Will 2004 be year of the budget notebook?

Now that the sub-Rs 50K notebook market is here to stay, questions arise. Will these notebooks cannibalise top-end PC sales? Will prospective desktop buyers opt for cheap notebooks instead? Will prices fall further? Shipra Arora looks for some answers

The idea behind low cost notebooks is to convert desktop users into notebook users, says Vinod Nair

With an annual absorption capacity of only 85,000 notebook computers in a country of over a billion people (estimated unit shipments for this year, according to IDC), the Indian notebook market is thriving only on the fringes. Notebooks have been and will remain status symbols for some time to come.

But the introduction of newer price bands at the lower end of the spectrum—below the Rs 50,000 psychological barrier—by vendors like Acer, HP, Zenith and the lesser-known, Pune-based Pushpam Infotech, has ensured that notebooks are well on the way to becoming affordable rather than just being status symbols. More than the latest WiFi technology or similar technology trends, lower price bands are going to power the notebook boom next year. IDC expects the market to grow by around 55 percent in 2004. Rather than satisfying palates that crave for better and faster technology, it will be time for plain vanilla no-frills notebooks that bring a whole new segment of the population into the notebook market. This segment always needed mobility but was earlier constrained by affordability: students, middle-level management, field staff of sales-driven organisations, SOHO (small offices, home offices) and SMEs (small and medium enterprises).

But, priced at under Rs 50,000, these budget notebooks may start nibbling at the higher-end desktop pie.

What’s more, the trend towards lower price bands in the notebook market is going to gain momentum next year. According to Vinod Nair, research analyst, hardware platforms, Gartner India, in the next year entry-level price will go down further to the

Rs 40,000-45,000 range, thereby making mobile computing even more affordable. Vendors like Acer and HP have an intelligent gameplan in place—to lure untapped potential customers into buying notebooks with psychologically attractive prices, get them hooked, and then gradually migrate them to higher-end offerings, thus creating a market for the future. The impact of budget notebooks is already visible in market performances tracked during Q3 2003. According to IDC, the portable PC segment recorded impressive gains of 76 percent in commercial notebooks and 565 percent in consumer notebooks during the quarter. This was fuelled by the introduction of low-priced models, besides heavy advertising and promotion.

What’s on offer

With market traction in the direction of budget notebooks, vendor activities are expected to be concentrated on this segment over the next one year. Leading the clutch of prominent brands during the second half of the year is Acer, followed closely by HP. Both IDC and Gartner are of the opinion that other major brands will have to follow suit since they are left with no other choice in order to stay in contention. Ajay Sindhwani, senior analyst, computing products research, IDC India, feels that other vendors cannot afford to stay out. Adds Nair, “Price being a major factor in the Indian market, it will definitely force other vendors to follow. Also, the SME and SOHO markets are huge, and everyone would like to cater to them to grow volumes.” Thus, one can expect sub-Rs 50,000 notebooks from other vendors, plus more notebooks in the Rs 50,000-60,000 range.

Acer can take some of the credit for bringing about this change in the market. The company has successively brought down price points for entry-level notebooks from Rs 69,999 to Rs 64,999 to Rs 59,999 to Rs 54,999 and finally (about two months ago) to Rs 49,999. This was followed by HP’s launch of the Linux-based Compaq Presario notebook at Rs 49,990. Then, in November Pushpam Infotech stunned everybody with its Civil Notebook 410 priced at a meagre Rs 35,000 (exclusive of all taxes). There is yet another set of players like IBM, Toshiba, Zenith and PCS who are moving closer in the direction of budget notebooks and targeting the same set of customers. IBM has recently (in December) launched its new ThinkPad range of notebooks, with the IBM ThinkPad R40E priced at Rs 54,990. Last month Toshiba launched an entry-level notebook, its version of the budget notebook, priced below Rs 60,000. Earlier, in September this year, Zenith introduced its Topper range of notebooks targeted at the education segment and starting at a price point of Rs 55,000 for the entry-level configuration. PCS too moved in with its Mustang range priced at Rs 62,999. All these price dips have come at an opportune time, towards the end of the year, thus setting the pace for next year’s growth.

Driving factors

The introduction of the new price band has created new markets for notebooks—SOHO and education—which are the prime beneficiaries of this new trend. And this segment is going to grow. This is expected to really open up the market beyond the traditional domains of large enterprises and upper-level management, and rake in much-needed volumes. Indeed, volume growth is one of the primary factors driving the trend towards budget notebooks. The lower price points are making notebooks more affordable for SMEs and SOHO, segments where the volumes are going to come from. “Volumes will certainly come from the SME space, and in a volume-led context price will play a key role,” says S Rajendran, Acer India’s general manager, marketing. The reason for HP’s initiative is the same—to expand the market by introducing this new price band that will bring in customers like SMEs. According to Shuchi Sarkar, head, marketing, PSG, HP India, SME is the fastest-growing market in the country today, and therefore a key target for the company.

According to IDC, medium-sized businesses are expected to grow at 40 percent during 2003 and 70 percent in 2004. As compared to this, growth in the large business segment of the market is expected to come down from 55 percent in 2003 to 50 percent in 2004. The small business and small office segments are expected to grow at 30 percent and 50 percent respectively.

Rajendran confirms: “While we have been experiencing buoyancy in the enterprise space in the area of sales force automation, it has been most pronounced in the SME space.”

The budget notebook essentially targets the second-hand notebook market and business traders, and not the fundamental mobile computing market, says Jyotin Verma

Apart from SMEs, the education vertical and middle managers are emerging as key markets for notebook vendors. All major vendors like HP, Acer, Zenith and PCS are now targeting these two sections of the market as a serious customer base. For instance, the Compaq Presario notebooks and PCS’ Mustang range are targeted at engineering and management students, middle managers, sales personnel, insurance agents, consultants, etc. Acer is also positioning its notebook for sales force automation in the enterprise space, and companies like Zenith are even coming out with offerings specifically for the student community.

What’s a budget notebook?

There is no standard definition of a budget notebook, but as the name suggests, it is a product for price-conscious buyers. A budget notebook does not boast of state-of-the-art technology or the best configuration, but is a no-frills, decent functionality system offering basic mobile computing; it may even compromise on aspects like weight, aesthetics and memory. Most budget notebooks are bulky, and do not offer long battery duration.

However, the prices stated for many of the models are exclusive of taxes and some service charges, which, when added up, take the cost up by another Rs 4,000-5,000. Most of these configurations are at the entry-level with Celeron processors and 128 MB RAM and 14-inch display size. Jyotin Verma, country head, sales and marketing, HCL Frontline, points out that the budget notebook essentially targets the second-hand notebook market and business traders, and not the fundamental mobile computing market. Some amount of price-cutting also comes with the use of the Linux OS rather than Windows. For instance, in the case of Acer, if one wants to go for a 2.5 GHz Celeron with 256 MB RAM with the XP Home operating system and 24X CD RW+DVD Combo drive, an additional Rs 10,000 will have to be forked out. And Zenith’s Topper One-Up (Model 1P) based on a Mobile Intel Pentium 4 1.8 GHz is available for another Rs 10,000, which means a tag of Rs 65,000.

Though these configurations may seem outdated at a time when the Centrino, 15- to 17-inch TFT displays, and 256 MB RAM are available, they nevertheless meet the computing and mobility requirements of the segment of the population they are targeting. And since they come from known companies, these products have credibility despite their lower prices.

Will they eat into desktop market?

This brings us to the question of whether budget notebooks will gain enough acceptance to eat into the high-end desktop market. Says Sarkar, “They are definitely not eating into the desktop market right now. It is still premature to say anything since they have just entered the market.” While most vendors were not ready to admit this possibility for obvious reasons, experts do not rule out the likelihood of cannibalisation in future. “With lower prices people will start looking at notebooks. It will cannibalise the desktop market in the long term. The idea would be to convert desktop users into notebook users,” observes Nair.

One school of thought points out that the two sets of buyers are totally different. A high-end desktop buyer’s requirement is high computing power, which a budget notebook cannot meet. But at the same time there is a huge section of people who need mobility. A company might look at investing in notebooks rather than desktops so that the dual purpose of computing and mobility is served at almost similar or slightly higher price points. Similarly, there may be professionals like architects, consultants and chartered accountants who were thinking of buying a desktop but would now look at a notebook since it will offer them the additional advantage of mobility at an affordable price. Even though notebooks compromise on certain features like power, this section of customers may not require them. Another aspect is the total cost of ownership. It is estimated that an SME with 10 desktops running for 8 hours a day for 25 days a month will consume 4,800 units of power in one year. If the same SME uses notebooks instead, it will consume only 1,000 units, thus saving almost Rs 20,000 per year in electricity charges alone. However, Sindhwani feels that it will take some time for a clearer picture to emerge on this.

Large corporates

Nevertheless, this does not discount growth in the middle and higher-end notebook categories. In fact the Rs 70,000 to Rs 1,00,000 band still continues to be one of the most popular ones. According to Sindhwani, this segment of the market will continue to grow since it will continue to have its own set of customers. The buyer profile here is different since these buyers will consider performance, speed, battery life, aesthetics and weight over and above the consideration of price. “So, their share will not come down dramatically,” Sindhwani believes. According to Arun Nath of AnyThing Mac, a leading Apple Reseller, convergence is the key: “Ease of mobile phone connectivity to notebooks, synchronisation with phone books, digital images and video, internet access anytime, anywhere using the mobile phone—the main thing for the other set of customers is how easy it is to do any or all of the above.” The foremost question on the mind of this kind of user will be, ‘Does one have to add cards, install drivers and configure things, or are they true plug-n-play, which an off-the-shelf notebook will allow?’ The latter allows you to connect your Bluetooth phone, sync your phone book, access the Internet with the mobile phone, connect your DV camcorder and digital still camera, log on to the Internet using built-in WiFi, run four OSes, fit into any network, etc. According to Verma, both ends of the market—price and performance—will continue to grow. For Toshiba, while the lower-end and SME market is growing, corporates and the higher-end of the market continue to hold sway. Corporates account for almost 50-60 percent of the company’s total notebook business in India, and therefore cannot be ignored. For HP too the focus will be divided between the high-end and low-end since it expects both sides of the business to grow.

Conclusion

For most vendors it will not be a question of either/or; rather, they will make the best of both worlds—budget and feature-rich notebooks. While the aggressive pricing of budget notebooks means tough times lie ahead when it comes to vendor margins, for buyers it may indicate happy shopping all the way.

shipra@expresscomputeronline.com