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.
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