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.

Linpus rolls out Linux-based OS aimed at low-cost laptops / UMPCs

While its claim of being the "first" to offer an OS specifically designed for the latest crop of low-cost laptops and UMPCs may be a little dubious, the unfortunately-named Linpus is at least pretty quick to jump on the bandwagon. To that end, the company's just let loose its Linpus Linux Lite OS, which it says will run just fine on laptops like the Eee PC and Cloudbook, or any other system with as little as a 500MHz CPU, 128MB of RAM and 512MB of storage. Just as importantly, the OS is also apparently designed with low-res 7-inch screens in mind, although as CLUMPC points out, it doesn't go so far as to include support for little things like built-in WiFi out of the box. Still, if you want to give it a shot, you can grab it now in the form of a Live CD direct from Linpus.

Vista Running on Eee PC

Asus Eee PC is, as expected, getting hacked every which way, and Brit Paul O'Brien has managed to squeeze the bloated Windows Vista onto the little Linux laptop. Using vLite, a tool to customize a Vista install before actually installing it, Paul shrunk Vista Home Premium and put the custom disk image onto a USB stick.

He then booted the Eee from the thumb drive, installed and – here's the clever bit – shifted the gigabyte-gobbling Side by Side (SxS) directory off the main drive and onto an 8GB SD card.

The big surprise is how fast it seems to run. In the video, Vista seems nice and snappy, despite the Eee PC's 900MHz Celeron processor. We now issue the ultimate challenge: An Eee running a virtualized Vista inside Mac OS X. Can it be done?