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Netbook economics

I was in Sydney last week and visited one of Telstra’s new T[life] stores. Very interesting how Apple has influenced retail with carriers now building similar flagship experiences. The staff were knowledgeable – they invest a lot in training – and it was great to see a range of real products.

Tlife

I was especially interested to see a small range of Netbooks priced at $0 up front if you commit to a 2 year contract at $69 per month.

These devices have 3G modems built in. Looking at the reviews the model seems to be a $AU30 per month hardware financing charge and a $AU39  data charge – capped as you would expect to a fairly small 400MB download (its about on par with their iPhone dataplan).

Regardless, $30 per month hardware cost looks reasonable alongside data charges.  More realistically you’ll be spending $100 on data. $30 x 24 months of hardware is $AU720 to play with (less finance charges of course).  A Dell Mini starts from $AU499 including Windows 7 and a $160GB disk, so there is plenty of room to pay for the gear.

The description of these low costs PC’s as Netbooks does annoy me.  These are small, low cost PC’s. My definition of a Netbook is a device that simply hosts a browser that boots to the cloud.  This is a significant distinction as they are likely to have an Open Source Operating System (free) and probably doesn’t need a hard disk – as it just needs enough memory for cache.  We expect to see these devices arrive next year and take off fueled by the entry of Google Chrome OS, Android and Intels Moblin. Even if Chrome is not a home run for Google it will absolutely put pressure on Microsofts Windows and Office licensing.

The reduced hardware requirements and software licensing of true Netbooks puts further downward pressure on the base cost of getting online.  The monthly hardware costs could drop quite quickly towards $15-$20 ($360-$480 over 2 years).  Coupled with an increase in data allowance for your data fee (say 5-10GB) and you could be talking about no up front cost and $100 a month for a pretty good service with enough data to be useful.

The point of all this is the cost of the basic device to connect to the cloud and do email, web surfing, social media and basic business applications (like accounting) is trending towards free.  The existence of $0 up front deals by mainstream carriers – even before true Netbooks arrive – is a clear waypoint that this pricing disruption is inevitable.

 

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