Will Desktop Virtualization and the Rise of Netbooks Kill the PC?

Not in the short term, but longer range factors like Microsoft’s strategy and ever cheaper netbook chips complicate the issue.
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It’s a question the many in the tech industry are aksing: Will Desktop Virtualization and the Rise of Netbooks Kill the PC?

The short answer is no. Laptops and PCs will have their place for some time to come, though in a role that will only get more and more limited as time goes on.

The long answer is yes – although the longer answer demands a deeper explanation. This isn’t a zero-sum game. PCs will have their place. The question is where and how big that place will be.

Netbooks, smartphones and other constrained devices are already starting to erode the market share of laptops and PCs. As desktop virtualization enables processing and storage burdens to move away from stand-alone devices, the enterprise will encounter fewer and fewer situations where its end users absolutely need full-blown PCs.

Q3 2008 was the first quarter during which laptop shipments topped those of desktops, 38.6 million units shipped vs. 38.5 million. According to market-research firm iSuppli, the laptop numbers where inflated because netbooks where lumped into this category. Shipments of netbooks topped 13.2 million in 2008.

Research firm DisplaySearch, meanwhile, believes that netbooks will grow at more than 65% year-over-year to more than 27 million units in 2009, while the traditional notebook PC market will expand at just 3% to 133 million units during the same timeframe.

Regional Notebook and Netbook Growth Forecast by Region: 2008-2012 (CAGR – Compound Annual Growth Rate)

netbook growth

Source: DisplaySearch

iSuppli warns, though, that the recession is inflating netbook numbers, with buyers focusing disproportionately on cost. Netbooks are generally priced below $600, with the cheapest versions costing less than $400. Once the recovery kicks in, iSuppli believes netbook growth will slow.

However, there are some wild cards to consider. First, wireless carriers are excited about netbooks as yet another way to boost the data-side of their businesses. DisplaySearch notes that telecom providers in many regions are already subsidizing the cost of netbooks if they’re bundled with data plans.

Second, as users are forced to adjust to netbooks as an alternative to laptops, new use cases will invariably emerge.

Third, the rise of netbooks dovetails perfectly with the mainstreaming of desktop virtualization.

How Does Microsoft Fit into the Equation?

For the time being, one of the drawbacks with the sub-$400 netbooks is that they don’t have the horsepower for the newest Windows OS. Even the souped-up more expensive models reportedly had issues with Vista, which is why XP is the default Windows choice for now.

Don’t expect Microsoft to be content with its XP foothold, though. Already, early beta testers of Windows 7, which was coded to be slimmed down for more constrained devices, claim that it works well on the netbook platform, at least on the $400+ models.

Microsoft claims to have captured 96% of the netbook market in recent months, although those numbers appear to discount low-end models. According to IDC, Microsoft still has a hefty 76% market share, with Linux claiming the other 24%.

However, hardware manufacturers are planning to release netbooks that will be powered by mobile device chips, mostly from ARM. These devices are intended as platforms for Google’s Android OS, as well as for Linux.

These mobile-chip powered devices also could open the door to carriers, who could subsidize the devices and try to freeze Microsoft out – or at least limit Microsoft’s ability to dominate the market.

It’s still too early to predict how this market will shake out, but it already looks as if netbooks themselves will split into two segments: a high-end, dominated by Microsoft, with the devices treated as pared-down laptops; and a low-end, dominated by Linux, Google, and others, with the devices functioning more as souped-up handhelds – think handhelds with usable keyboards and bigger screens.

Next Page: Does virtualization help netbook growth?

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Tags: Microsoft, virtualization, netbooks

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