The Beginning Of The Netbooks’ End

Dinosaurs. VHS. The netbook?

On the surface, netbook manufacturers including Acer, Samsung, Asustek, and HP all reported a leap in the right direction last year, largely due to strong netbook sales in emerging markets. That bump in sales is despite a little competitor known as the Apple iPad becoming the market’s first Tablet-osaurus Rex.

As the tablet category emerges and evolves, netbooks seem to be the next dinosaur heading closer towards extinction. Many of the major vendors including ASUS and Sony, have announced plans to phase out netbook production while others have either revealed new tablets or plans to enter that market. Staples, whose netbook assortment represented 16 percent of its total notebook aisle last May, recently marked its last netbook as a “clearance item” and hasn’t suggested that new ones are on the way.

Consider the chart below that represents the U.S. netbook and notebook market shelf share by size. It is clear that since September 2010, the 10-inch netbook share has been dwindling. This can be attributed to the evolution of the mobile computing market as the descendants of smartphones and netbooks ride a combination of coolness, mobility, and usability to evolutionary dominance. The number of tablet placements in Gap Intelligence’s U.S. retail panel increased by 400 percent during the same time.

The Netbook’s biggest issue seems to lie in the mind of the consumer and here’s how the two generally measure up:

Purpose: The netbook and tablet are both aimed at media consumption and target the same type of person - those who need a device to send emails, surf the Web and enjoy content.Price: Retail prices are crucial to whether tablets will outsell netbooks. Tablet prices are expected to drop low enough to stimulate purchases as early as the second half of this year. Additionally, like smart phones, tablets are also offered at much lower, subsidized prices, when consumers sign a contract.

Usability: Every time you turn on a netbook, it needs to be booted or woken up. The tablet has a real advantage with its “instant on” feature, easily navigable user interface and built-in 3G technology for connectivity anywhere. Tablets are also lighter and sleeker than a netbook, easily slipping into a purse or a briefcase. Throw in the flexibility of downloading Apps from the Apple store or the Android Marketplace, and forget about it.

You may remember that the death of VHS had nothing to do with VHS, the format’s demise was more about DVDs and how they improved usability. The same story goes for tablets and why they are going to bite into netbooks’ share even more this year:

Tablets represent innovation: Tablets are a bigger version of exciting smartphones, with many new features and improvements, while netbooks are a step down from a notebook.
Tablets have an intriguing interface: Netbooks are tied to Windows, while tablets operate under fluid multi-touch panels from the Android and iOS interface.

Tablets are just cool: Owning an Apple iPad or Samsung Galaxy Tab is pretty sweet. A netbook is the moped of this generation.

Tablets mean expanded reach: Many mobile phone vendors such as Motorola and RIM are entering the tablet market, giving the devices a one step lead in terms of brand strength.

Spring signals a season of hope for tablets. Innovation is here, e-content is readily available in the form of customized website interfaces, apps, and ebooks, and consumers are jazzed. All that the market needs is a fully functional device with great features, at relevant price points from major vendors.

Netbooks will hang in there for some time thanks to a few adoring fans. However, the dynamics will change and the netbook market’s previous high growth benchmarks will be far reduced this year. Long-term, the netbook needs nothing short of a miracle before riding off into a screensaver sunset.

About the author: Gurpreet Kaur is a market analyst for Gap Intelligence, a San Diego-based independent technology research firm with emphasis in helping product manufacturers and retailers understand current retail market trends in order to respond to customer demands as they occur. She can be reached at gkaur@gapintelligence.com.