Netbooks

Do geeks lead the way? Small, low specification laptops are the latest minor revolution in consumer technology. Conceived for children in developing countries, gadget hunters began snapping up netbooks in late 2007. Last year, sales hit 13m as mainstream computer users took notice. This year, iSuppli forecasts sales of 22m – almost a third of the consumer laptop market.

However, the segment should not be overhyped just because it is the only area of growth still going for the PC industry in an otherwise severe recession. Novelty is part of the appeal. Light and, above all, cheap, netbooks are useful for casual travellers and children who are more likely to break or lose a computer and can live with less processing power. Business users, who buy half the world’s laptops, will still want something more capable.

Indeed, it can be a mistake to see a temporary shift as something structural. When petrol prices went through the roof, gas guzzlers quickly went out of style. Carmakers’ plans to churn out economy vehicles looked less wise when the oil price collapsed. Consumers will probably be prepared to pay an extra few hundred dollars for more fully formed machines next year as the economy starts to recover. Netbooks do put pressure on prices but PC makers and their suppliers are used to absorbing price deflation of 5-10 per cent a year.

Rather, it may be Microsoft that has to worry. About four-fifths of netbooks now ship with its Windows XP software instead of one of the free Linux-based alternatives. But the price for XP is about $20 per computer compared with $40-$45 for the newer and more demanding Vista version of Windows. The world’s biggest software maker may try to protect its margins by limiting the size of laptops allowed to run its coming netbook-specific operating system. But a monopolist forced to defend its position by cutting prices is one starting to feel its power slip.

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