Netbook Numbers Suggest Apple Has the Right Strategy

| Analysis

There are those who say that Apple will remain steadfast in its pursuit of the premium notebook market and make a lot of money. Then there are those who claim that, in this economy, Apple is missing the boat by not having the right product ready, a netbook competitor The truth is in the middle, and so is Apple.

According to the research firm NPD, netbook sales, as a percent of total PC sales volume, reached 12 percent in December 2008. Acer and Asus are the leader, and each company is selling about as many netbooks per quarter as Apple sells for all Macs combined.

So one would think that Apple has something to gain here, but do they really? Piper Jaffray's Gene Munster told TMO that he expects Apple to sell 2.2 million Macs in the Jan-Mar 2009 quarter, down from 2.524 million in Apple's first quarter that ended in December. Similarly, Barclay's Ben Reitzes puts the number at 2.182 million. That looks more like a ~12 percent downturn, due to economic conditions, than a major shift towards cheaper PCs with Windows. Apple customers don't defect on price, generally, and as Mr. Jobs said recently, they're more likely to defer a purchase than to jump to a netbook with Windows or Linux.

So what about the question of going after ten percent of the netbook buyers? After all, if the netbooks keep selling at the rate of 5 million per quarter, Apple could expect to capture 500,000 of those customers with a low cost, competitive Mac netbook. That would halt Apple's current slide of 300,000 units per quarter now and maybe worse later.

Acer Netbook

Acer Aspire One (credit: Wired)

The problem there is not whether Apple could make money. They could make a little, just like Acer and Asus. Recall what Steve Jobs said, last fall: "We don't know how to make a $500 computer that's not a piece of junk; our DNA will not let us do that. We've seen great success by focusing on certain segments of the market and not trying to be everything to everybody, and you can expect us to stick with that winning strategy." Some people took that comment to mean the hardware would be crap, but considering the OS technology Apple's has developed for the Mac, a considered translation of that remark is more likely the following:

"Yeah, we could make a fine $500 computer, and even make some money on it, but the profile of a netbook computer is low cost and low performance. The things that people have come to expect to do on a Mac would render the perception of the computer as crap."

The Role of Netbooks

Netbooks are primary used for surfing and e-mail, not for graphics and video. That's why they require Windows XP or Linux, lightweight (such as they are) OSes, compared to Vista. On the other hand, Apple customers have come to expect Cover Flow driven by Core Image, Quartz Extreme, driven by OpenGL hardware acceleration, fast MPEG operations on dual core and so on. The performance of Mac OS X on a netbook would not measure up to what Apple's customers expect, and that means perceptions of a crappy computer. That, in turn, doesn't lead to the desired sales that would stem the current slump.

Apple has solved that problem, with the 600+ MHz ARM processor in the iPhone by severely watering down both the OS and the customer expectations. UNIX daemons that run on the desktop just don't exist on the iPhone. Only one app runs at a time, which is all the user needs or wants in a handheld. To top that off, Apple can expect to sell about as many iPhones in 2009 as netbooks sold. As a result, Apple's "third leg" of their business model substitutes for a Mac netbook. With fees coming back from AT&T, the iPhone is likely more profitable as well.

Despite all that, Apple customers would certainly like to save money, travel with a full featured Mac as well as their iPhone, and a new model just doesn't seem to fit in Apple's product line. What Apple could do is to take note of the fact that the MacBook Air, while premium priced because of its slim form factor and low weight, really has the performance profile of a high end netbook. Reducing the price gap between the MacBook and MacBook Air might make customers look at the Air more seriously as a top end netbook rather than a conspicuous, high priced status symbol in tough economic times.

The Total Perspective

The upshot is that while Apple can expect to see a decline in total Mac sales for a few quarters, offering a cheap netbook doesn't appear to have the market capacity to make up the gap nor fit in with Apple's iPhone strategy based on the sales numbers for all the products in question.

For example, here is the estimate of Barclay's Ben Reitzes for 2009, unit sales in millions:

        Mar Qtr,'09  Jun Qtr,'09  Sep Qtr,'09 
Mac          2.18         2.40        2.54
iPhone       2.18         2.12        4.66
Total        4.36         4.52        7.20

Looking at the issue in this light, one can argue that the sum of Mac and iPhone sales should be compared to netbook sales before deciding that the near term, minor slump in Mac sales merits the introduction of a cheap, low-profit netbook.

Sign Up for the Newsletter

Join the TMO Express Daily Newsletter to get the latest Mac headlines in your e-mail every weekday.

Comments

davebarnes

Thanks John for a very astute analysis.

kevinolive

So in the discussion of netbooks and Apple, where does the macBook Air fit in?
The macBook Air is certainly small and very lightweight.  Granted, the price isn’t small or lightweight.

Buck Futt

“The performance of Mac OS X on a netbook would not measure up to what Apple’s customers expect, and that means perceptions of a crappy computer.”

With all due respect, that’s a load of bull.  I have OS X installed on my MSI Wind, and it runs like a deer. Granted, I’m not exactly running Adobe CS4 on it, but that’s not what a netbook is for in the first place; it runs everything I need for everyday computing perfectly.  The Hackintoshed Wind quickly replaced my old G4 iBook as my primary traveling computer—and it only cost me $300.

John Martellaro

BF: Please post the Geekbench results for your MSI WInd.  Here are the results for a MacBook Pro:

http://www.primatelabs.ca/blog/2008/10/

deasys

Buck wrote, “The Hackintoshed Wind quickly replaced my old G4 iBook as my primary traveling computer?and it only cost me $300.”

Well, yes, Buck. It’s not surprising that your 2009 MSI Wind performs nicely compared to your 2003 iBook. Sheesh…

BTW, you got ripped off. You could have had a Dell Mini 9 for $185.

edjuan

Your article has changed my mind about an Apple Netbook.  But it got me
to focus on what I would really like, something to fit in between a Touch and a polycarbonate MacBook.  I’d like a device with an 6 to 7” touch screen.  I’d like a hard drive like an iPod Classic & Wi-Fi like an iPod Touch, so I can carry all of my music, pictures & videos (like my Classic) and get e-mail & have web access (like my son’s Touch). Also, some built in RAM or a card reader, or both. And at a minimum, 2 USB ports or 1 USB and Bluetooth, so I can use an after market keyboard/battery extender (but only when I need to haul them around). It doesn’t need to be able to edit photo and video,
just view them like an iPhone/Touch. But, I think that it should be able
to run a compatible word processor so that I can edit text. Maybe an OS
X version between the iPhone and full Snow Leopard. Maybe have a $499
version and a $599 version with as much as you can put into them and
make a quality product with a good margin. It would be a great “Kindle”
book reader. And OBTW, iTunes U could have a college text library.
College students could save the money of printing and shipping cost for heavy books and they could be updated just like apps on a Mac, iPhone or iPod.  WHY NOT??? Steve and Tim??? Well, what do you think about my meanderings and wishful thinking (daydreaming)?

JonGl

@deasys. Yes, the comparison may be between an older, PPC Mac, but like Buck, I’ll take my Wind any day over the 13” MacBook. And considering that the MBA is only a 1.8 ghz vs. the 1.6 of the Wind, the performance differences aren’t nearly so different as you may lead yourself to believe. The Wind has one thing over the larger books, including the Air. Its dimensions are such that I’m willing to carry it when I wouldn’t bother with a larger laptop. It is smaller than my Duo used to be. It is wonderful. And I get CoverFlow—smooth CoverFlow, including in Safari 4 beta. And contrary to John’s presumption, it does great with video and photo processing as well. The only downside is that the 1024x600 screen keeps me from using iMovie without an external monitor connected. But connect one, and you’re good to go. No, its performance doesn’t match a top-end Mac, but that’s not the point. The point is to be in hand whenever you need it. I need to be very portable, and the Wind was there when Apple wasn’t. So, rather than spend $1,500 or more on a Macbook or MBA that wouldn’t meet my needs, I hacked together a Wind. BTW, this baby’s got 2 gig of RAM, a 250GB hard drive, and it runs XP, Ubuntu and OSX, and runs them with aplomb. I use each OS for what it’s good at (XP, games, Safari 4 beta wink, and firmware and BIOS updates, Ubuntu for some software that runs better there, and OSX for the rest).

I’ve said this before, and I’ll repeat myself. If Apple were to sell a 10” or 9” laptop, and sell it for just under a grand, they would have the world’s most popular “netbook”—a “premium” netbook, and they would not lose 1. their image and 2. their profit margins. And I would dump my Wind in a heartbeat. Hey, I might even drop it for a MBA if it were priced there—but only maybe. The MBA now looks _huge_ when I play with it—absolutely HUGE!!

-Jon

Photodan

I have a 15” MacBook Pro and an iPhone and don’t find myself wishing for something in-between. The iPhone is just fine for short browsing sessions and email (and twitter and myspace and facebook and AIM, etc…) and the laptop is excellent as my primary “muscle.”

What can a netbook-style machine do that I can’t already do?

-Dan

JonGl

@Dan-

“What can a netbook-style machine do that I can?t already do?”

So, you are willing to drag your $2,000+ MacBook Pro everywhere with you? Or can your iPhone rip DVDs? or process RAW photos? (I’m doing both right now on my Wind), and can you type in a normal word processor? or work on full-blown spreadsheets? Can the iPhone run all OSX software? I drag my MSIWind to the mall, train station, on the trams and buses, as well as toss it in the car, and bring it with me. I never did any of that with my Pismo. The MSIWind may be bigger than an iPhone, but it is also more powerful and versatile. I don’t need a MacBook Pro, nor do many people. But I can also tell you, having played with the MacBook Air (which I almost bought instead of the Wind), that I would not have carried an MBA with me either.

I love how people don’t see a use for something themselves, and therefore conclude that nobody wants or needs something different from their own experience. BTW, my wife’s eeePC is even smaller, and fits in her not-so-large purse. It makes my Wind look huge. She loves hers as much as I do mine. And she doesn’t mind Linux.

You see, it isn’t all about price, IMO. For us, it’s the form factor. an iPhone doesn’t have it—no keyboard, and rather limiting OS. A netbook _does_ have the form factor.

BTW, when the Pre comes out, and if it can use a BT keyboard, and the proper apps come out…. my Wind may become history. wink

So, did I answer your question?

-Jon

Log-in to comment