With the entry-level price of desktops approaching zero, the notebook market has hitherto maintained a high entry-level price on the back of strong demand from corporations. But as David Binning writes, that may be set to change as both small businesses and home users seek cheaper mobile solutions.
Aggressive price competition has driven the entry point cost of desktop computers towards zero as vendors grapple for space in a market which has become more about value-added services than hardware itself.
But for notebooks, the little cousins of the desktop computer, high demand among large corporations has created little reason for vendors to drive down costs versus performance.
But now that there are both smaller organisations looking for good value solutions to help them match the mobility of their bigger competitors, and home users who already have one or two PCs and are seeking mobile options, the big vendors may be forced to drill down below the $3000 price point.
According to Logan Ringland, PC market analyst with IDC Australia, the notebook market is following closely behind the desktop in terms of price performance improvements with many vendors now offering machines for $3000 or less.
"One of the most important things to have happened in the computer market of late is the emergence of the 'chameleon' or so-called free PC," Ringland said. "We've predicted notebooks will be sold in a similar fashion."
According to GartnerGroup, 1.6 per cent of all portables sold in 1997 fell under the $3000 mark compared to 21 per cent for the second half of 1998. The biggest market in Australia now is the $3000-$3800 segment.
This is a very different landscape compared to even a year ago. "This segment of the market will certainly proliferate," said Ringland.
However, the mobile market hasn't got any larger as a percentage of the overall computer market and continues to hover at about 18 per cent.
Also, the price/performance gap between desktop computers and notebooks still remains a big barrier to widespread uptake, although Ringland believes that "the power of more expensive notebooks these days is certainly comparable to a desktop".
The falling prices of memory and basic hardware components are making it a lot easier for vendors to make cheaper machines. Another factor is that portable computers are tending to use less piping as cache capacity increases.
But the biggest driver for the notebook market, says Ringland, is that smaller businesses are seeking greater workforce mobility.
A spokesman for Sydney reseller Forte Computer said: "We get a lot of notebook enquiries from customers but the corporates tend to be more serious about buying them."
Forte sells mainly Toshiba notebooks and believes that pricing must come down before the company can offer a reasonable range compared to its desk-bound products and entice lower budget buyers.
"A number of big brands are priced too high at the moment and really don't offer the best performance. For starters the volumes aren't there.
"We're very keen to see notebooks come down closer to desktop prices."
But Robert Kester, product manager for the Twinhead notebook range with Melbourne distributor Westan Computers, said that sales of portables with his company have been very strong.
"We have no immediate plans to get into other notebook brands."
However, Vaughn Miller, computer technician with John Maggs Computers in Parramatta, still believes that desktops are way behind notebooks in terms of price performance. He said that advances in PC power over the last 18 months have continued to push consumers towards performance over portability.
"For the same amount of money you'd pay for a low-end notebook you can get a very powerful PC," Miller said.
Gartner's principal analyst Ian Bertram said: "New technologies get implemented on the desktop first and it's often six months before they make it onto a mobile so there's always a price performance gap.
"I don't see it getting under 20 per cent in the next few years - even though it has narrowed greatly."
But despite problems with the manufacturing model for notebooks, the Australian market grew 24.3 per cent between Q1 98 and Q1 99 compared to 12.6 per cent in the desktop space.
The new Apple iBook was released amid much fanfare and excitement at Macworld in the US last week. With its translucent casing and vibrant colours, the product is firm evidence of an emerging "lifestyle" market segment for the portables in which look and feel will count for as much, if not more, than performance, according to both IDC and GartnerGroup.
"The iBook is designed to appeal to the home consumer and education markets. I'm surprised other vendors haven't brought something similar out. We think this sector of the portable market will take off rapidly over the next 12-18 months," IDC's Ringland said.
GartnerGroup's Bertram agreed but expressed reservations about the product's entry price at $3295, as well as Apple's viability against its stronger competitors.
"Price-wise I can't see the iBook making a big dent on the market," he said, "and there's still a cloud over the viability of Apple today: unless it gets back into the corporate market its long-term viability is questionable."
Apple began taking orders for the iBook last week with the product expected to land in Australia by October this year, according to Geoff Winder, Apple Australia product marketing manager for hardware.
"We say this is the second fastest laptop on the planet."
The iBook marks for Apple a modification of its previous "no-compromise" computing strategy, Winder said.
"Over the last 6-9 months we've had a hole in our product line as far as consumers and the education sector is concerned," he said.
"Previously all the products have been 'no compromise portable computing' but we've acknowledged that's not the sort of product that appeals to the consumer/education market.
"A lot of the notebooks you see in the sub-$3000 range are basically taking fully featured notebooks and cutting them down to a lower price point."
Often the technology is several generations old, a situation that Winder claims Apple has sought to avoid with the iBook. "We don't assume that because people want to buy a cheaper product they should accept less performance and fewer features."
But as Bertram points out, Apple needs better corporate penetration if it is to succeed. Apple is still way down the rankings behind most of the Wintel vendors with Toshiba and Compaq accounting for nearly 50 per cent of the market. Intel has also signalled plans in the US to release a 600MHz mobile processor late this year or early next year.
Aaron Blackman, education and retail marketing manager at Toshiba Australia/NZ, said the company has been mulling over the introduction of a sub-$2000 machine in anticipation of the low-end market really taking off.
Plans are yet to be finalised and Blackman admits Toshiba's entry into the low-end consumer market will present big challenges as the company has typically occupied the high-end $5000-plus corporate market.
"The vast majority of our products are for top-end corporates," Blackman said. "Retail is our most sensitive market."
But he said that Toshiba has recognised the need for more competitive pricing if the company is to capture the growing mass of small companies and consumers seeking portability.
This year Toshiba established a retail division and product range to spread beyond the corporate arena.
"Retail is the most price-sensitive market. Toshiba has in the past been a little relaxed in the retail space."
Interest in cheaper solutions also inspired Toshiba to review its corporate leasing services for the retail space. "Naturally there's been a lot of interest in leased products," Blackman said.
The rationale behind the Toshiba retail strategy emerged after extensive research into the computing needs and buying behaviours of consumer and small office users. "More than 80 per cent of small busi-nesses said they would have a huge improvement if they had access to remote applications.
"Our research found that mobile computing would provide huge value to these people."
Toshiba's corporate leasing program, Toshiba Freedom, offers an average desktop entry-level PC worth $2000 for $19 a week over two years. Compared to an average of $28 per week for a $2999 notebook, "you have a mere $9 per week difference".
"Even if you save only a few hours a week using a portable computer at home or commuting, then it's worth buying a notebook."
Toshiba also offers SNAP (School Notebook Access Plan) which provides a number of value-added services such as offering full insurance, which Blackman said Toshiba would consider offering at the retail level.
Tony Vaccarella, founder and director of Sydney-based leasing company Bios Computer, said that more and more people are looking to lease notebooks, evidence that prices remain prohibitive for small companies and home users. "Being an expensive item, people often opt to lease."
Bios Computing offers a range of leasing services from anywhere between a month and five years. The advantage of leasing, Vacarella, explains is that users are able to gain access to top-of-the-range brands for an average monthly charge of $390, without having to fork out $5000 or $6000. The company recommends mainly IBM, Compaq and Toshiba notebooks. But he said that over the last year and a half rapid price/performance increases on the desktop have slowed demand for notebooks.
Chee-Mei Gan, Compaq Australia's marketing manager for portable products, said: "There's definitely a place for the sub-$3000 price point when you're talking about the home, small business or education markets.
"Large companies are looking for low-cost solutions for sales force automation needs. Armadas have all the capabilities needed for the enterprise - multiple operating systems support."
Of all the big-name notebook products on the market, Compaq claims that its Armada series offers the best price performance of any of its competitors with the Armada 1500C priced at $2695.
Gan admits Compaq is way behind Toshiba in this market but said the company will move much more aggressively in this space through its work in improving battery life as well as developing machines with stripped-down or lighter operating systems.
"There is a large variance between the number one and two positions in the market."
Compaq will soon release details of a small notebook for office connectivity only. The machine will be loaded with Windows CE but will have no hard drive. Instead users will synchronise their information at work before taking it out on the road. Called the Aero, the new machines are also loaded with a Hitachi SH4 processor.
LCD shortage to halt price falls
By Dan Briody
Notebook computer prices, which have declined steadily over the course of the past two years, may plateau and possibly increase over the foreseeable future, due to an industry-wide shortage of LCD screens.
Several major notebook vendors are bracing for the crunch, and it remains to be seen how dramatic the effect will be, but all agree that the shortage will have its impact on notebook pricing.
"I won't say it will definitely go up, but they will not be going down," said Eric Brennan, manager of new product marketing in the mobile division at Compaq Computer in the US.
The problem is not new and has plagued the market cyclically. The unique nature of the process behind making LCDs is at the core of the issue. Due to increased demand for large flat-panel displays for desktops and residual effects from the Asian financial crisis, LCD makers are pushing larger screens with higher profit margins to notebook vendors. But notebook makers are not sure they can sell 14 and 15 inch screens that add weight, size, and price to products in a market that is demanding lighter, thinner, and cheaper solutions.
"[Average selling prices] will not go down like they did last year because of the LCD supply and demand," said Tim Peters, general manager of worldwide marketing for the Latitude line of corporate notebooks at Dell Computer in the US.
"As a result, the value proposition as compared to desktops won't be as great."
But PC vendors are being hamstrung by the LCD market.
"We are kind of being forced to sell products by what [LCD makers] are willing and wanting to make," Brennan said. "We think 13.3 inch screens are optimal."
But despite the needs of notebook vendors and end users, the market is being dictated by one supplier.
"I think 13.3 inch screens are too big anyway," said one IT manager of a Fortune 500 company.
"Going beyond that size is a problem. I don't think 14 inch screens would add much value and in fact it may be a net loss."
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