ON HOW LONG TO LOW-COST, NON-MICROSOFT MOBILE PCs?

HOW LOW CAN YOU GO?

This post is catalyzed by the new "Pepper Pad", announced by a Northeastern start-up called Pepper.  It's not about the product per se, but what the very existence of the product potentially signifies. 

It may be the starting point of the shrinking value gap between Microsoft and non-Microsoft laden computing products, especially in the arena of mobile computing products: aka laptops, handtops, PDAs etc. 

I've most recently posted on similar product announcements from Nokia and Palm titled, "On Getting to Mobile PC Nirvana".

The Pepper product itself received a luke-warm review by Walter Mossberg in the Wall Street Journal, citing slightly fuzzy resolution, and somewhat slow and limited software.

Here's what grabbed me in terms of the product...it's a pretty darned complete package with wireless capability.  Note that although the product has just been announced, is only available via pre-orders from Amazon, so I'm only going by the product announcements.  But the features that caught my eye were:

1. Has Linux OS, 20MB hard drive (it's a start and not upgradeable),
2. 256MB RAM (also a beginning and not upgradeable),
3. a Mozilla/Firefox based web browser,
4. some basic apps (to be supplemented soon),
5. built-in QWERTY keyboard (this is huge...almost as big as blackberry with chiclet style qwerty keyboard almost killing the stylus-based palm)
6. built-in pointing device,
7. stylus for touch-sensitive screen, fairly large 8.4" color TFT screen with adequate 800x600 resolution (means can look at a web page without moving scroll bar left to right); but NO hand-writing recognition, which is fine, because it's not good enough anyway.
8. Wi-fi B (Ok, not as good as G, which is 3-4x faster, but fine for most applications) AND Bluetooth capable.
9. USB 1.1 slot (shoulda been 2.0 for faster transfers, but next version hopefully.
10. Integrated, rechargeable battery that chugs along up to 3 hours.
11. Light and small at 2.3 lbs, 12.1" x6.6" x.08".
12. Instant-on.

My favorite feature here is the split QWERTY keyboard on either side of the 8.4" screen.  I don't know how well it works, but it's a clever design.

I've long felt that tablet PCs of all types should have the mini keyboards pioneered by Blackberry and later emulated by Palm/Handspring's Treo 600/650.

All this for $850 list, or $799 at Amazon pre-order.  Yes, a pretty robust desktop PC for that WITH Microsoft Windows and other goodies, or a relatively basic laptop.

Compare this with the closest (in size and weight) Windows Tablet PC based product, the LS 800 by Motion Computing, which starts at $1900 and easily goes up to over $4000 when you finish adding additional options. I posted on Motion's LS800 a few days ago.

So although the Pepper Pad is not an inexpensive option, it very well may be over time, especially if bundled with online subscription services.  Other vendors, either in the US, or likely overseas will be coming out with similar products in rapid fashion over the next couple of years.

The current "holy grail" for low-cost computers is highlighted today by both philanthropic efforts like MIT Lab Nicholas Negroponte's drive for the sub $100 laptop for developing countries, and commercial efforts by entrepreneurs in developing countries like China, India and Brazil. 

The screen is the chief impediment here, as are some other components, not the least of which is the cost represented by Microsoft Windows operating system, and applications.  Those software products are typically priced as developed world prices even in the developing world.  This article in PC Sympathy clarifies the point:

The cost of Windows has remained fairly constant since 1995. During this period, the average cost of PCs plummeted. In February 2002, the average PC sold at retail in the United States cost around $720, according to NPDTechworld. In 1996, the average price of a PC was $2,000, according to IDC.

Depending on volume and discounts, PC manufacturers pay an estimated $65 to $90 per copy of Windows XP, which appears to have changed little since the release of Windows 95.

During that same period of time, the cost of other components decreased significantly, contributing to the reduction of PC prices. It's funny how sometimes percentages aren't needed to make a point; it takes no math whiz to see that $90 is a much higher percentage of $720 than it is of $2,000. So looked at this way, the cost of Windows has risen since 1995, since the operating system's cost as a percentage of the total PC cost has gone up.

An examination of Microsoft Office, which according to analysts estimates commands more than 90-percent share in its market, shows a similar trend.

Microsoft has lowered the price of Microsoft Office to as low as $125, but that's for a special "Students and Teachers" Bundle.  The regular versions still cost $200 and above depending on the version at retail. 

So with $65 minimum on OS and $125 minimum on the applications software, I get $190 vs. a $500+ PC.

The lowest cost PC with a monitor I can find on Dell today (and I know there are cheaper bundles), is the Dimension 2400 at $299, which includes ethernet connectivity, no wireless, Windows XP Home OS, no Microsoft applications, but a Corel Wordperfect bundle.  A similarly equipped entry-point Dell laptop, with a ethernet networking card starts at $545 after rebates.

But these prices with Microsoft software are still too high for much of the developing world, where per capita incomes are far lower than the $30,000 plus in the US.

Let's look at the rough math in all this. There are approximately 6 billion people on the planet, of which roughly 4 billion are either  in the "Developed" and/or "Rapidly Developing World".  Of that 4 billion, a little over 2 billion are represented by India and China, which obviously have huge economic promise over the next 2-3 decades; BUT those two countries still have collectively almost a billion and half folks today that are NOT on the economic development train and are clamoring to get on.  They can't YET afford $500-700 computers, but will give their eye-teeth to get their kids one, for their future.

If you add that billion and a half to the two billion that is left out of the "lucky" 4 billion, you get 3.5 billion, or over half the world's population that is likely want to get on into the digital age pretty pronto over the next few years.

Let's look at it another way...there are only a little under 700 million PC users globally today out of the 6 billion population.  That is expected to grow to a billion in five years.  Entrepreneurs in China and India recognize this.  China's Lenovo just bought IBM's PC business.  India's entrepreneurs are also focused on computers that cost under $300 with a monitor.

Microsoft recognizes that these countries and folks can't afford industrialized world pricing and is trying to do something about it,with an inexpensive, but restricted version of Windows , although it's half-hearted.  For instance, the start Windows does NOT include networking, in a world where networking is ALL the bang.

China, India, Brazil, and other developing countries are not going to wait long for full featured AND low-cost computers that are network capable, and already manufacture and assemble most of the "innovative", cool tech products we see here like the iPod et al. 

Companies like Pepper get most if not ALL their hardware components manufactured and assembled in Asia anyway. 

The only components missing until recently, were the software bits, and open source versions of all that are getting good enough with Linux-based initiatives.  Even Microsoft Office has an open source version of Office, compatible with Office documents, called OpenOffice (of course) that is pretty highly rated by folks like PC Magazine.

Microsoft and Intel created something pretty remarkable over the last 25 years.  An entire industry that was able to churn out RELATIVELY open computers and laptops that were ever cheaper in price and ever more powerful in performance, features and peripherals.

But it happened in some part because IBM slipped up and gave Microsoft the opportunity to own the software platform.  And while Microsoft created a near-monopoly around it, they also created a tremendous eco-system of application vendors, and hardware partners who all made some money off this new horizontally organized computer industry.  Companies like Dell ran with the ball and created wondrous manufacturing and distribution systems with a turbo-charged financial model. 

But it may all have been an aberration.  No one in their right mind is going to make the mistake of giving away another software monopoly, whether it's in the world of networked computers, handtops, PDAs, cell phones, TV cable boxes, personal digital video recorders and so on.  The IBM/Microsoft lesson has been too well learned.

We're more apt to see mistakes of companies giving away the store in areas other than software.  In fact, in the last decade, Microsoft, AOL and Yahoo! collectively gave away the search store to a start up called Google, by using Google's search engine for their search services, while ALLOWING Google to build-up a separately branded, relatively open platform of their own.  The rest is history with Google's market cap being almost $90 billion to Yahoo!'s $46 billion, Time Warner (AOL) parent)'s $78 billion, and Microsoft-still-the-champ's $285 billion.

Regardless, companies like Google, Yahoo! et al, are increasingly providing network based and optimized versions of most of the applications that matter.

Apple has already taught us that leading market share can be built in new markets, but the game isn't as simple as just building the right piece of hardware anymore.  The iPod's market dominance from zero to 70% plus in less than five years comes from executing right on the hardware (iPod), software (iTunes) and networking win/win bargain created for music publishers and music buyers.

The winning sub-$500 mobile computing device may also require that kind of complicated platform building, probably more.

I've posted on Microsoft's interest in this market before.  But it's only a matter of time these non-Microsoft forces come together formally or by accident, with a Pepper Pad that does bring tears to Microsoft's eyes.

Whether they're tears of joy or sorrow depends on how they execute in building the more complicated and inexpensive mobile platform driven by Microsoft assets.

Comments

[brian]

i'd rather have paul allen's flipstart micro-laptop, but unfortunately it hasn't be released since news of it in early 2004.

[Garrett]

I must assume that this article was written over a period of 2 days -- because the middle section assumes that low cost computers would try to use Microsoft products, and the beginning and end point out that they don't. Why not reedit this article and try again?

[Michael Parekh]

It's been a long wait fo r the flipstart pc...starting to look like vaporware...thanks for the comment...I was just trying to review the low-cost pc economics from the microsoft/intel perspective and what the current options seem to be in the middle section of the post. Then reverted to looking at the non-microsoft/intel options that seem to be emerging out there as well. It may not be that clear so I'll see how I can tighten it up. Thanks.