Are netbooks the next big thing?

Posted Jan 26th 2009 3:15PM by Peter Cohan
Filed under: Microsoft (MSFT), Apple Inc (AAPL), Dell (DELL), Hewlett-Packard (HPQ)

Microsoft Corp. (NASDAQ: MSFT) blamed its crummy numbers on something you may never have heard of -- netbooks. Why should you care? Because netbooks -- $200 to $500 stripped down laptops designed for web surfing -- are growing faster than any market I know of -- 11 million were sold in 2008 and 22 million are likely to fly of the shelf in 2009.

Netbooks are making Microsoft's valuable Windows franchise vulnerable after two decades of dominance. That's because if Microsoft is used to selling Windows to a desktop or laptop maker for $300 or $400 a copy, it is not going to make much headway with a netbook maker who is selling the entire device for $300. The netbook phenomenon will force Microsoft to either come up with a much less expensive operating system or continue to see its Windows revenue -- which fell for the first time in history in the last quarter of 2008 -- shrink.

Who makes netbooks? The biggest beneficiary of the trend is Taiwan's Acer whose 55% sales growth pushed Apple Inc. (NASDAQ: AAPL) out of the number three spot in PC market share in the fourth quarter of 2008. Hewlett Packard (NASDAQ: HPQ) and Dell (NASDAQ: DELL) which are number 1 and 2 in the world are trying to catch up with their own netbooks.

Nothing like a little creative destruction in the PC business.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. Portfolio recently published his eighth book, You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

Tags: dell, hpq, inthenews, msft, netbppks, windows

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Reader Comments (Page 1 of 1)

1-26-2009 @ 4:00PM

tah said...

a couple comments:

1) i doubt any OEMs are paying $300-$400 per copy of Windows as that is more than retail cost (at least for the latest version - Windows Vista Home Professional). maybe what you meant is Microsoft is used to getting $300 for Windows and Office pre-install but even that sounds high for OEM pricing... esp since most OEMs offer Microsoft Works and not the Microsoft Office Suite.

2) i agree that pressures may force Microsoft to reduce whatever that charge may be to the OEM which in turn should be reflected at retail to the consumer

3) netbooks are typically not high end devices - if people feel Vista doesn't run well on high end laptops they really won't enjoy running on netbooks. the ones i have seen are ATOM processors with 512MB RAM up to 1GB RAM. that is the reason Windows XP is the flavor installed for the non-Linux netbooks.

personally i have a HP netbook i picked up from Costco a couple weeks ago. it has 1GB RAM and i am running Windows 7 on it - runs very well actually :) my workhorse primary laptop furnished by my employer is a HP (compaq) nc8430 with 4GB RAM. for non work related travel i like to take the netbook with me as it is small and light, has wifi built in, etc.