Netbooks gaining traction with consumers

Those of us that follow the consumer electronics industry have been hearing about the promise of netbooks for quite some time now.  The Consumer Electronics Association predicts the netbook category will generate $3.4 billion in 2009.  It seems like every major OEM, retailer and wireless carrier has plans to enter the game in some form or another. But until recently, consumers didn’t seem to be getting the message.  Based on Compete’s panel of users, we have seen consumer interest in netbooks grow to almost 1 million people monthly (26% growth) between January 2009 and June 2009 at retail websites alone.  Online interest at wireless carrier websites, which was non-existent in January, is now reaching over 300,000 people a month.

Netbooks CE Retailers April - Sept 2009

There are three main factors driving online netbook interest in recent months:

  • Economy in recession.  Consumers’ wallets have been hit hard and they are more reluctant to shell out a thousand dollars or more on what may be seen as a luxury purchase, such as a notebook computer.  Even shoppers who don’t really understand what a netbook is best used for may consider one over a notebook simply because of its price.
  • Back-to-school seasonality.  You’re heading off to high school or college and let’s be honest — you’ll probably use your computer more for storing music and surfing the web than for typing term papers.  The portability and other promoted features of netbooks are appealing to students, and parents like the less expensive price tag.
  • Advertising.  Over the last year, there have been a myriad of product and strategic announcements surrounding netbooks, and consumer-focused advertising is finally starting to catch up.  Online, websites are starting to dedicate prime space to netbooks, which increases awareness and ease of browsing for researchers and shoppers.  The wireless carriers are beginning their advertising blitzes as well.

To date, online interest in netbooks has been concentrated at OEM and retail websites rather than wireless carrier websites.  This is a role reversal as compared to the mobile phone industry. (The carriers hold an order of magnitude advantage in mobile phone online traffic as compared to manufacturers and other retailers.)  There are encouraging signs though for the carriers.  Over 84,000 people viewed the HP Mini 1151NR netbook at last month (about the same as the HTC Touch Pro).  These shoppers were actively in-market, as three of the top five devices these HP Mini shoppers also looked at were two netbooks at AT&T and a Verizon Wireless mobile broadband card.

A recent Compete survey showed that only 26% of all wireless prospects (prospects = visited a carrier website for a non-customer-related reason) were interested in purchasing a netbook from a wireless carrier.  The goal for carriers is obviously not just to sell the netbook itself but to lock consumers into service contracts, no matter the channel through which that happens.  Heavy subsidies in exchange for data service contracts not only generate additional data service revenue, but the exclusive lineup of products in some cases (read: iPhone) becomes a point of differentiation for the carrier as well.

Historically, consumers have been well-trained to expect discounted or free merchandise in exchange for their willingness to sign a service contract with the carrier, and this trend appears to be spilling over into netbooks as well.  More than three-quarters of consumers aren’t willing to pay more than $200 for a netbook.  A full quarter expects to pay less than $50 for this device.  If netbook pricing trends follow those of mobile phones, we could soon see most netbooks available for free with a data service contract.  Sprint and Best Buy are already subsidizing the Compaq Mini 110c for $0.99 with a service contract.  This may be a business model that works for the carriers, but I can’t imagine that all of these OEMs developing netbooks will be thrilled with the idea of commoditization of their products.

The good news is that consumers are starting to take notice of netbooks, much in the same way that mobile phone interest took off earlier this decade.  The bad news is that consumers are thinking about netbook pricing in the same way they think about mobile phone pricing.  The all-important holiday season is just around the corner, and you can be sure shoppers will be looking for subsidies in order to perceive their netbook purchase as more cost-effective.  If the subsidies are not there, perhaps shoppers will decide that heavily-subsidized smartphones have enough media and web browsing capabilities to meet their needs.  But that’s a topic for another blog"¦