Thursday, March 13, 2008

Reducing the Effects of Cannibalization

Eight low-cost computing devices were on display at last week’s CeBIT conference in Hannover, and at least 16 more are set to hit the market in the coming months. This, combined with the news that Intel anticipates shipments of 50 million Atom-based processors in 2011, signals that low-cost computing is not a fad. Not everyone is excited about the budding low-cost computer market, however. At Sony’s annual Las Vegas Open House event, Mike Abary, Sony’s senior vice president of IT products, warned that if Asus’ Eee PC finds a market outside tech enthusiasts and developing countries, “We are all in trouble. That's just a race to the bottom.” Abary may not be speaking for everyone at Sony, but his comments had the ring of someone who is trying to fight the current.

Cannibalization from lower-priced products is a fact of technological life, fueled by innovation and cost-saving efficiencies. Companies can push back and resist cannibalization only for so long; eventually they must either play in the new space or accept their role in a limited, higher-end market. Sony seems to be missing the opportunity that its multinational competitors are beginning to recognize in low-cost computing. HP, Dell and Acer are expected to join the sub-$500 laptop space later this year. Whether or not these new laptops will be standard or sub-notebooks is yet to be disclosed.

While many manufacturers are focused on ever-decreasing prices through sub-notebooks and mini-PCs, an opportunity remains to provide a standard, high-quality and profitable product. Vital Wave Consulting research shows there is demand among first-time PC consumers in emerging-market for “real” computers instead of “alternative” computing devices. While not as interested in bells and whistles, these new buyers desire the support, reliability, sound construction and usability that warrants what amounts to such a significant investment for lower-income customers. PC manufacturers that opt out of the sub-notebook market can still provide high-quality, basic computers in traditional form factors along with financing packages to enable the purchase of these perhaps more expensive devices. Doing so would attract this sub-segment of first-time PC buyers and provide an alternative and profitable point of entry into emerging markets. With such an opportunity for Sony, perhaps Mr. Abary has less reason to be gloomy.

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