Carriers and Netbooks: To Subsidize or Not to Subsidize?

netbookThe netbook market has grown legs despite a floundering economy, but carriers are still trying to find the best ways to cash in on the pint-sized computers. Netbook sales in 2009 are expected to reach 20 million units, according to  semiconductor research firm Forward Concepts, and that impressive clip will continue, reaching 75 million units sold in 2014.

Cellular connectivity will be a key driver of that growth, as consumers increasingly look to use mobile broadband access on devices with bigger screens, superior keyboards and more muscle than smartphones can provide. But while the space may offer substantial opportunity for mobile network operators, it also is rife with potential pitfalls and uncertain business propositions. As Peggy Albright illustrates in a new report from GigaOM Pro (sub. required), the biggest question for carriers may be whether the netbook market should mirror the general handset market in the U.S. and leverage subsidized hardware to lure customers into long-term contracts.

Subsidized netbooks first came to market in Europe and the U.S. in late 2008, and by the following summer Sprint had upped the ante with a 99-cent Compaq Mini packaged with a data contract. But as AT&T quickly discovered, the sub-$100 subsidized price can be a headache waiting to happen, attracting customers who attempt to avoid 3G usage or blow past usage caps then refuse to pay their bills. The carrier has since revised its netbook strategy, ratcheting subsidized prices up to $199 and introducing a stiff $175 cancellation fee.

As Kevin over at our sister site kjOnTheRun has pointed out, though, the subsidized-hardware model may not be a good fit for netbooks. While consumers (especially in the U.S.) seem happy to commit to a carrier for a couple of years in exchange for a cheap price for their primary mobile device, netbooks are generally considered companion gadgets that are used in addition to — not in place of — smartphones. Asking consumers to commit over the long-haul for a cheap netbook may not net many overall sales — and may ultimately deliver more headaches than it’s worth in the form of costly consumers.

That’s why some believe Hewlett-Packard may be onto something in Japan, where it’s selling cellular-enabled netbooks and other laptops with pay-as-you-go service. Its model allows manufacturers to serve as a kind of de-facto operator, determining (at least partially) which types of devices can access the network as they enjoy some of the data revenues, and it gives consumers an attractive alternative to $60-a-month data plans that can be prohibitively expensive for those who don’t regularly access the Internet from their netbooks — and who suffer inferior web-surfing experiences when they do.

While that strategy would surely be fought by carriers in the U.S. that are hoping to cash in on those high-dollar subscriptions, it may actually be better for the long-term netbook market than the subsidized-device model that can result in disappointed consumers and profit-eating customer-relations problems. Carriers may have to ditch their traditional phone strategies and adopt more innovative business models if they hope to take advantage of the growing audience of netbook users.