Battle of the Form Factors: Tablets vs. Ultrabooks

A glance at the headlines over the past several weeks makes clear the battle of computing form factors continues to rage. HP announced it will sell or spin off its PC division, including its struggling TouchPad. Meanwhile, in India, Lakshmi Access Communications announced the launch of a new US$99 tablet computer. The tablet, which runs Google's Android OS and connects to the Internet using both Wi-Fi and 3G networks, comes only a few weeks after Bharti Airtel and Reliance Communications launched tablets to compete with Apple's iPad and Samsung's Galaxy Tab. In the United States, Intel said it would invest US$300 million in companies that develop new technologies for Ultrabooks, a class of thin and light laptops, signaling that the company believes there is still a market for the notebook form factor.


These announcements recall the debut of OLPC's ultra-low-cost XO laptop several years ago and the subsequent netbook craze. The netbook category, which took off and then promptly fizzled, was a response to demand for low-cost computing devices that were lighter, consumed less power and accessed most functions and content via the Internet. Yet its demise illustrated that fickle consumer preferences and technological convergence, especially coupled with the rise of mobile networks, can cause a category to stall just as quickly as it rose. Companies, like Intel, may be hoping that snazzy devices combining the best features of the tablet, smartphone and laptop form factors might help drive demand for devices packing its higher-margin processors. This is especially true in emerging markets where consumers may own just one or two devices and demanding more functionality from each device. 


While it may be impossible to predict device trends with any accuracy (few foresaw the tablet boom), it is fair to say that only categories that address both a deep consumer need and align with market characteristics will have staying power. Purchasing power, evolving tastes and ICT infrastructure will continue to drive consumer decisions in both developed countries and emerging markets. A differentiated device strategy that caters to local market characteristics and needs can help multinational firms capitalize on convergence trends in diverse markets.

Tablets, Tablets Everywhere: Time to Stop and Think

Each day seems to bring the announcement of a new tablet product by a major computer or mobile handset maker. Recent weeks have seen the launch or planned launch of new tablets by Research in Motion, Toshiba, HP and Dell. Since Apple's iPad was launched, the tablet has become the hottest form factor in hardware. Tablets were once a product category considered by some observers as a niche area, but manufacturers are now feeling the pressure to offer compelling functionality and sleek looks so as not to fall behind the market leader. This trend is not confined to developed markets. Lenovo, China's leading PC maker, announced but then recently delayed a "hybrid" unit that combines the functionality of a laptop and a tablet. The government of India sponsored the prototype production of a new $35 tablet that drew inevitable comparisons to the OLPC laptop. It has pleasantly surprised some reviewers with its performance, although considerable skepticism remains.

The flurry of activity in the tablet space recalls the explosion of interest in the netbook category several years ago. Netbooks took off in 2007 after the release of the ASUS Eee and the OLPC XO-1 on the premise that they were ideally suited to low-end consumers (especially in emerging markets) because of their lower price point and emphasis on accessing Internet content rather than hard drive-based content. In early 2009, ABI Research predicted that almost 35 million netbooks would be sold globally, with the total rising to 139 million by 2013. A year later, however, the tablet phenomenon happened, and netbook sales are now falling globally, which many are attributing to the rise of tablets such as the iPad. 

Whether tablets (or other factors) are responsible for the slowdown in netbook sales, these events illustrate the dangers of making long-term predictions about the growth of products or product categories based on current sales data. This risk is particularly relevant in emerging markets, where young, urban consumers often want to be seen using the most cutting-edge devices. Sales projections based on current or historical trends can provide useful context for managers, but firms would be wise to supplement these numbers with a critical analysis of the broader ecosystem and underlying consumer needs in the markets in which they operate. Market intelligence that capitalizes on rich qualitative information can yield important insights on anticipated behavioral trends for key market segments.

Netbooks: Emerging market entry-level technology or Western fashion accessory?

by Brendan Smith

A recent article in Business Mirror notes that Intel is getting ready to release a new version of its low-cost Atom processor, and with this version it's hoping to hit the market it was targeting in the first place: emerging market consumers buying their first computer. The company had originally thought that the chip, which allows PC manufacturers to sell laptops for less than $500 in most instances, would appeal most to people in fast-developing economies like China and India. Instead, it has been Western consumers who have taken to netbooks as a second computer, drawn not only by their low price but by their small dimensions, low weight and snappy looks.

The new version of Atom is designed to use less power and be capable of enduring the more extreme conditions present in many developing countries, including hotter climates and the dust that often wrecks electronic devices in rural areas. Intel believes that many consumers in developing countries have shunned netbooks because of doubts about their durability, and the new power-sipping Atom is designed to eliminate the need for a fan, allowing the computers to be sealed and preventing dust contamination.

While improving the durability of hardware is critical, there may be other reasons that developing country consumers, especially in rural areas, have hesitated to buy netbooks. As their name implies, netbooks are designed primarily to leverage the power of the Internet, and many residents of developing countries lack reliable connectivity, particularly in rural areas. The growing popularity of netbooks and "nettops" means that device makers have to figure out ways to provide reliable connections for these units. Hardware makers are in talks with mobile carriers on deals to provide customers with free or subsidized netbooks or nettops in return for a long-term contract, as is done with mobile phones. These models, which have been attempted in the U.S. and elsewhere, may boost the uptake of netbooks by essentially allowing consumers to buy netbooks and Internet service in installments. Hardware companies and mobile Internet providers that can devise compelling value propositions for developing world consumers may be well-positioned to capitalize on the next wave of Internet adoption.

Service/Wireless Device Bundles Have Potential in Emerging Markets

The two largest carriers in the United States, Verizon and AT&T, are ramping up efforts to woo more 3G-service customers by subsidizing already low-cost netbooks. This weekend, Verizon began offering the $300 HP Mini 1151NR for $200 after a mail-in rebate and a 2-year service plan. Service plans range from $40 per month for 250MB monthly download, up to $60 per month for 5GB of downloads. The plan is similar to AT&T’s, which will offer similar deals starting this summer. AT&T and Sprint Nextel (service provider for the Kindle reader) have both created new business units to expand their networks through new wireless devices.

Companies that have attempted to bundle services with wireless devices, both in mature and developing countries, are working hard to find the right business model. In the US, consumers may balk at committing to $1000 to $1,500 in service plans over two years to save $100 on a machine that connects readily (and at no cost) to public Wi-Fi signals, albeit for lower data speeds. In emerging markets, companies like MTS (Russia), Telefonica (Latin America), and Orange, Vodafone, and T-Mobile (Asia and Eastern Europe) have had to find willing, reliable subscribers among consumers with a shallow credit history and a preference for pre-paid mobile phone services.

Nevertheless, several factors make service/wireless device bundles an attractive opportunity in emerging markets. First, the wireless infrastructure in many urban areas is maturing rapidly due to continued investment and a strong competitive landscape, prompting increased demand for mobile web-enabled devices. Second, a comparatively low monthly service charge is a proven method of overcoming high initial capital costs and the lack of easy financing and credit faced by many emerging-market consumers. A decade ago, Telmex radically increased Internet penetration in Mexico by bundling PCs with fixed-line Internet services. And consumers in countries like Brazil and Mexico have amply demonstrated a willingness to buy consumer electronics in installments through retail outlets like Casas Bahia and Grupo Elektra. These retailers are leading candidates for partnership with service providers and device manufacturers, since they have already invested heavily in credit and payment tracking systems. Finally, hardware and software companies may also be supportive of service/device bundles if they get legitimate, branded versions of their products into the hands of a particularly wired sub-segment of the market. Operators will still have to do their homework to identify the right markets and craft pricing and partnership agreements that make everyone happy. But a well-conceived service/wireless device model may be a winning idea for many companies with the goal of increasing their revenues in emerging markets.