Would an Apple Netbook be a Smart Product?

December 16th, 2008 at 3:55 PM - Opinion by John Martellaro

Technology Business Research (TBR) analyst Ezra Gottheil has published a compelling conjecture on a possible Apple netbook to be announced at Macworld in January. Despite some strong arguments that address benefits and problems solved, certain challenges might offset those positives.

Mr. Gottheil listed these benefits:

• It will provide web access, e-mail, media playing, and essential applications at a single low price.
• Computer beginners will be able to start using it quickly and easily. Users will have fewer questions, problems, conflicts and security breaches, as the device will be less intimidating than both PCs and Macs.
• As with the iPhone, iTunes and the App Store will offer an array of content, applications and games.
• As with the iPhone, the software can be rebuilt from the App Store. With an optional online backup service, the entire device can be restored. Under a more expensive support plan, Apple will be able to send the customer a replacement functional device if theirs is stolen or physically damaged.
• It will open up new markets, including emerging economies, price-sensitive consumers, and those for whom all PCs, including Macs, are too complicated.
• Because all applications are delivered through the iTunes App Store, Apple will maintain sustained relationships with users, making it easier to upsell and cross-sell to existing customers. TBR believes Apple will make online services like MobileMe increasingly attractive to all customers, but purchasers of the new Apple device may find its simplicity especially appealing.
• The device will provide yet another entry point into the Apple digital hub family of products.
• Apple will be able to sell the captive peripherals that work with the device.

He also pointed out that such a product gives Apple a competing, low price entry point seized by the current netbooks, that some users who want a mobile Internet device need a real, physical keyboard, and that the simplicity and security would appeal to many users.

One concept of a "MacBook nano" 

Say it Ain't So

Despite the advantages of such computer, call it the AppleNetBook for the sake of simplicity, there are some competing negatives that would offset these advantages.

1. Apple has been steadfastly maintaining a specific brand and value proposition. For example, some had believed that Apple would release the unibody aluminum MacBook at $799. Apple might well have been able to do that if it wanted to compete in this netbook market, but chose not to do so. (On the other hand, if Apple were planning to release an AppleNetBook, the MacBook pricing would have to be set in advance, accordingly.) A cheaper AppleNetBook with less capability than a Linux based netbook would be panned.

Afterall, if all you want to do is read watch video, write, e-mail and surf, Linux on a $399 Aspire One is perfect.

2. Apple does quite well at the top of the notebook mountain, pulling in significant market share and revenues. Mr. Gottheil points out that the AppleNetBook could cannibalize notebook sales with vastly lower profits. That doesn't sound like a money making approach.

3. The AppleNetBook, as described, would be a limited capability machine: basically a Web browsing, e-mailing, media playing computer with a keyboard. If young people were to buy it for the low price, would they be squeezed out of applications they'd need in school? For example MS Office and other creative software.

Apple has been down this rocky road of incompatibility and has worked hard for years to place the MacBook's functionality on an equal basis with Windows. Screwing that up would cast the AppleNetBook as an outsider, unable to be a friendly player. Those who've cashed in on the Mac being an alien machine in the past would leap for evil joy at an incompatible pseudo-Mac platform. Even grade and high school IT departments.

Wisely, Apple is doing its best to make the gesture-based iPhone and future derivatives the next major platform. That's where the company is certainly headed.

4. Despite the appeal for beginners and computerphobic people, is that particular market big enough to support the lower profit margins on a US$599 computer? Especially in light of concern #3 above?

5. Multiple OSes. Mr. Gottheil characterized the device as not a Mac in the normal sense, but there's no doubt that it would run some variant of OS X, like the Apple TV and iPhone. For years, Apple ridiculed Microsoft for having too many versions of Windows. That's bad for both consumer confusion as well as for internal coherence in OS design and maintenance.

This AppleNetBook would join the Mac OS X, OS X iPhone, OS X Apple TV as yet another variant of OS X to support. That's starting to look like a nightmare when it comes to security, updates, resolution of conflicts, development consistency, and so on, Maybe Apple is big enough in revenues, but it's not big enough in terms of organizational design and philosophy to maintain four different versions of OS X and make it all work perfectly with MobileMe.

6. The notion of a new ecology with the App Store is intriguing. However, look at the situation with developers. They don't mind selling an iPhone app for $2.00 if they can sell a lot of copies, and the revenue to effort ratio is not too bad. It can be synergistic with their Mac business.

However, if Apple were to directly compromise the current business model of Mac (or Mac-like) software, it would lead to a magnified version of the problems encountered with the iPhone. Mac Developers would not be pleased, and the strict control applied by Apple for the sake of security and limited peripherals would enrage the current Mac ecosphere. Never mind that they'd have to maintain two versions of their app.

Bottom Line

While the ideas in the TBR proposal are intriguing, even compelling, there are some other issues not addressed in the conjecture that Apple would have to resolve before proceeding with the implementation as proposed. It's an open discussion on whether Apple could deal with all the issues cited above.