Slowing down the Netbook train

Cheaper or faster?

That's going to be the burning question for computer shoppers perusing the aisles of electronics retail stores this fall. That's when the new line of notebooks powered by consumer ultra-low voltage (CULV) chips will start appearing in force. They'll be sitting right next to the trendiest offering in portable computing, Netbooks. Netbooks have come to be viewed as the best way to get cheap, portable computing, but CULV notebooks could change that.

Netbooks are mini-notebooks with screens between 9 and 11 inches, that have lower-power processors, and fewer features, but very attractive price points. CULV-based notebooks are ultrathin notebooks. They come with a more traditional 12- or 13-inch screen, but are also very low-power, so they have great battery life. Starting at $600 to $1,000, they'll occupy the price range just a step above Netbooks, which run between $200 and $500.

That's where the choice comes in. Will consumers go for a Netbook, which is less expensive, sometimes harder to use, but very portable? Or a sleek-looking notebook with great battery life and a slightly higher price? Just a bit more money could mean a far more fully featured computer. Who would still go for a Netbook?

Some analysts suggest many won't.

For its part, the provider of these ultra-low voltage chips, Intel, would prefer to steer people toward CULVs. Sure, Intel is also responsible for the Netbook phenomenon, but those devices carry much lower profit margins. Intel CEO Paul Otellini on Tuesday talked up CULV notebooks and their advantages over Netbooks, saying, "Now, if you want a thin and light notebook, you don't have to just pick a Netbook. You can pick an affordable notebook that has more functionality."

Several studies regarding Netbooks have been published, but it remains unclear if people are choosing them because they're a cheap impulse buy and a placeholder in these trying economic times, or because they just want a gadget that fits in their purse. Few people appear to buy Netbooks because they love the small screen, small keyboard, and limited functionality. A recent NPD survey found that many Netbook buyers were indeed disappointed by what they got for their money, with 60 percent expecting the same functionality as a notebook.

So when devices that are almost as inexpensive, but function like a traditional notebook appear, what will that do to Netbook sales? PC makers will, like Intel, stand to make gains by selling slightly more expensive, and therefore more profitable, models of notebooks. But it's not without cost to the pro-Netbook campaign most major PC makers have undertaken in the last couple years. CULVs will by definition cut into the Netbook category by some margin.

Take for example, Acer's situation. It's done remarkably well selling Netbooks. Its Aspire One series has propelled it to the top ranks of portable PC vendors, and they're fairly well-reviewed. But Acer also has a new line of CULVs coming: the Timeline series. As CNET editor Scott Stein noted recently, the 11.6-inch Timeline CULV, which is roughly the same size as a Netbook, has a lot more going for it: "It has (an ultra-low voltage) processor that's faster than Atom Netbooks by a fair margin. Then there's the HD video decoding. Also, the 1810T can support up to 4GB of RAM. Other bonuses include HDMI, b/g/n Wi-Fi, and the ability to upgrade to Windows 7."

How can Netbooks compete with that other than price? It's going to be difficult. Netbooks have seen great growth, and are expected to rise to 33 million units shipped by the end of 2009, according to market research firm DisplaySearch. And most PC market analysts expect that to continue, but it will likely be tempered when CULVs take hold. "We're expecting that to level off and there will be some new competition from CULV systems this fall," said Loren Loverde, director of IDC's PC Tracker program.

To survive now, PC makers know that they have to be able to offer a variety of models for a wide swath of customers. The CULV will be positioned right between Netbooks on the low end, and traditional notebooks on the high end. But the loser is likely to be Netbooks, according to Loverde.

Electronics retail analyst Stephen Baker of NPD says that trying to match buyers with the right kind of computer has always been challenging. The best way to help consumers understand the difference between computer models is to arrange them at retail by price, since screen size and features are no longer the best way to determine the category a computer falls under--sometimes 12-inch laptops are far more expensive than 17-inch ones, for example.

And with consumers facing so many choices today, it adds even more pressure on PC makers, Baker added.

"It will continue to be a challenge. But the consequences are greater now because growth in the market depends on segmentation more than it ever has before. But it's not a new problem."