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BW Businessworld

Going Small

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In all his professional life so far, Hari Sekhar was used to upgrading his office laptop frequently. "My aim was always to get the most powerful computer available," he says. And yet three months ago, when he joined the Seattle firm UST Global as director, he opted for an HP Mini, a netbook with a 10.1-inch screen and a price tag of just over $400 (about Rs 19,000).

Sekhar keeps his netbook inside the sleeve of his leather-bound diary, and uses it for all his work. "It is as easy as taking out a pocket calculator," he says. Like many others around the world, Sekhar had found out he could accomplish more by using a smaller computer.

The netbook made its appearance at the end of 2007 as a small, drab-looking device that was good enough for only browsing. In less than two years, it has transformed into a stylish gadget that can perform various tasks. It is also driving the development of new chips, designs, software, devices and business models. It is forcing the consumer to turn away from the practice of buying the most expensive computer with the fastest chip running the bulkiest software imaginable.

In short, the netbook is making everybody think hard, including those who have little to do with the product. For instance, chipmakers are developing small and energy-efficient processors, computer manufacturers are designing stylish devices, and software companies are developing laconic software. The netbook is making even smartphone companies come up with complementary products. "We have not seen so many changes in this industry for the past 20 years," says Jeff Chu, marketing manager for mobile computing at the UK-based semiconductor company ARM.

The netbook world is now teeming with companies unheard of in the PC world. Semiconductor companies such as Texas Instruments, Freescale Semiconductor and Nvidia use cores from ARM and design chips for netbooks. New firms such as California-based Always Innovating and Taiwanese companies such as Pegatron, Wistron, Inventec and Foxconn are also using these chips and launching netbooks.

Click To View Enlarged ImageThese new products are yet to blaze a trail. In fact, few people have even heard about them. "They are experimental systems still," says Angela McIntyre, research director at Gartner Technology and Service Provider Research Group. We do not yet know whether these netbooks will be compatible with the current PC world. They could very well fade away in the next few years, but not before making the established players think deeply about their products and function. They could also wrest market share from the established players.

Splitting Up The Monolith
While it impacts everybody, the netbook is undergoing a generational shift. Says ABI Research senior analyst Jeff Orr: "The transition from the general purpose netbooks to the specific netbooks will occur in the fourth quarter of this year." Specific netbooks are being made now for children, for education and for making music, apart from for doing normal personal computing tasks.

This customisation, along with the arrival of new players and channels, is expanding and triggering a burst of innovation. "I found the netbook lacking in innovation," says Gregoire Gentil, a Silicon Valley entrepreneur, who has set up Always Innovating to design a new kind of netbook, a tablet with a detachable keyboard, using processors from Texas Instruments.

The netbook is splitting up the PC as a device, from a monolithic all-purpose gadget to a series of devices suited for specific tasks. Not only do we have desktops and notebooks of different kinds, we also have netbooks, nettops (small desktops), mobile internet devices and smartbooks. From now onwards, few consumers may be tempted to buy powerful computers for basic computing — an aspect of consumer behaviour that had driven up profit margins for the large companies. Says ABI's Orr: "The market is no longer driven by performance. It is value that matters now."

In the future, the netbook could expand and become more powerful, all the time acquiring more capabilities. It could be subsumed by the ultrathin laptop, a new category that is being fuelled by the netbook's success. It could become one of the many computing devices that we use every day, each doing a specific part of computing. It could also stay where it is, and yet become the primary computing device, from front end to the cloud. Or, over time, the term ‘netbook' would go away all together, as "there will be a continual price point and form factors in the market place; all with reasonable PC performance," says Dirk Meyer, president and CEO, AMD. Anyhow, this could be as fascinating a journey to watch as it would be to
participate in.

Many In Mini
Several users find the netbook surprisingly comfortable and easy to use. Take Heather Howland, student-mom-writer-editor, living in Eugene, Oregon. Like Sekhar, Howland had grown wary of using heavy laptops even at home. She had seen netbook advertisements and heard about its utility from a friend. An Asus netbook transformed her working life beyond her imagination. "Just this week, I convinced two other writers to ditch their failing laptops and pick up netbooks," says Howland.

Howland found typing on her netbook was not difficult — she worked all day — and the battery lasted a long time too. She could comfortably watch online videos of university lectures — she studies psychology at Oregon State University. Microsoft Office ran on the machine without slowing it down. The netbook looked elegant and slim, booted up and connected to the internet quickly, and fitted easily in her bag.

Accidental Pie
PC companies did not imagine customers such as Howland when they developed the netbook. The first netbook, Asus Eee PC, had a seven-inch screen and a Linux-based operating system. It used some innovative technology, but nobody imagined it to be good enough for mainstream jobs. Consumers began to buy the device in droves, and soon every firm had to have a product for this category. Those who were not in this business had to invent something quickly.

Large IT companies generally do not like to make cheap products. As you pare down a product and make it cheap, down goes the profit margins of all those who contribute to the product. It is worse than that. Once consumers know that a lot can be done cheaply, they won't be tempted to spend big money on similar devices. "We expect the netbook to be a companion device serving an incremental need," says Brian Pitstick, general manager for ultramobile devices at Dell. But the big players began to pack some real punch into this puny device, in spite of a processor that was designed for low energy consumption and not high performance.

Do a quick survey of small portable computers in the market, and you would see a continuum where netbooks merge seamlessly into the emerging category of ultrathin laptops, and then into the thin and light laptops. PC makers, however, have a definition for netbooks. "A netbook is primarily for the consumption of content, and not the creation of content," says Carol Hess-Nickels, director of notebook marketing at HP. Yet, it had become versatile enough for the creation of simple content at least.

People now buy the netbook for various reasons. For Santosh Singh, a student in Delhi University, the price and the small size was a winner. "I do not have space in my room to keep a desktop. This fits into my cupboard easily." Singh could not afford a regular laptop, but the netbook is popular even with those who can.

Mehul Shah, a developer in the Silicon Valley firm Kosmix, uses four laptops at home and a desktop in the office, apart from another three for his wife and brother. He has two netbooks, one of which remains in the car all the time and the other at home. "It has become very useful when we travel," he says. Instead of pay-per-movie service in the hotel room, he now streams movies on his netbook.

With something in it for everybody (no other laptop category can boast of this fact), it was no wonder that the netbook's market took off. Gartner estimates that 25 million netbooks will be sold this year, and 49 million in 2011, by which time it would constitute 20 per cent of the notebook market globally.

Other market research companies have more aggressive numbers for the netbook. ABI Research says that netbooks will sell 35 million units this year, and 139 million in 2013 (see : ‘Fast Booting'). Says Brian Farmer, consumer product marketing manager of Lenovo: "The netbook audience is part of the internet generation." And the internet generation is all pervasive. There are netbooks with software not found in regular laptops. Dell, for example, sells a netbook with GPS (that can connect to location-specific websites) or high definition television tuner, and a third one for children with special software installed. Sometime in the near future, observers believe, netbooks could become your reading device as well.


In fact, some are becoming so specialised that you may no longer call them netbooks. Apple's netbook-sized tablet PC, under development now, reportedly will have a magazine and newspaper reader and a subscription service to boot. Microsoft's Courier, another netbook-sized device that folds like a diary, could also be reader, and many other things, because it is supposed to be based on E-ink technology.

The Lilliputians
As the laptop increasingly takes over the function of the desktop, the netbook could do the same to the laptop. There are signs that this is already happening, particularly in the consumer and the small business segment. A survey in 10 countries conducted by the San Jose-based marketing consultants Techaisle found that the netbook is gaining in popularity among small businesses. It found that the majority of netbook purchases in the future are likely to come from companies with between 20 and 99 employees. Says Techaisle managing director Anurag Agrawal: "The netbook is going to do well for another year and a half, but after that they may be squeezed by the ultrathin laptops."

The ultrathin laptop, a small and light laptop with full power, was first conceived by chipmaker AMD. "Our surveys have shown people really care about entertainment in a PC," says Bob Grim, director of AMD product marketing group. AMD shunned the netbook, and made processor platform Neo for ultrathin laptops, at prices and sizes slightly above that of the netbook. Intel soon developed the consumer ultra-low voltage (CULV) processor platform to compete with Neo. Though several manufacturers are getting ready to launch ultrathin notebooks running Windows 7, the netbook is preparing to hit back, with new graphics processors such as the Ion Platform of Nvidia.

For a good part of Intel's four-decade existence, driving PC performance was its main strategy. With the arrival of the netbook, a new line of thought emerged at its Santa Clara headquarters: optimise the chip for size, energy consumption and price. The result, the Atom processor, also accelerated a strategy for its chips to penetrate as many new devices as possible. These devices needed to connect to the PC world. "Having an x86 chip inside makes a device easy to connect to the PC," says Anil Nanduri, director of netbook marketing at Intel.

Many big IT firms, consumers and other businesses see an advantage in continuing the established way of computing, which causes minimum disruption to work, makes sure everything work seamlessly. Over the years, it has also built an ecosystem that is too valuable to discard. But as PCs and other devices started converging, companies that made chips for other devices — smart phones in particular — started looking inwards into the PC world. The netbook started as a watered-down laptop. But if the internet is at the centre of the PC world, and connectivity is the critical function of your device, you could look at it as an expanded smartphone as well. This argument led to a different kind of netbook, currently at odds with the PC world, but in perfect sync with the world of the smartphone.

NEW FRIEND: Initially meant only for surfing the Web, the netbook is now evolving into an efficient multitasker (Sony)The great attributes of a smartphone are its permanent connectivity and long battery life. So when the smartphone world made a netbook, it tried to make a device that is always on like a phone — or at least comes alive in seconds — and with all-day battery charge. This suggested an alternative technology approach: ARM cores and a Linux operating system.

ARM chips consume less power than the Atom processor. Linux-based operating systems have a lower footprint than Windows, and boot and shut down relatively quickly. The combination of the two can work wonders subject to certain conditions: performance was not compromised too much, consumers did not find them strange, and they worked well with established devices. None of these conditions are easy to satisfy.

Many companies behind the alternative netbook are upstarts compared to Intel and Microsoft; but they are backed by giants such as Texas Instruments, IBM, Freescale Semiconductor and Qualcomm. Their smartphone background is evident in their technology. "These chips are typically used in battery-operated devices," says Joe Abler, IBM's senior technical staff member. IBM is partnering with several large companies to develop low-power chips for netbooks and similar devices. And they are sure that the current PC ecosystem will become compatible with their technology. "At some point, the application will not care about the processor," says Ramesh Iyer, director of worldwide business development of mobile computing at Texas Instruments.

Source: ABI ResearchThe Open-Close Case
Linux-based operating systems have done well in servers, but have not challenged Windows in desktops and laptops yet. But for the netbook, argue some companies, connectivity and not breadth of applications is the important aspect. "We are at an inflection point with respect to open source software," says Guy Lunardi, director of client-preloads at Novell. Interestingly, Intel backs the open source world, and Microsoft is reportedly working with ARM to make Windows available on ARM-based notebooks (the company neither confirmed nor denied it).

Linux and ARM chips could together lower netbook prices significantly. But the share of Linux-based netbooks has decreased in the past year; major US retailers no longer sell Linux-based netbooks. Many expect Windows 7, which went on sale on 22 October, to swing the pendulum either way. By being a lighter and superior operating system, it could increase the influence on Windows, or its additional cost could make people adopt Linux even more. "People say open source is going to dominate in the future," says Don Paterson, director of marketing at Microsoft Windows Business Group. "This is not automatic, even with Google supporting it."

Companies such as the New York-based Xandros make software that exploit the best of both worlds — open and proprietary. "You could enjoy the best of both," says Andreas Typaldos, CEO of Xandros. In future, users may not care either way. All they would be interested in is connectivity to the cloud. This could mean a PC can do with less processing power; and suddenly the limitations of the netbook disappear. Consumer choice is always hard to predict. Billion-dollar companies such as Google, IBM and Cisco are betting on a world driven by the cloud. This path ahead would be the most interesting for everybody.

p dot hari at abp dot in