Smaller PCs Worry Computer Industry, Consumers Should Be Excited

I wrote a few weeks ago that netbooks were likely to drive down prices of mobile computing. According to the New York Times, it now looks like the same players are now going after the desktop market and shaking up the entire computer industry:

The personal computer industry is poised to sell tens of millions of small, energy-efficient Internet-centric devices. Curiously, some of the biggest companies in the business consider this bad news.

In a tale of sales success breeding resentment, computer companies are wary of the new breed of computers because their low price could threaten PC makers’ already thin profit margins.

The new computers, often called netbooks, have scant onboard memory. They use energy-sipping computer chips. They are intended largely for surfing Web sites and checking e-mail. The price is small too, with some selling for as little as $300.

The companies that pioneered the category were small too, like Asus and Everex, both of Taiwan.

Several makers are taking the low-powered PCs one step further. In the coming months, they are expected to introduce “net-tops,” low-cost versions of desktop computers intended for Internet access.

A Silicon Valley start-up called CherryPal says it will challenge the idea that big onboard power is required to allow basic computing functions in the Internet age. On Monday it plans to introduce a $240 desktop PC that is the size of a paperback and uses two watts of power compared with the 100 watts of some desktops.

It wants to take advantage of the trend toward “cloud computing,” in which data is managed and stored in distant servers, not on the actual machine.

Unfortunately, some companies like Fujitsu is choosing to bury their heads in the sand in response:

“We’re sitting on the sidelines not because we’re lazy. We’re sitting on the sidelines because even if this category takes off, and we get our piece of the pie, it doesn’t add up,” said Paul Moore, senior director of mobile product management for Fujitsu. “It’s a product that essentially has no margin.”

If Fujitsu can't figure out a way to make it add up, they may find themselves left on the sidelines. Fortunately, competition is forcing more astute companies to join the fray:

William Calder, an Intel spokesman, said that the cost of the Atom for PC makers is around $44, compared with $100 for a state-of-the-art chip. He said that Intel executives think the market for low-cost PCs is too big to pass up, though it does raise a potential threat to more powerful and more profitable computing lines.

Microsoft has been a reluctant participant too. Even though it is no longer selling its Windows XP operating system software, it made an exception for makers of these low-cost laptops and desktops. Microsoft said it was responding to a groundswell of consumer interest in the low-cost machines, but some makers of those machines say Microsoft did so reluctantly because it did not want to lose market share to Linux.

Tim Bajarin, an industry analyst with Creative Strategies, a technology consulting firm, said that while the big computer companies have been caught off guard by the market’s potential, they are finding little choice but to dive in.

I think we are on the precipice of a fundamental change in computing. For a long time now, the computer industry has been focused on power-users and unfortunately, the complexity of software has grown as processors have gotten more powerful, often leading to very small gains in actual performance. What I think many consumers would prefer is a cheap, reliable computer system that allows them to surf the web, e-mail, listen to MP3s, Skype, and watch YouTube. Given that you can do this on cellphones and pocket computers now, it's logical for this to start affecting computer prices. My prediction is that as prices fall, these systems will become even more popular and become the dominant platform for computing technology.

I also think this will make it much easier for manufacturers to use chips and operating systems beyond Intel and Windows, introducing some welcome competition into the marketplace. There has already been speculation that cell phone chip manufactuers will start competing with computer chip manufacturers. The possiblities of this convergence are exciting -- particularly when you consider how much is already getting integrated into cellular phones: GPS, cameras, 3G connection the the Internet, etc.

These changes can only mean cheaper prices, greater innovation, and broader reach for a whole host of computing technologies. The future is looking very bright indeed.

More thoughts on this over at jkOnTheRun and GottaBeMobile.

In related news, check out this $620 Tablet PC.