Size Matters

I just love it when big companies screw the pooch in trying to protect their profit margins. Today's case in point: Intel. You see, there are these new, cheap "mini" notebooks with stripped down size (and capabilities) that are commonly called "netbooks."

Intel supplies a large number of manufacturers with a tiny little CPU (called the Atom) for this new class of computers (as you would expect them to). However, the interesting thing - is that the marketplace really likes these little machines. They typically only have a 10" screen - so I'm not sure I could bear replacing my "real" laptop with one (yet) - but they have a long battery life and they're cheap.

Did I mention they're cheap? Like $300 cheap. Like less-than-an-iPhone cheap.

Dell and Samsung and a number of other manufacturers are going to get into the game as well - but they're going to up the screen size from 10" to 12". So, what's the big deal you're asking?

Well, for every netbook that comes out with bigger and better screens at a cheaper price point - that means that Intel is selling one less Dual Core processor it can sell. And, Dual Core processors are to Intel what Office is to Microsoft - the golden cash cow.

In fact, Michael Arrington over at TechCrunch asked Intel if they limit their manufacturers to using the Atom chip in notebooks with screens 10" or under. He got back an "interesting" reply:

We asked Intel if they forbid manufacturers to build Netbooks with larger than 10 inch screens, which is what those manufacturers are telling us (Dell notwithstanding). Their answer: “Intel defines a netbook as a 10″ or smaller screen size. We recommend that OEMs and netbook manufacturers use that guideline as well in order to get the best user experience.”

Ummmm.... yeah... read: "We don't want them to - but we can't stop them because we want to keep selling our more expensive chips to them."

Intel seems to be falling into the same trap as Microsoft - namely the one where they want to dictate to the world what form factor and hardware should take to justify the status quo. Bad move, guys.

Intel's problem here is that - big surprise - the consumer is SO DONE with being inundated with crap that doesn't work or doesn't give them control - just to maintain "the way things have always been done." To wit: there are a couple of other chip makers who are getting on the netbook bandwagon in a big way: AMD with it's just-announced Yukon processor and Via Technologies with their faster (and cheaper) Nano processor.

I'm sure the "wagging" and name-calling isn't over by a long shot - but this is going to be a very interesting space to watch. In a way, it's the beginning of a "perfect storm" in terms of market needs matching technology. We're in a recession - so cash is tight. If you can spend $400 and get 75% of the functionality you need - you're going to think twice about spending $2,000 for the extra 25%.

If you access the majority of your software via a browser or some other hosted service - do you really need that extra 25% capability "that you always had?"

And what if the manufacturers bump up the screen size to 14"? And maybe add a solid-state hard drive? And still keep the price around $500-$600?

And the big question - what if Apple decides that it wants to get into the netbook game? Oh yeah, and remember Apple just bought their own chip manufacturing company...

If I were someone important at Intel - I would sure be coming up with a strategy right about now...