The middle ground won't work for Netbooks

According to a study released on Tuesday by market research firm NPD Group, Netbooks are confusing customers. Sixty percent of the nearly 600 adults surveyed said they bought a Netbook instead of a notebook because they thought they had the same functionality. Had they known that they didn't, many of those respondents would have purchased a notebook instead.

"We need to make sure consumers are buying a PC intended for what they plan to do with it," said Stephen Baker, vice president of industry analysis at NPD. "Retailers and manufacturers can't put too much emphasis on PC-like capabilities and general features that could convince consumers that a Netbook is a replacement for a notebook. Instead, they should be marketing mobility, portability, and the need for a companion PC to ensure consumers know what they are buying and are more satisfied with their purchases."

Baker makes a fine point. Netbooks aren't notebooks. They're not nearly as powerful as their larger counterparts, they're cheaper, and they're typically more suitable for those who want to go mobile. But that line between Netbooks and notebooks is quickly blurring. And it's starting to backfire.

When Netbooks were first released, they were easily identifiable. But today, that's not the case. Numerous PC vendors have been releasing notebooks sporting superior components in a thin-and-light package. They boast more processing power, a bigger display, and a price tag that isn't much more expensive than Netbooks.

For example, Dell's Inspiron 13 laptop sports a 13.3-inch display, a 2.0GHz Intel Dual Core processor, Windows Vista Home Basic, and a 160GB hard drive for $499. It weighs just 4.6 pounds.

The company's top-of-the-line Netbook, the Mini 12, has a 12.1-inch display, a 1.33GHz Intel Atom processor, Ubuntu Linux, and a 40GB hard drive. Its weight starts at 2.7 pounds. It costs $399. To have Windows XP installed, the Netbook will cost $499--the same price as Dell's Inspiron 13.

Given the differences, I'm willing to bet that most consumers, when given the option, would choose the Inspiron 13 over the Mini 12. It has a bigger display, more processing power, and the same price tag, if Windows is desired.

That's a problem.

The crunch
Netbooks have another issue: smartphones. With the release of the iPhone 3GS, Palm Pre, and other powerful smartphones over the past few months, one of the Netbook's strengths--portability--is being tested.

Anyone who owns an iPhone 3GS knows that it's a powerful device. Surfing the Web is quite rewarding. Getting basic work done isn't all that difficult, thanks to a variety of great apps. And checking and responding to e-mail is made simple with the iPhone's Mail app. The same can be said for the BlackBerry Bold, the Palm Pre, and countless other smartphones that are quickly bridging the gap between the desktop and the mobile phone.

That's not to say Netbooks aren't superior. In my experience, Netbooks have provided a more rewarding Web-surfing environment. Editing documents is much easier on a Netbook. And checking and responding to e-mail is just as simple.

But NPD found that most people just aren't going mobile with their Netbooks. According to the firm, 60 percent of buyers said that after the purchase of a Netbook, they never took it out of the house.

That's a problem for Netbooks. If its key advantage is portability, and users are instead bringing their mobile phones with them on a road trip, the Netbook is forced to compete almost exclusively in the home, where the notebook is king. And as I detailed earlier, it's becoming more difficult to choose the Netbook over the notebook.

What can be done?
Inhabiting the middle ground between smartphones and notebooks isn't going to help the Netbook market maintain strong growth.

That's why I think that the decision to sell Netbooks with Google Android installed is such a great idea. Android might not be an operating system with which most people are familiar, but it provides a different value proposition for the consumer, making the Netbook unique. And Android Marketplace applications extend its functionality.

Maybe mobile apps are the future for Netbooks. Or maybe a touch screen is.

Touch screens are in high demand. And since most PC vendors are loath to use touch screens in devices outside of tablet PCs, it might be a good idea to put them into Netbooks.

But in the end, it's tough to say what might help Netbooks from being cannibalized by smartphones and notebooks. They offer some real value to consumers, but if those consumers are being confused, it's time that vendors start finding better ways to differentiate Netbooks. Maintaining the status quo simply won't work.

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