Are Netbooks Dead? The Prognosis Is Grim

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Are Netbooks Dead? The Prognosis Is Grim
Remember netbooks? Those inexpensive, highly portable, long-battery-life laptops made primarily for lightweight tasks like Web browsing? Netbook sales have declined. In the United States, sales have dropped precipitously since 2010, and the trend in the rest of the world is starting to follow.

When netbooks burst onto the scene in 2007, they seemed to be ideal for people looking for a lightweight, on-the-go computer. As the name suggests, netbooks were designed for Web browsing and online content consumption, as well as for light office work. Performance was limited, however, partly because the machines used the first Intel Atom CPUs and partly because the starter versions of Windows imposed crippling requirements. Microsoft’s licensing limited initial Windows netbooks to a scant 1GB of RAM. In addition, most early netbooks shipped with cramped keyboards, plus tiny, 7- to 10-inch, low-resolution screens.

Despite their limitations, netbooks filled a valuable niche when released. Inexpensive, lightweight, and fairly rugged, netbooks arrived just as the fast and reliable 802.11n Wi-Fi standard began to take off, and most were equipped to support it. Netbooks became the hot new category, and companies rushed to fill a niche pioneered by Asus’s original Eee PC, the first publicly announced netbook.

Netbook Sales Plummet

Today, netbooks have faded from the scene. Dell has stopped selling netbooks altogether. HP seems to be positioning its sole remaining model, the Mini 1104, for the education market. Although netbooks remain available at retail and online outlets, new models are few and far between. Asus, the original netbook maker, is still selling several netbook models.

Starting in early 2010, sales of netbooks “took a nosedive,” IDC analyst David Daoud notes. Netbook sales in the United States in particular fell off a cliff.

The numbers in the chart above represent unit sales in the United States, in millions (source: IDC). The message: Netbook sales have rapidly declined, and continue to drop in one of the world’s biggest PC markets.

Other parts of the world trailed the U.S. trend, however.

Netbook sales growth continued in most of the rest of the world through 2010, but began to tail off sharply in Western Europe by early 2011. Today, growth has all but halted in most areas, except for Latin America. Most of the growth has been in the developing world.

Put all of that data together, and you end up with worldwide netbook sales showing a gradual decline over the past two years, with the trend moving downward overall.

What is happening to netbooks is a classic case of technological innovation killing a product niche, particularly in the United States. When netbooks first launched, users noticed their sluggish performance, mediocre keyboards, and tiny screens. Some manufacturers built netbooks with larger screens, but the increased price and weight made higher-performing laptops seem a better deal.

Netbook Decline Due to Many Factors

The most important thing that happened over the past couple of years was the release of Apple’s original iPad in April 2010. By the launch of the iPad 2 in the first quarter of 2011, netbook sales had started falling more sharply.

It’s unlikely, however, that people who might have bought inexpensive netbooks ran out and bought pricier iPads instead. “The fast decline of the netbook has been the result of many factors," IDC’s Daoud suggests. "First is mainstream consumers' lack of interest in a product that features tiny screens and keyboards. This was at the same time Apple released its first generation of iPads, shifting consumer attention to the tablet. Meanwhile, the PC industry has been refocusing its efforts on higher-margin systems that produce better profits, such as the Ultrabook and upcoming releases of new classes of tablets. All these factors and many others are currently conspiring to bring the netbook into a tiny niche market.”

In other words, users became disenchanted with the sluggish performance and poor experience that netbooks offered, and Apple’s shiny new toy--with its emphasis on responsiveness and ease of use--exacerbated the flaws of the netbook in the eyes of potential buyers.

What’s more, netbook margins were very low, so manufacturers abandoned them. Brian Pitstick, who runs the marketing effort for Dell’s consumer, small, and medium business laptops, notes as much: “The netbook category has declined because netbooks did not deliver on the overall user experience, but rather addressed the category on a price basis.”

Even Asus, which still offers a broad netbook-product portfolio, acknowledges the reality of the market. “Clearly, demand for netbooks is declining and many think this product category is all but dead," Asus's Kevin S. Huang wrote in an email exchange. "Asus created the netbook category, and I think netbooks today still provide the most cost-effective computing product solution servicing certain user segments--i.e., the K-12 education market.”

Manufacturers Turn to Ultrabooks

Intel was one of the prime beneficiaries of netbook growth, with its first-generation Atom processors powering most of the netbooks sold. Intel’s Kathryn M. Gill told us that the company is aware of the decline of the netbook, but remains bullish about its prospects in other markets. “From Intel’s perspective, netbooks, tablets/hybrids, and Ultrabook devices each provide distinct and unique value propositions. The worldwide landscape for computing devices will continue to grow, not decrease. In other words, for the foreseeable future, we see devices coexisting and serving different market segments as well as different user needs, and spanning a wide range of system price points. We believe our 32nm Medfield, Clover Trail, and Cedar Trail products offer winning lineups for 2012.”

Apple is likely responsible for another factor in the decline of the netbook. In late 2010, Apple released a more affordable MacBook Air, replacing the original, pricey 13-inch model with lower-priced 11- and 13-inch models. The base 11.6-inch model costs $999. Taking note of the MacBook Air’s success, Intel developed the Ultrabook idea, a branded standard for very thin laptops. Manufacturers looking to build higher-margin products in the ultraportable-laptop segment, at least for the U.S. market, have turned to Ultrabooks. The jury is still out on the long-term success of Ultrabooks, but early reviews have been favorable.

A Limited Future for Netbooks

The netbook seems to be returning to its roots in the education market. Originally launched as a response to the One Laptop per Child (OLPC) initiative, the netbook is once again targeting education, particularly in emerging markets outside the United States. But the rising tide of low-cost Android tablets may eventually swamp even that niche.

The netbook isn’t dead yet, but it’s clearly on its last legs--at least as a general-purpose, lightweight machine for Web computing. Tablets are filling that role for content consumers, low-cost but better-performing laptops are taking over for home users, and Ultrabooks (plus the MacBook Air) are taking the higher-end slots. The netbook may have a niche in certain markets, but its future is clearly limited and shrinking. Our advice: Don’t buy a netbook today, however attractive the price. You’ll just end up with a dead-end product.

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