Little laptops snap at the oligopoly

Little laptops snap at the oligopoly
By John Gapper
Copyright The Financial Times Limited 2009
Published: July 15 2009 22:35 | Last updated: July 15 2009 22:35
http://www.ft.com/cms/s/0/16b1e206-7171-11de-a821-00144feabdc0.html


What is the most influential piece of personal technology of the past two years? Amazon’s Kindle? Apple’s iPhone? Research in Motion’s BlackBerry? All of these North American devices are worthy but my prize goes to the Asus Eee PC made by Asustek of Taiwan.

“A lot of people scoffed at them and I must admit I was an early disbeliever,” says Bob O’Donnell of IDC, the research group, about Asustek, which in October 2007 came up with its small, light, cheap laptop computer known (misleadingly, it turns out) as a netbook.

Few analysts grasped the significance of the Eee because they did not think that people in the developed world would buy a not-very-powerful device with a tiny screen and a small keyboard. Meanwhile, US companies from Dell to Microsoft and Apple gazed studiously elsewhere.

Yet, nearly two years on, evidence of the Eee’s influence is everywhere, from the weak outlook reported by Dell this week to Google’s announcement that it will build a rival to Windows in its Chrome OS operating system, and Microsoft’s move to offer a free web version of its Office software suite.

The Asus Eee, and rival netbooks made by Acer, another Taiwan company, have converted consumers and caused havoc in the personal computer industry, reducing revenues and margins at both software and hardware companies. Everyone except Apple has ended up following Asustek.

This, however, leaves a question. If the netbook, now defined as a mini-notebook with a screen of up to 10 inches, costing between $300 and $600, weighing two or three pounds and usually running on Intel’s Atom chip, is so appealing, why did it take so long to arrive?

One answer is that US companies made a mistake. “They thought that the performance was too low and people would not be interested,” says Willy Shih, a professor at Harvard Business School who is in Taiwan this week to research the netbook phenomenon further.

The germ of the netbook idea came from the One Laptop Per Child project led by Nicholas Negroponte, a professor at Massachusetts Institute of Technology, which aims to provide low-cost laptops to children in developing countries. Its XO laptop was built by Quanta, a Taiwan company, which encouraged Asustek to experiment.

Early netbooks had limited memory and ran on Linux rather than Windows, but when the screens got larger (the first Eee only had a seven-inch screen) and Windows XP became the operating system they took off, aided by Intel’s launch of the Atom chip in March 2008.

That is the innocent explanation; the more cynical one is that it took a long time because some companies preferred netbooks not to succeed. The three-way alliance among Microsoft, Intel and Dell instead preferred laptops to become more powerful and run on fancier versions of Windows.

In revenue terms, this was a way of counteracting the price deflationary effects of Moore’s Law (along with the outsourcing of manufacturing to Taiwan and China), under which the cost of processing power, other things being equal, tends steadily to fall.

Personally, I always desired a cheap and light laptop with a long battery life and a decent keyboard that connected to the internet and performed basic tasks such as word processing, but it did not exist. Early flash-like memory-based machines such as the Tandy 200 and the Hewlett-Packard Jornada came and went, leaving a gap.

The big US companies would only produce tiny tablets and miniature keyboard devices because they did not want to undermine laptop sales. Netbook-sized devices thrived in Japan but were expensive.

It took Asustek to break the oligopoly’s grip by making what I – and many others, it turns out – wanted. As soon as it did, all the other computer makers, from Acer to Dell and HP, surrendered.

This coincided with Microsoft’s moment of hubris with the bloated and troubled Windows Vista, which required lots of memory and a powerful chip. To beat off Linux, Microsoft had to let netbooks run Windows XP instead.

Microsoft and Intel are still trying to corral netbooks by defining them as a third type of device in addition to desktops and laptops. Intel popularised the term netbook and Microsoft sets strict memory and screen limits for licences.

Consumers are not listening. An IDC study in May found that netbook owners, far from regarding them as devices for connecting to the internet and little else, do not differentiate. “People are using them almost identically to traditional laptops,” says Mr O’Donnell.

Microsoft at least recognises that it cannot ignore netbooks, and will tailor Windows 7, its new operating system, for them. Apple, which has plenty to lose from cannibalising its MacBook line, has not.

Apple is said to be developing a touchscreen tablet without a keyboard as its answer to netbooks. Steve Jobs, its chief executive, talks disdainfully about netbooks and is nothing if not obstinate.

I doubt whether he can avoid making a MacBook Net. Microsoft, Intel, Dell and others tried to resist the netbook imperative and failed. Consumers have spoken, no matter how much Mr Jobs dislikes what they are saying.

Consumers must be given a choice, however, before they can express their preference. For providing it, the Asus Eee wins my prize.

john.gapper@ft.com
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