Why Are PC Manufacturers so Afraid of the Asus Eee?

At the Sony Open House, Mike Abary (SVP of Information Technology Products Division) shared his view on the Asus Eee and used the expression “race to the bottom” (in terms of pricing) to describe what would happen if consumers would go for ultra-cheap PCs massively. It is an interesting subject, and here is what we think of it at Ubergizmo: given the success of the Eee, it’s not hard to imagine why PC manufacturers keep an eye on the issue.

“Good enough” is a danger for PC Makers

High-end laptops are not going away but $400 laptops like the Eee could put the other sub-$999 laptops in danger, and the volume is huge in this segment. It is interesting to understand why consumers like the Asus Eee (and the likes) to see why there is a potential for a “race to the bottom”. We call it the “good enough” effect.

“Good enough” is the single scariest thing for all technology companies. They maintain their average selling prices (ASP) by improving functionalities (speed, storage…). Now, what if users’ needs do not evolve as quickly as the hardware? Average selling prices (ASP) would spiral down.

Software innovation is the key

To create more “needs” for the masses, the industry has to create new compelling and mainstream applications (like a new, slow OS with exciting features?) Unfortunately, PC makers have no control over that – software developers do. Additionally, many consumers are now using web-based applications, and the speed of these programs is often limited by the web – not by the PC. That’s one less reason to go for a fancier computer.

The Asus Eee is uber-popular because it addresses a strong demand: it is a light, small, cute and its performance is deemed “good enough” by buyers.

It would naive to think that ultra-cheap PCs are not a real danger for the gross margins of established PC makers: the market pressure is extremely strong: manufacturers are flocking to build these cheap PCs. Even HP is working on a small, but slightly more expensive one. Is Sony in danger? Not in the short term. Should they be worried? Certainly.

HP so confident in the UMPC 2133 it's building 2m units?

HP apparently wasn't kidding when it said it expected people to buy that hot new UMPC 2133 sub-notebook "without a thought": DigiTimes is now reporting that the company has contracted Wistron to crank out two million units this year. That's an astonishingly high number -- almost 10 percent of HP's worldwide laptop sales last year -- and even wilder compared to the EeePC, which completely blew away expectations by selling 350,000 units worldwide last quarter, or Samsung's Q1, which has only moved a couple hundred thousand in two years on the market. Sure, the 2133 looks sexy as hell, but at a rumored $630, HP's going to have to put some serious sales muscle behind this guy to move that many -- it's just slightly too expensive to be an accessory, and probably way too underpowered to be your primary machine. On the other hand, while this is just a rumor and could be totally wrong, we'd actually like to think HP has a product so good it's going to roll the dice a little. Guess we'll find out soon enough, eh?

[Via jkOnTheRun]