The Netbook Economy

As I sit here in the middle of the night listening to the rain outside (a big deal here in California!) - I can't help but think about the state of the economy, of netbooks, Apple and Microsoft (yeah, I know - I'm a geek!).

With Microsoft announcing a layoff of 5,000 (1 in 20 employees) over the next 18 months, and Apple poo-pooing netbooks in their latest analyst call - something snapped in my mind (not an unusual thing, believe me). I decided to dig a little deeper to try to get a handle on what was going on.

The Microsoft layoff was a long time in coming. I mean, they have been sucking off the tit of the Windows OS and Office since the beginning of time. With the entire Vista debacle and the "Ribbon bar" massacre in Office 2007 - not to mention the horrible me-too Zune MP3 player - plus the fact that their stock as been flat for years - they've "stumbled" as of late. Even though their profit is "only" down 11% (in a recession) - when you have the numbers that Microsoft does - that's a fairly healthy decline.

What's the cause? Or at least - what is Microsoft blaming? Well, according to Microsoft’s 10-Q filing on January 22:

“The decline in OEM revenue reflects an 11 percentage point decrease in the OEM premium mix to 64%, primarily driven by growth of licenses related to sales of netbook PCs, as well as changes in the geographic and product mixes. Revenue from commercial and retail licensing of Windows operating systems increased $113 million or 19%. Based on our estimates, total worldwide PC shipments from all sources was approximately flat, driven by increased demand in emerging markets, offset by decreased demand in mature markets.”

Huh? Netbooks? Netbooks are kicking Microsoft's ass? Impossible! Then I started to think about it... Netbooks run XP, not Vista. XP = less cash (unless you're Dell - but that's another story). But if I were Microsoft - I'd also offer very reduced prices on XP as a netbook OS - hell even give it away if it will keep people of the dreaded alternative - Linux.

So, OK, netbooks might figure into some of the numbers - I mean, after all, we ARE in a recession. With the rise of SaaS (Software as a Service) applications - people really don't need a 6 litre V-12 computer to fire up a browser and and webmail client in order to be productive.

People are not buying tons of new "real" laptops these days (except for perhaps new Apple MacBook Pros)... And, speaking of Apple - wassup with them? They are really, really pissy about netbooks - as evidenced by some quotes by Tim Cook, Apple's Chief Operating Officer their latest analyst call:

"We're watching that space, but right now from our point of view, the products in there are principally based on hardware that's much less powerful than we think customers want, software technology that is not good, cramped keyboards, small displays."

Ummmm... riiiiiiight.

Small displays? So... make a bigger one. Cramped keyboard - either make a touch screen one with iPhone keyboard, or... oh... I don't know - make a BIGGER one.

Folks, it ain't the hardware form factor that Apple is revolting against. It's the price point. The mere thought that they would have to sell basically a 13" MacBook not at $1,300 - $1,600, not even at the $999 price the "old" white on is selling at right now - but they would basically have to sell it for... wait for it... $399. That's the price of a fully-loaded iPhone!

I can just see Steve Jobs rolling over in his grave objecting to that kind of a price point. After all, they're the luxury brand. The cool kid on the block. They're not sold to the "commoners" in places like... like... Walmart... oh, wait, they are.

I think that despite what Apple has said publicly, they have been looking at netbooks. They do have some sort of device in the works. I think that they're just so scared of another Newton that they want to make sure it's a "real" market before they finally get with the game and stake their claim.

And, no one, I mean NO ONE wants to come out with a new product while Steve Jobs is on medical leave!