It wasn't supposed to happen this way. Microsoft and OEM partners Fujitsu, General Dynamics Itronix, HTC, OQO, Samsung and even ASUS have been planning, designing and building Ultra Mobile PCs that were supposed to be so good people would pay $600 to $2,000 for them. Many of these devices attempted to re-invent the sub-notebook wheel with funky form factors, goofy keyboards and exotic feature combinations. Worse, some took Microsoft's advice and made the gadgets dependent on Vista, which is a lousy OS for a full-size, full-powered desktop PC and a disaster for an ultra-portable.
It turns out that people just wanted a regular laptop, but much smaller and cheaper. When ASUS came out with its mostly solid state, plain vanilla PC running Linux (and now XP), the masses flocked. And now, Acer, Dell, HP and possibly Sony, as well as a smattering of smaller companies, are rushing their own cheap-and-tiny offerings.
Soon, the market will be overwhelmed by what I like to call "mini me too" laptops -- commodity ASUS clones that will drive margins for all players toward zero. There will be no real money to be made in direct sales of cheap mini-notebooks to consumers.
I'm predicting that the successful pricing model for "mini me too" laptops will look nothing like the notebook pricing model (where you always pay full price for the hardware), and a lot like the cell phone pricing model where you buy a service, and the hardware is heavily subsidized or given away free.
This will happen because improvements in solid-state design, economies of scale through mass production, aggressive competition and other factors will drive the cost of producing tiny laptops down even further. Manufacturers will make their money by selling large quantities to companies who have more profitable products and services to sell. They'll use the lure of free PCs to steal customers from competitors and upgrade existing customers.
Don't believe me? It's already happening in Britain and Canada.
In the UK, PowerupMobile.com will give you a free ASUS Eee PC if you sign up for a two-year contract for a specific T-Mobile mobile broadband service called Web 'n' Walk Max, which costs about $68 per month.
Years ago, banks used to give away toasters (and other things) to encourage people to sign up for new checking accounts. Fast forward to 2008, and the Royal Bank of Canada is giving people ASUS Eee PCs if they open one of two accounts.
My prediction is that by the middle of next year, "mini me too" laptops will be given away in the United States, and by so many companies that theyll become hard to sell at any price. Heres what youll have to buy in order to get your free mini laptop:
Mobile broadband services. Phone carriers will use "mini me too" laptops to lure existing customers into faster and more expensive pricing plans. They'll give you a good reason to upgrade to 3G, for example, by giving you a free 3G Eee PC if you upgrade. They'll also use them to attract new customers.
This makes a lot of sense because a two-year contract at, say, $30 per month (or $30 extra on top of your existing wireless cell phone plan), means $720 for the carrier. But with dropping prices and buying in bulk, they might pay less than $100 for the laptop.