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Subsidized netbook model could sweep away 20 years of PC history

Attack of the Killer Laptot

We are inordinately suspicious of any market which is made by five or six decisions globally, the way the Windows Market was made. Back in 1980s and 90s you could either buy an Apple Mac from Apple or a Windows machine from everyone else. Microsoft then resorted to antitrust to keep things that way, creating a bundling mentality that almost tied up the entire computer industry, in the process stifling innovation.

At almost no time were there a selection of operating systems and you felt free to go out and buy the one you liked the best. Overnight it was down to two, and one was by far the cheapest. At first.

For instance, no one has opted for Windows phones very much, and Windows has a small and faltering market share, and yet operators are cutting deals with the new batch of PC manufacturers, who to a man have come out with Windows Mobile based handsets, almost exclusively. So the market has voted and said it doesn’t want Windows on a phone, and some operators have said “tough” - we like it, you lump it.

Now the netbook market gives us an opportunity to change all that, but not with a bundled, operator enforced exclusive. All we would end up doing is replacing Microsoft with Apple. Far better if it was replaced with Android, but better still if consumers continued to have the choice.

However, slap bang in the middle of this is an opportunity to usurp the Microsoft Intel crown in the process. If phones become MIDs and netbooks and they are selected and funded throughout this recession by cellular operators - and they prefer the consumer appeal of Apple and Android over the enterprise appeal of Microsoft - then as the netbook market takes huge bites out of the notebook market, those bites could be Apple OS and Apple hardware, or Android and Linux based with chips from Qualcomm or Boardcom instead of Intel. We know that today Qualcomm has at least a 12 month lead in watts per mip over Intel, and it does not have the loyalties that Intel has to Microsoft (it is close to both Microsoft and Google and would also be close to Apple if Apple would let it).

So there is too much at stake - the chance to upset the global hegemony of the dominant software supplier and chip maker of the PC era.

Which is perhaps why Apple will come out with a netbook and why AT&T WILL decide to source it for $99 and why many, many such deals will be done, to the immediate benefit of many consumers, but to their long term detriment in terms of future choice. Already this battle has lengthened the lifetime of XP due to Vista being unable to run on most of the chips targeted for netbooks, and US research companies reckon that there will be 200 million netbook class devices shipped by 2013. If half of them don’t need a PC as well, think of the damage that will wreak on the Microsoft and Intel share prices.

Already in Europe such subsidy moves have been made on Notebooks, but none so far are Apple based, and no one has had the spectacular success that Apple’s iPhone has brought AT&T. Overnight, with the right netbook design Apple could signed 100s of operators looking to cash in on the Apple panache.

Meanwhile we also hear that, just as we have suggested above, Dell is lining up to be the next MVNO in Japan offering its own bundled netbooks and notebooks. If it can succeed in Japan, where subsidies are unheard of, it can succeed in any low subsidy market and probably afford to play in subsidized markets once its sees how big the demand is in Japan.

This will trigger a trend for device makers to move beyond partnering with carrier brands, and actually launch their own virtual operators. This is not - as yet anyway - a way to sell the Dell smartphone designs that cellcos reportedly rejected, but a way to offer notebooks with bundled HSPA access and call plans. The first launch is reported to be in Japan, where Nokia has also launched an MVNO for its luxury handset brand, Vertu.

Dell is not officially commenting, but many sources are reporting its latest strategy. In this new strand of the MVNO model, the network owner provides a connection and reaps a fee, usually based on data usage, but remain invisible to the end user - with the twist on traditional MVNOs being that the brand belongs to the device. Amazon's Kindle has been an important precursor, and last week Sprint said it expected to boost its business from supporting services running on wireless-embedded products from music players to business communicators.

As carriers build out 4G networks, with high bandwidth and often with open access models, they will be increasingly happy to find partners to use excess capacity.

Dell, like most PC makers, is looking for new channels as the traditional desktop and notebook markets contract and come under threat from smartphone/PC hybrids. Already, they are selling wireless laptops via carriers, following the cellphone subsidy model, and pushing into cut-down netbooks.

Dell's first experiment with a full MVNO, which gives better customer control and brand awareness than a cellco deal, plus a share of the wireless data revenue, is confined to Japan, and will run on the NTT DoCoMo network, which will also be used by Nokia Vertu. Nokia is also said to be pursuing the direct-to-consumer route for its handsets, via an MVNO deal, in India.

The Dell pilot in Japan will be emulated elsewhere, insiders said, assuming that it succeeds in its launch country. It will involve notebooks with built-in HSPA cards, priced between $500 and $2,000, shipping with a fixed amount of mobile broadband access. After using this up, customers buy additional access with a credit card. The offering will launch this summer.

Copyright © 2008, Faultline

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