks.

So far, demand for such devices has been limited. Early examples, including Nokia's Internet tablet line, have seen only modest uptake. But Apple's successes with the iPhone and iPod Touch show there could be promise in this category, especially if cheap chips and increased competition drive prices down to more affordable levels.

The next-gen netbooks won't run Windows
The move to ARM-based netbooks has implications beyond cost and performance, however. It also means a new OS. Unlike the Atom chip, ARM is not a member of the x86 family, which means it can't run Windows. The closest it gets is Windows CE, which itself offers a markedly different user experience from the desktop Windows to which users are accustomed.

The obvious alternative is Linux. And while Microsoft partner Novell says it has no plans to port its SLED desktop Linux distribution to the ARM platform, other distributions are more than willing to fill the gap. Xandros, which provides the OS for Linux models of Asus's Eee PCs, has already ported its product to ARM, and the Ubuntu Netbook Remix, which has gained a loyal following among users of current-generation netbooks, is reportedly in the process of doing the same.

Despite Apple's protestations about crippled netbooks, rumors continue to fly around the Internet about Apple developing its own netbook or tablet based on the iPhone OS used in the iPod Touch device.

The dark horse in this race, however, is Google, with its Java and Linux-based Android platform. So far, Android has enjoyed much hype but relatively little deployment, appearing in only a couple of smartphone models from T-Mobile. But analysts and some netbook vendors believe Android could be a good pairing for the next generation of netbooks, combining a streamlined UI with a low footprint that could help to keep costs down. Asus and HP are both reportedly testing netbook designs based on the platform, while the first Android-based netbook is expected to arrive this summer, priced at around $250.

Linux is no stranger to the world of consumer electronics, but releasing a general computing device based on the platform is an obvious gamble. Linux has long struggled to gain a foothold on the desktop, and there's little evidence to suggest that it will become a serious competitor to Windows in the near future. Many vendors will doubtless prefer to stick to Atom-based devices, latching onto Microsoft's netbook-friendly version of Windows 7 when it becomes available.

But the emergence of ARM-based netbooks running Linux is indicative of a subtle shift in messaging on the part of netbook vendors. Expect to see increased emphasis on netbooks as secondary machines or "companion devices," designed to be paired with a more traditional, full-featured notebook or PC, rather than standing on their own. In this way, vendors hope to limit netbooks' encroachment on notebook territory, instead selling them as a kind of peripheral for mobile information access. A Linux-based UI may not cut it for day-to-day business computing, but for limited Web access, file viewing, and communications it should be more than adequate for most users.

"Free" netbooks sold in cell phone-like plans could appeal to business
In keeping with the theme of netbooks as Internet-enabled communications devices, vendors have begun experimenting with new pricing models that could turn the PC market on its head. Because data communications requires data connectivity, netbook manufacturers and mobile data carriers have been exploring partnerships that could see the consumer cost of netbooks effectively drop to zero. The carriers would subsidize all or much of the netbooks' cost through monthly connectivity charges, as they do with cell phones. With netbook prices approaching the $200 range, it's easy to envision them doing the same for this new class of devices.

These kinds of subsidies are sure to broaden the appeal of netbooks among students and low-income customers, for whom cost is a major concern. But it could also make them more attractive to business customers, who may prefer to buy netbooks under a subscription-based sales model that requires no up-front capital expenditures. And by emphasizing netbooks as cheap, secondary mobile computing devices, managed in partnership with a mobile carrier, manufacturers may be hoping to win sales over the objections of enterprise IT departments, who may be reluctant to provide first-line support for what they perceive to be low-quality hardware.

The leader in this area is AT&T, which already offers subsidized Acer netbooks through RadioShack stores for $99 with the purchase of a two-year service contract. More recently it has announced plans to offer similar deals for Dell and LG netbooks, and it has begun testing even lower price points. Verizon is expected to follow suit.

The mobile computing market reborn
One thing is certain: With the advent of netbooks, the mobile computing market will never be the same. Where once customers paid a premium for ultralight laptops, manufacturers have now shown that it's possible to build a PC that is compact, lightweight, and powerful enough for casual use, all at a price point that's but a fraction of what the cheapest notebook cost just a few years ago.

There will always be demand in the market for premium notebook hardware. Apple's cheapest MacBook sells for $999, yet Apple's reputation for high quality ensures that it will continue to gain loyal customers for years to come. For many applications -- at home and in business -- many people will accept nothing less than this level of quality.

But some people have already demonstrated that they're more than willing to trade build quality, performance, and even ease-of-use if it will save them money. Still others can probably get by with a device that offers even less power than today's netbooks, as long as it offers more capabilities than the current generation of smartphones.

In the near term, expect netbook manufacturers to cater to both these markets. Low-powered, ARM-based notebooks will fill a need for devices that can perform basic Web surfing, e-mail, and document-editing tasks where a full, Windows-based PC is not necessary. Those customers who are still cost-conscious but require a more traditional experience, on the other hand, will be able to choose from netbooks based on Intel's Atom processors, running Windows XP or Windows 7.

Outside these categories, new form factors -- including "pocketable" Internet tablets based on Qualcomm's SnapDragon or Intel's Z-Series chips -- are poised to blaze new territory. Falling somewhere in between today's netbooks and smartphones, these devices could carve a new niche in mobile computing. Given this wealth of new options, for cost-conscious computer users on the go, the road ahead has never looked better.


Copyright © 2009 IDG Communications, Inc.