Notebook sales are skyrocketing, signalling a massive shift in consumer buying habits and the PC landscape as home and business customers move from deskbound to mobile computing solutions. Like the large brand name vendors, whitebox notebook vendors have reported huge increases in notebook sales, yet they still represent a relatively small percentage of the overall notebook market.
According to local notebooks assemblers however, this is about to change. In the desktop arena, whitebox vendors have carved themselves out a massive 47 per cent share of the Australian market (Source: Gartner). The public perception of whiteboxes as a viable alternative to brand name computers has traditionally been strong in Australia and as consumers become more PC savvy they are increasingly aware of the value proposition that whitebox vendors can offer which brand name manufacturers cannot. So why has the marketplace been slow to embrace the whitebox notebook?
According to the latest statistics from research company, Inform, “non-brand name” notebooks sold indirectly represented less than 3 per cent of overall volume sales in the last 12 months ending May 2003 (N.B. Ipex and Optima products were considered brand name products). While the public has confidence in the whitebox desktop, this confidence does not extend to other whitebox technologies, particularly relatively immature and rapidly changing technologies like notebooks. Whitebox vendors are faced with the challenge of starting from scratch when it comes to winning over the public.
“If you look at the history of whitebox desktops, it took quite some time before consumers realised they were of the same quality as brand name desktops and actually represented better value,” managing director of whitebox vendor ASI Solutions, Marie Lowe, said. “It wasn’t until whitebox vendors managed to win some major reference sites in the corporate and government sectors that whitebox desktops started to gain acceptance in the broader marketplace.”
These strategically important “reference sites”, which represent significant volume sales, have so far eluded whitebox notebook vendors. Lowe attributes this to the immaturity of the technology. The products are still too expensive and evolving too rapidly for customers to buy in large volumes.
These were exactly the types of customers whitebox notebook vendors needed to build exposure and public awareness about the viability of their products, she said.
“One of the biggest challenges facing whitebox notebook vendors competing with brand name vendors is purely volume — the discounts the big guys get because of the volume of stock they buy,” executive of strategic marketing for Panasonic Australia, Darren Davis, said.
“Another concern for whitebox notebook vendors is spare parts and services. Spare parts are a huge issue with notebooks. Tier-one vendors such as Panasonic don’t have a problem with spare parts because they manufacture their own notebooks and the large tier-two vendors buy in greater volumes and therefore have a greater inventory of parts so it’s less of a problem for them.”
However, the increasing commoditisation of notebooks should initially bring with it greater volume sales for whitebox notebook vendors.
The corporate market, which until recently had taken its usual “wait and see” approach to the emerging technology, now poses tremendous opportunities for the notebook market in general. Many IT departments are refreshing their management systems in order to accommodate mobile computing, deploying Windows 2000 or XP as their standard operating environments because they provide administrators with the ability to securely manage data on mobile computing devices.
Lowe said there were also significant opportunities for whitebox notebook vendors in the education sector. ASI Solutions was currently bidding for a tender put out by the Northern Territory Department of Education for 2500 notebooks.
“Demand for notebooks in the education sector has definitely grown,” Lowe said. “In education, customers are not interested in the upfront price so much as what you can wrap around the product — the value added services — which is primarily where whitebox vendors excel.”
Value-added services are obviously critical to the survival of the whitebox market, but even more so in the notebook arena where brand name vendors continue to drop their notebook prices, minimising the price differentiation between brand name and whitebox products.
To try and maintain this price differentiation, which weighs heavily in to the whitebox notebook’s overall value proposition, whitebox notebook vendors have been forced to drop their prices and slash their margins over the last 12 months.
However, a number of other factors, such as commoditised components pricing and a stronger Australian dollar, have also led to price cuts.
Pricing has become an even more contentious issue in the notebook industry of late as many brand name vendors have slashed margins in an effort to win market share thereby forcing the rest of the market to do the same.
The stoush between brand name vendors over pricing continues and has spilled in to the public arena. Toshiba recently accused HP of being irresponsible with its aggressive pricing strategy and the steps it has taken to attain lower pricepoints.
“In the last 12 months, both HP and Dell have bargained with, or forced, Taiwanese manufacturers such as Quanta — the biggest notebook manufacturer in the world with more than 10 million units sold to major OEMs in 2003 — to lower its profit margin to as low as 1 per cent. With such a price advantage, HP and Dell are able to dump their notebooks at pricepoints similar to that of whiteboxes,” marketing manager for whitebox vendor Protac International Computers Australia, Patrick Cheng said.
Whitebox notebook vendors will find their competitive advantage in the types of services they offer and the flexibility of their products.
“For local whitebox makers to see a significant increase in volume sales, firstly they need to provide higher specifications at the same or lower price,” Cheng said. “Secondly, they need to provide a value-added service such as custom-configured notebooks to suit different customer needs.”
With market conditions ripe for growth, Cheng said the whitebox notebook market could potentially increase its market share to 10 or 20 per cent.
However, several traditional whitebox players, such as Synnex, were steering clear of notebooks because they thought they were too difficult to repair, were more prone to warranty claims and that a significant level of expertise was required to stay abreast of the rapidly evolving mobile wireless environment.
“Whitebox desktop assemblers looking to move into the mobile market need to tread cautiously and ensure that they do have the right level of expertise and are able to deliver high quality products in what is a complex environment,” HP’s product marketing director, Personal Systems Group, Tony Ignatavicius, said.
To build a long-term business in whitebox notebook assembly, Ignatavicius said, “It is critical that vendors understand how the different wireless technologies interoperate because now you’ve got notebooks that can talk to mobile phones via Bluetooth, you’ve got wireless LAN in a campus environment and, outside of that environment, you’ve got connectivity to the broader mobile network. They also need to look at how they operate with the carriers.”
Protac has been assembling and selling whitebox notebooks through its distribution channel since 2001. Cheng said he had seen significant changes since then.
The biggest problems for whitebox notebook builders in the past have been the availability of components and difficulties in configuring the products.
Notebook configuration has become vastly easier and OEMs have also freed up the availability of their parts to the entire notebook vendor market.
“Notebooks were an expensive item [in 2001] so Protac focused on building high-end notebooks,” Cheng said. “There was also less competition at that time, so we were able to gain good market share in a short period of time. Now, the market is overcrowded, even in the whitebox sector, and there is much less room for newcomers.”
Intel’s area sales manager, channel and distribution, Philip Cronin, told ARN recently that it was not that hard for large or small local assemblers to get involved in the notebook market as a result of the programs it was supporting through distributors.
He warned that unless some of these players embraced the whitebox notebook concept they would just become another reseller of Toshibas or some other name brand when their customers want the technology.
“There may be a reasonable margin in Toshibas at the moment but in three or four years when everybody is selling them, margin will be non-existent,” Cronin said. “It will be like selling an HP laser printer and that is scary for a local assembler because suddenly there is a revenue stream that has dried up for them.
“Instead they can go out and do it [assemble notebooks] tomorrow. There are already guys out there buying ones and twos from a distributor and putting them together for their customers.”
Lowe said that to remain strong contenders in the whitebox market, most assemblers would inevitably have to turn to building notebooks in concert with the shift in consumer demand, and those who enter the market early will obviously be best positioned to take advantage of the notebook sales boom approaching.
The whitebox notebook business extends far beyond just notebook sales, it provides significant add-on sales and services opportunities that other hardware products don’t.
“The security aspect of notebooks is interesting,” Lowe said. She suggested some of the most popular notebook bundles sold by resellers are where notebooks come loaded with security software or bundled with physical security devices.
Lowe also recommends bundling notebooks with USB thumb drives, data back-up solutions or extended warranties.