More “niche” netbooks sold in 3Q2008 than iPhones

28 Comments

3q2008salesiphonesnetbooksYou’d think that comparing netbooks to Apple iPhone isn’t fair. After all, netbooks are phones and the iPhone isn’t a notebook right? I think this is worth a comparison however, mainly because Apple continues to see netbooks as a "niche" product market and also due to some thoughts that the iPhone can replace a portable computer.

Putting aside the debate of whether we’re comparing Apples to netbooks Apples or not, let’s look at sales numbers for the third quarter. Last week we saw smartphone numbers out of Gartner and they showed 4.7 million iPhones shipped. DisplaySearch just reported netbook sales for the same quarter and they came in 5.6 million units sold.

Let’s put these numbers in another light as people so often discuss Apple’s staggering growth in the mobile phone market even though it’s a market they only entered in June of 2007. It truly is staggering that they can capture so much market share in less than 18 months. But the first netbook wasn’t even available when Apple’s first iPhone handset arrived. In fact, you need to wait another four months or so for the original Asus Eee PC 701, which we saw around October of 2007. I’d call that the unofficial "birth" of the netbook market, meaning it’s a younger product than the iPhone. Yet it has now surpassed the iPhone in terms of sales and it’s doing so at a faster growth rate.

It’s interesting to watch how long Apple will continue to play a "wait-and-see" attitude towards this "niche" market. Of course, that’s a public "wait-and-see"; nobody outside of Cupertino’s closed doors truly knows what’s happening behind the curtain in private.

I still believe that there’s room in Apple’s product lineup for a less expensive computing device sitting between an iPhone and the MacBook. In fact, there’s been much talk of integrated 3G in netbooks of late, and particularly in carrier subsidies: consumers pay a low price for the netbook and commit to a data plan with a carrier which reduces the initial outlay. It’s a method that’s already in place for the iPhone 3G, so is it really a stretch to think it couldn’t be applied to Apple’s version of a netbook, whatever that might be?

28 Comments

Joseph Futral

“We just don’t agree with the evaluation or the ‘Ohmigod, Apple has to do it!” tone of the post.”

That’s what I don’t get. Why does anyone care if Apple makes a netbook or not? They either will or they won’t. Is it some sort of need for legitimatization? If Apple makes a netbook, then that somehow justifies the cries that the netbook is supposedly the next big thing? If you guys are convinced already that the netbook is the next big thing, then you don’t need Apple or Jobs in your court, the situation will stand on its own. And if Apple loses out, so what?

And with iPhones, iPod Touches, and laptops selling so well, why would they need to make a “netbook” (even as netbook designs creep closer to full size notebooks)?

I wouldn’t mind a poll. How many netbook advocates think a netbook by definition is inexpensive (say $200-$600ish)? Is that the key characteristic? Or only a possibility? Size is what is the defining factor, cost not a concern?

Joe

Total

“The whole point is that the netbook market is much larger than many realize. I have seen figures of 30 million sold and analysts expect that to quadruple over the next 3 years. That’s Apple-sized if anything is.”

I think we understood what the point was. We just don’t agree with the evaluation or the ‘Ohmigod, Apple has to do it!” tone of the post.

Lava

By the way, here’s a sobering thought. Take a look at Amazon’s best-selling notebook list:

http://www.amazon.com/gp/bestsellers/pc/565108/ref=pd_ts_zbw_pc_565108_more?&pf_rd_p=364098901&pf_rd_s=right-4&pf_rd_t=101&pf_rd_i=565108&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=1W4YCGSSTSC5H260WSNX

The list is dominated by netbooks. Great?

Wrong. The first full-sized Windows notebook that makes the list comes in at #19.

Aside from this HP, THERE IS NOT A SINGLE FULL-SIZED WINDOWS NOTEBOOK in the Top 25.

Dell and HP are going to be decimated by the netbook phenonenon. These companies can’t afford to provide quality customer support selling machines that are twice as expensive – it’s well-established that a single support call on a machine will wipe out any profits.

When the majority of your sales are netbooks, I hope for all the hype, you get to enjoy the support you will receive should any problems develop (which will be none).

It’s just simple mathematics – netbooks aren’t old enough yet, but support costs will kill the phenomenon. There’s no money to be had here, from a business perspective. Companies are basically committing delayed financial suicide embracing netbooks when most of them can barely generate profits selling $1000 PCs.

Apple, on the other hand, is small enough that it can continue selling all the MacBooks it can make and still grow 25% a year in units, revenue, AND profits.

Lava

This analysis, while interesting, is flawed. The reason? Because I suspect netbooks are seriously cannibalizing full-featured notebook sales. Sure, they sold millions of these things, but how many millions less of full-sized notebooks did they sell?

That’s the real question.

And Apple’s notebook growth and iPhone growth show so far that MacBooks and iPhones don’t compete with each other.

Not true with netbooks, and that will be all the difference when makers like Dell and HP report their numbers next quarter, i.e. negative revenue increase, and flat or declining revenue, thanks to netbooks undermining their bottom line.

Fanfoot

Sorry, I don’t buy it that the netbook market is a fad. My guess is it is just starting to really explode. Time will tell I guess.

Sure there are people for whom the netbook isn’t the right size. I would argue however that there are lots of people for whom it *is* the right size. Are you really going to buy each one of your children a full-sized notebook every few years? I think the netbook phenomenon just might see a lot of American families doing just that. Keyboard too small? Probably not for them.

Screen too small? You could say the same thing about the iPhone, and yet the iPhone is exploding and changing the whole smartphone market. Sure the smartphone market has existed for a long time, but the iPhone has dramatically changed its size. The iPhone just recently passed the MOTOROLA RAZR in volume to become the number one PHONE. Not smart phone, PHONE. All sorts of non-business people are buying the iPhone. And will look at the Google Phone and others as a result.

What will Apple do? I have no idea. But I do think they could sell a product at a price point beneath the current MacBook and make a lot of money. The current MBA is *not* the product. Maybe the numbers will come out and surprise me, but I doubt it. Even the new one that resolves some of the problems with it isn’t the product.

If you think Apple won’t invest the sort of money it would take to create a netbook, look at the amount of money they wasted to develop the MBA!

Netbooks are pushing the future in a lot of areas, and I think Apple would find that they would learn a lot about how to make better MacBooks buy building a netbook. Mini-SSDs, integrated 3G with carrier contracts, PCIe connectors, 1.8″ drives, extreme low power devices, fanless designs, ultralight, very low cost, etc etc. These are all things they won’t know as much about if they don’t participate in the netbook market.

James Kendrick

The whole point is that the netbook market is much larger than many realize. I have seen figures of 30 million sold and analysts expect that to quadruple over the next 3 years. That’s Apple-sized if anything is.

Total

Steve Jobs said that netbooks were a niche market and that Apple was going to “wait and see.” Exactly what is unreasonable about that? They are a niche market (compared to the overall smartphone market, for example, which is the accurate comparison) but netbooks seem to be taking off, so Apple’s going to keep an eye on it.

Next up: the number of netbooks sold versus the number of Coach handbags. Should Coach do a netbook?

AndyT

I believe Apple WILL release a netbook eventually regardless of what they tell the public spin machine. If you can’t wait you can always just install OS X on your favorite atom netbook today.

ignar

I think the issue for Apple is how long they can afford not to jump into netbook, or low cost laptop market. The side-effect of netbook boom is the overall drop in laptop price. This will affect Mac sales at certain point, if not already, and Apple market share has reached the point that they cannot sell Macs at premium because “it just works”. Apple needs to either lower the cost of current laptop lines or introduce lower priced netbooks to entice customers to Mac world and hope they upgrade for “full” Mac experience.

Chris K

Ian’s got a valid point here. Apple would have to go completely back to the drawing board on a netbook design, moreso even than the MacBook Air. For all that the MBA changed, at the end of the day, it’s using a typical Apple display, and the same keyboard layout that existed on the MacBook. Ergonomics weren’t a big deal, it was the same thing, only thinner.

When you have to get hardware into a smaller footprint, now Apple has to go back to testing out 92% (or worse, 80%) width keyboards. Then they have to test out anything from an 8.9″ to an 11.3″ display, depending on how much bezel they can trim. Then there’s pointing device positioning, button layout, ports, etc.

Now, I *can* see them trimming the MBA down massively, and releasing something similar to the HP Mini 1000 in the end, which does have a very 12″ Powerbook look to the keyboard layout and hinge design, but the side-mounted mouse buttons and a tiny touchpad would probably not fly, and the engineering and testing involved in getting *that* off the ground would be significant.

jkkmobile

I think it’s ok to compare any number to another..

.. and the point: netbooks are not as niche as apple would like them to be. Just keep your eyes open, it has just started.

ian sulzer

I’m sorry to those of you who love netbooks, but the point is that apple will not make them, even if they have a design in the works, till the market is large enough for a small portable between the sizes of the iPhone and the macbook to be profitable for them. They spend 20-30 million in R&D and testing for one of their products. 1-2 million a year in profits does not cut it. Netbooks sold by other manufacturers are pretty much not designed, as put together by an engineer with the least effort possible. This is the meaning of Jobs comment on the $500 netbook.

There are two ways of classifying the netbook: as a small notebook to replace a notebook, or as a extra gadget for people who love gadgets. Both viewpoints are valid, as there are people that will buy them for one reason, and others that will buy them for the other reason. Why does this have to be mutually exclusive?

Before you start insulting each other again… think about it. It is logical to compare like to like. Netbooks have been around in some form for years. Smartphones have been around for longer. But both are pretty well established. Therefore compare the total market to the total market or 5.6 million netbooks to the 36.4 smartphones.

The ‘its too limited’ argument is sort of valid, but not really. A dual core atom, or ARM and a scaled down NVIDIA SOC along with 1-2 GB of RAM would make a netbook that runs OSX as well as the original core duo macbook but be many times more power efficient. Take out the cd drive, use a cheaper 64GB SDD, add 10inch LED display and compress the keyboard alot. This would make a netbook that would sell for 700-800 USD with about 100-150 in profit.

But you see… the real reason Apple will not do this is due to the fact that this would be a ‘me too’ product. No. Apple will try to reinvent the netbook. Perhaps they have, and simply are waiting for the market to expand before they try to take it by storm.

I would love a well made netbook, but even the 10 inch would be too small for me. I’m 6’5″ and my hands are large. My macbook’s keyboard is about right, a bit bigger would work. To give you an idea… I can touch the middle of both shift keys with my thumb and little finger. I know I’m an extreme case… but there are many people who cannot type well with a netbook.

Now imagine a 13″ diag.(10″ by 8″) flat touch screen netbook that folds into 9.5″ (5″ by 8″). Depending on the fold it would work like a netbook, or a iPhone. Perhaps this would drain too much energy though. It would also still be too small for me. But it might sell like the iPhone without competing with either the iPhone or the macbook, or other netbooks by redefining the market. I’m sure the people at Apple are capable of thinking of something better though.

TimLichost

wow some of you guys are real morons, Joe’s post was idiotic at best & you guys are quoting it? everything about it is either misguided or ignorant at best. obviously another anti-netbook “troll” going around spewing nonsense.

for everyone knocking Kevins point because the netbook market is divided up by several vendors. you are comparing a post-market to a pre-market. before Apple entered the cellphone market, guess what? it’s sales numbers were ALSO divided up by multiple vendors.

what idiots, truly speechless…

KenC

Uhm, you should be comparing the size of the netbook market to the size of the smartphone market.

And, netbooks aren’t totally new. They’re just low-priced UMPCs.

GoodThings2Life

I agree with all the comments here, and well, I still think netbooks ARE a niche market.

Actually, I’ll give a better analysis… they are the “Tickle Me Elmo” of the tech industry this year. They’re small, lightweight, and pretty cheap so lots of people are buying them up for the “wow” factor, and sure, maybe next year there will be a new Elmo toy to tickle our fancy, but like any toy they will lose their appeal.

That wow factor will probably wear off when people realize just how limited they are, and when people realize they’re just tired of staring at small screens all the time.

Fanfoot

Wow, a lot of people were very upset by your post and rushed to disagree with you! Personally, I’d take it as a complement.

So, as the commenters have it:
a) the netbook market has already peaked (no it hasn’t, they’re barely arriving in the stores, and only a few carriers have them available with 3G subsidized… wait for it)
b) netbooks suck (no they don’t, they just have their place)
c) since netbooks can’t do everything, Apple wouldn’t want to sell one (sure they would, they’d like you to have tons of devices)
d) netbooks are cannibalizing notebook sales so Apple wouldn’t make any more money (we don’t know this yet, and Apple might make more money given their small market share even if they do)
e) you ignored the iPod Touch! shame on you! this makes all your points invalid! (yeah, yeah, should he have included all the iPods too? how about the Zunes?)

You make a decent case actually. Netbooks are an exploding market. Apple may continue to ignore it, or they may not. It isn’t obvious that they should. Of course none of us know what they’re going to do, but its interesting to speculate don’t you think?

BTW, in case its not obvious, if Apple does a netbook it won’t be a me-too product, meaning it will probably cost quite a bit more than the others, making it less likely to cannibalize sales and more likely to turn a profit, and it could take a LARGE chunk of the netbook market, which I at least expect to continue to explode in growth for a while yet.

ian sulzer

You have actually mentioned how big the smartphone market share is, and the Apple iPhone portion of it.

Comparing 5.6 million netbooks to the 36.4 million smartphones out there sold in the 3rd quarter of 2008 really does give you a better idea of how niche netbooks are. Significant, but not terribly so.

So you would ask Apple to enter a market where it would make little to no profit, fight a battle with existing competitors where the product would be sold in insignificant amounts compared to other apple products.

Next, if you consider that most netbooks run a full fledged OS of some kind, similar to OSes run on full sized notebooks, you can extrapolate that pessimistically only 10-20% of the market would be willing to pay the 20-30% Apple premium for a netbook(actually if they made one it would be more than this I suspect). So Apple would have sold 400k to 900k netbooks in the 3rd Q 2008.

While a few hundred thousand is not insignificant, the profits made on a netbook are not as great as the profits made on an iPhone, a notebook, or a desktop. A few dozen dollars compared to a few hundred dollars or more. This is probably what the Apple board is thinking.

On the other hand, an Apple netbook could be considered a gateway drug into full sized Apple computers. It would be a great way for someone who already owns a windows computer and does not want to switch right now to buy a Mac. However, Apple is probably betting on the iPhone to do this. And I suspect that someone who purchases an Apple netbook would not purchase an iPhone, as well as the other way around.

Chris K

Sure, Apple has room, and netbooks are selling like hotcakes, but they don’t fit into *Apple’s* grand scheme, and here’s why:

Few people can get by with *just* a netbook. It’s not just an issue of power, or portability. It’s great for most things, in small doses. However, when it’s 4am, and you’re working on a term paper, you want a full keyboard. When you’re editing video, you need more horsepower. When you’re doing anything at all that’s either time or CPU/RAM intensive, and I don’t mean reviewing spreadsheets and responding to email, you’re going to want a bigger screen and a full keyboard.

Why does this matter to Apple? Very simply, if they reduce the barrier to entry for the Mac “experience,” it’s going to be on a system with a sluggish CPU, low-resolution screen, and possibly lower RAM ceiling. It won’t be ideal, it won’t shine and sparkle, and without the glitz, they’ll get a lot of Mac netbook sales, but they’ll turn off so many potential converts that those people will never come back, since their first, “affordable” Mac will just come across as “cheap.” What Apple would want, most likely, is for you to get an iMac or even a Mac Pro, and a Mac netbook as the on-the-go counterpart. I’m not sure who’s sufficiently well-heeled enough to go down that road, since you’re now looking at a $2000 desktop, a $300-$500 netbook, and possibly a $200 iPhone to complete the “experience.”

Personally, yes, I’d adore an Apple subnote/netbook, but I’m also crazy enough to accept certain warts with one. Jobs would never let such a beast ship, for fear that it would make the whole brand look bad.

Sam

If you added iPod touch numbers in, it would beat all netbook sales from all the various makers as compared to just Apple! Without iPod touch numbers included there is NO point as netbooks are NOT phones.

Jack the Mac

1. How much do you want to bet Apple has been working on a netbook long before you ever heard the word netbook?

2. Your numbers do not include the Touch, so they are highly skewed.

3. Your numbers take into account ALL companies selling netbooks compared to Apple (one company). Not a fair comparison in the least.

4. I will be the first in line once they are introduced.

5. Happy Holidays to you and your family. :o)

Steve 'Chippy' Paine

I wanted to say exactly what Joe has said.

You are comparing one product against a complete market segment covered by perhaps 100 manufacturers. If apple took 10% of the netbook market, that would be just 0.5 million units.

The low-cost notebook market comes with too many risks at the moment. I see no reason why Apple should risk devaluing their other products, product cannibalisation, having to increase expensive OS X support.

As you say, there is a space in Apples product range but in my opinion netbooks are not the answer.

Filling the hole that will be left by dwindling MP3 player sales and building on their money-making app store and video store is the key which indicates to me that a larger iPod touch with better storage, video, navigation, ebook, web experience and perhaps data-only 3G would be a more attractive and solid base to build on for the future.

Steve

Richard Garrett

Good comments all. I think Joe has probably captured Jobs thinking pretty effectively. Meanwhile, J&K have discussed elsewhere how the netbook market could open up the market for the iPhone/Storm, etc. The netbooks might point to one thing though – the iPhone and Touch both seem over-priced in comparison and so netbooks might serve to help drive down Apple’s prices – and erode their earnings.

Joseph Futral

The only problem with this comparison (assuming the numbers are correct) is the 4.7 mill represents units sold by ONE manufacturer and effectively one channel (or two at most) per country. The 5.6 mill is divided up among several manufacturers and no such channel limitations.

The next problem is the iPhone represents a segment of a much larger market segment–smartphones. Netbooks, well that’s it. That is the market size. There is a greater likelihood for growth in the smartphone market (and the broader cell phone market), but for netbooks, again, that’s it. So essentially and effectively, netbooks have reached their potential.

That’s just a quantitative assessment.

On a qualitative level, a netbook, on its own, is a dead end product. A full fledge notebook is not that much more expensive nor much larger, yet far more powerful. For the on-the-run web surfer, more portable devices such as the Storm or iPhone exist. The netbook is neither portable enough for people who want portability nor powerful enough for people who want portable power. It looses on both ends of what it could promise.

No doubt, people who _want_ Apple to enter either the tablet or netbook market must feel that the only hope is that Apple could invigorate the market. I am sure Apple appreciates the compliment, but if the market isn’t there, it just isn’t there. Apple has failed on things they believed in. Why would you want them to jump into something half heartedly that already barely exists? That is a guarantee for failure.

Joe

Michael Corter

You miss out a couple of important points.

Firstly, to what degree are netbooks cannibalizing existing laptop sales? Are people mostly buying NetBooks as a compliment to their existing laptop or as their primary laptop? Because if this is the case then the actual value of the PC market *decreases* in respect to ASP. Whereas with the iPhone, Apple had the opportunity to greatly increase their iPod ASP. The cell market is so large that just a few percentage points of share for the iPhone would equate to billions of dollars of revenue per year.

PJE

Mickey, The device you’re describing is what I’m waiting for. A cross between an eBook reader, iPhone and Netbook.

Meow

You’ve forgotten the iPod Touch – you need to add iPod Touch sales figures to be meaningful.

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