While smaller notebook price tags are great news for consumers, they are a big challenge for vendors and resellers alike. Several players in the market have now introduced models that break the $1000 barrier and the outbreak of a price war is a real possibility.
"The latest shakeup is seeing more and more vendors trying to push the price point down to match or beat each other," Gartner's principal hardware and systems group analyst, Andy Woo, said.
"Pricing has become a critical component of the overall strategy, but there needs to be more. How long can vendors maintain or reduce prices and still see a decent bottom line?"
While the consumer space is the biggest growth segment, according to industry analysts, the overall notebook space is bulging. With monster sales recorded in June, IDC's latest notebook numbers indicate whopping mobile sales.
So what gives? The sub-$1000 consumer notebook market, in particular, has exploded, according to IDC. "The second [calendar] quarter of 2005 was quite simply one of the most interesting periods in the history of the Australian PC market," IDC PC hardware analyst, Mike Sager, said.
He pointed to unseasonably strong demand in the consumer market, thanks in part to price aggression, along with tenders in the government and education sectors as key market drivers for the overall PC market. With prices continually being chopped and margins shrinking, Woo said vendors would rely on sheer scale, mass marketing and an efficient supply chain in order to make a profit. But he warned that aggressive pricing could lead to a reduction in features.
Toshiba product marketing manager, Matt Codrington, said he was concerned about the thin margins associated with ultra low-cost models, and what it would mean for resellers.
From a consumer perspective, he said people needed to be aware that lower cost models would be likely to offer slower speeds, smaller hard drives and less battery life.
"We've had growth without having to hit the lower price point," he said.
"We will continue to push our strengths in value-add rather than in discounts."
Acer's mobile product business manager, Lindsay Tobin, claimed there was no technology compromise with its sub-$1000 models, which were positioned as entry-level machines with a host of features.
"Of course we can't have every single feature [in an entry-level model] but users can easily add what's missing."
For example, consumers could pick up wireless cards for about $50 or extend the battery life.
And while sub-$1000 machines could be seen as a threat to the channel, they also opened up new doors, according to Tobin. This might mean lots of upgrade business as consumers look to add more memory or multimedia components.
And if competition in the consumer notebook space wasn't hot enough already, Woo suggested many would be looking nervously over their shoulder as Lenovo prepares to enter the fray.
"The Lenovo threat is attracting attention and all vendors are assessing where they stand in the commoditised market," Woo said. "All of a sudden it's a whole new ballgame. It is not so good for competing vendors or resellers but it will give end-users even more choice."
Lenovo offerings manager, David Nicol, said the company was planning its next move but had yet to make a final decision on the best way to proceed. The company is getting feedback from partners on the key price points and consumer trends, Nicol said. And while he was tight-lipped on specifics, he said the company would be hitting a range of price points.
Dare to be different
In the meantime, Woo suggested vendors and resellers could differentiate themselves by offering interesting and unusual form factors, groovy styles and sleek colours, as well as touting the significance and trustworthiness of branding.
Australia's largest PC maker, Optima, could well join the battle at the bottom end of the market by releasing a sub-$1000 range in time for the Christmas season, according to its mobile product manager, Henry Lee.
But he said a razor sharp focus on features would be the company's top priority because it believed consumers would rather pay a little more for added functionality. The company recently launched the Centoris KN series, a widescreen multimedia intensive machine that caters to both home and professional users.
"The KN series is a versatile and functional notebook featuring a selection of USB 2.0 and Firewire ports for connection to a whole range of external devices," Lee said. "It can be adapted to any home or office environment, and can be used as a home theatre system for listening to MP3s or for business critical applications." But, unfortunately, many end-users are just focusing on price these days.
"We find a lot of consumers are looking for value for money now that they are aware of sub-$1000 models," he said. "But that means missing out on a lot of bells and whistles including enhanced memory, hard drives and DVD burners."
There was still an appetite for upgraded features like widescreens and DVD burners in the consumer market, according to Toshiba's Codrington. But these features were often excluded from entry-level models.
"Storage is a hot button at the moment because of exploding multimedia content, increased Web complexity and the digital camera push," he said.
He estimated more than 500,000 digital cameras were sold last Christmas in retail alone. Additionally, battery life was still an important issue and multi-format DVD drives were now expected as standard.
Widescreen was the biggest notebook trend at the moment, Codrington said, accounting for about 25 per cent of shipments in Q1.
With all the talk and hype on the consumer notebook front, let's not forget about the growth opportunities for resellers in the business world. There's still plenty of action in the $2000 and $3000 market segments, Woo said, with SMB, government and education, particularly hot.
The latest enhanced chipsets, coupled with the growing wireless connectivity options, were attracting the mobile worker, Woo said. Dual-core notebooks are expected to launch next year, he said, which would offer resellers another selling point.
"End-users in the enterprise segment are more aware of the benefits of mobility in general which, coupled with the decline in average selling price, means desktop replacement has become an attractive proposition," he said.
Pushing an up-sell strategy would be crucial in the business space, Woo suggested, as well as differentiating on warranty options, support and service.
Meanwhile, wrapping up the features into a solution, and educating business users on the total cost of ownership was a useful tool for resellers, Toshiba's Codrington said.
"Outside of price, there are other requirements in the business scene," he said. "Customers want to know the cost of a notebook over its lifetime and how it will impact business."
Cost considerations include repair, warranty, finance and insurance questions.
HP personal systems group commercial marketing manager, Paul Robson, said resellers could find an edge by matching customer requirements with technology.
"Selling a mobile solution rather than just a base product is the way to go," he said. "For customers that are security conscious, we offer a range of security features and options that enable resellers to up-sell to a more comprehensive solution that delivers higher margins."
Bundling software and services are other opportunities for resellers, Lenovo's Nicol said.
"It's all about wrapping services and additional products around the notebook. Offer installation and training, along with peripheral items and services including broadband access, printers and a wireless infrastructure."
Hit users with boosting productivity buttons, he added. Pitching the Tablet, which is now attracting SMB customers, as well as those in key vertical segments including education and health, was another reseller option addressing this requirement, Nicol added.
From software-based security solutions to integrated fingerprint readers, SMBs are gravitating to the security features like moths to a flame.
So what's available? Lenovo's latest Tablet, the X41T, features an Embedded Security Subsystem, which includes an integrated security chip and Client Security Software.
"The technology helps to protect and encrypt vital proprietary information and security passwords, encryption keys and electronic credentials," Nicol explained.
Along with security up-selling, partners could also offer advice in the area of data backup and disaster recovery - top requirements in the SMB segment, HP's Robson said.
"Often times there's more margin for a reseller with the SMB customer because of the up-sell factor and the ability to build relationships," he said. "SMBs need help with service and installation and the integration with the rest of the environment."