Market Focus
The Netbook Promise
Netbooks are catching the fancy of IT channel as the demand is beginning to explode
By Priyanka Chowdhury
 Netbooks, the latest category of mobile computers to hit the shelves, are increasingly becoming popular among channels. Many partners witnessed a manifold increase in netbook sales during the last six months. While the economic slowdown has negatively impacted the demand for other consumer IT products, it is in fact acting as an enabler for netbooks.
Says Hemant Shah, CEO, Care Office Equipment, “Since we began dealing in netbooks three months ago, our sales have ramped up to 250 units per month, which constitutes 10 percent of our overall mobile PC sales. Within the next six months we expect monthly netbook sales to go up to 600-700 units, and within the next 12-18 months see it becoming 50 percent of our PC mobile unit sales.” Care is the largest consumer PC sub-distributor in Gujarat for leading PC brands such as HP, Dell and Acer.
Megahertz, the Mumbai-based sub-distributor and retailer, has also seen its netbook sales zoom. “From 10 units a quarter back, we are currently selling 150 netbooks per month, constituting nearly 10 percent of the total mobile PCs we sell. Over the next six months we expect this to double to 20 percent,” informs Deepak Lalwani, head, sales, Megahertz.
Even in tier-2 cities, netbook sales are growing. Observes P K Sinha, director of the Patna-based retailer, IT Zone, “Netbooks have picked up faster than we expected. When we started selling netbooks in October, we could hardly sell five units in a month, but now we easily sell 15 units a month. We expect this figure to double by the next quarter.” With four retail outlets in Bihar, IT Zone retails netbooks from Acer, Asus, HP, Lenovo and Dell.
Growth drivers
Powered by Intel’s new line of low-cost and low-power Atom processors, the netbook broke on to the scene only in the second half of 2008 to target consumers looking for affordable Internet-led computing, as its name suggests. Intel classifies the netbook as a mobile PC with 7-inch to 10.2-inch screens purpose-built for Internet use. Channels feel that the reason for netbooks selling better than expected is due to a convergence of factors: vendors becoming aggressive, the fall in prices, and the economic slowdown. “Just a quarter ago, only Asus, Acer and HCL were selling netbooks in the market. Today, HP, Lenovo and Dell have also become aggressive. The increase in the number of players has helped build economies of scale which is leading to lower component prices. Increased competition has also meant lower prices,” opines Shah. In fact Shah expects netbook prices to come down by more than 25 percent from the current market ASP of Rs 20,000 to well under Rs 15,000. within the next quarter.
Adds Sinha, “The slowdown has also had a positive impact on the demand for netbooks. Customers, mostly students, who come with a budget of Rs 30,000 to buy a notebook, see savings of almost 30 percent in buying a netbook under Rs 20,000. The second category of users is mostly in the age group of 25-35; they’re ultra-mobile professionals who are looking for a mobile PC in addition to their existing notebook or desktop. These customers usually prefer the netbook for its small form factor and light weight, and use it for making presentations or writing reports while they are traveling.”
A large number of consumers purchasing from the Care Office retail outlet are students. “In homes, the netbook is going in as a second computer for kids in the age group of 10-18 years. But with prices expected to fall further, the netbook will be priced in the range of smart phones, and this could mean that, just like mobile phones, every person over 10 years in a home will have his own netbook,” Shah opines.
For Bangalore-based Sogo Commercials, the retail arm of sub-distributor Sogo Computers, a number of customers have been small companies with 10-15 employees. “Due its price competitiveness and small form factor, the netbook has proven to be a good investment for small organizations with 10-20 people that have limited budgets, smaller offices and a mobile sales force. Instead of buying a desktop which consumes a lot of space, or buying a commercial notebook, they buy a netbook,” explains Dinesh Nair, manager, Sogo Commercials.
“Earlier, the entry-level notebooks that were equipped with the Intel Celeron M-based processor were priced between Rs 24,000 and Rs 27,000. However, to fuel the demand for netbooks, Intel has decreased the availability of the Intel Celeron M, and now the entry-level notebook which comes with a Centrino is available at a starting price of Rs 30,000. This has created a visible and significant price delta for customers to consider netbooks,” opines Nair of Sogo.
Business opportunities
With the increase in demand for netbooks, retailers are also seeing a host of opportunities opening up to them. “Netbooks tend to offer margins that are almost as good as those of notebooks. While we make around Rs 800 to Rs 1,200 on notebooks, we make around Rs 700 to Rs 1,000 on a netbook,” discloses Navneet Agarwal, Director, Tarun Information Systems, a Delhi-based retailer which sells netbooks from HP, Lenovo and Acer.
Another opportunity is the corresponding increase in the sales of consumables. Today’s youth are quite style-conscious, and often look for accessories to increase the style quotient of their PCs, and make work a more comfortable experience.
“Along with the sale of netbooks, we have also seen an increase in the demand for options and accessories such as external optical disc drives (ODDs), USB drives, USB mice and screen guards,” Agarwal informs.
“When students come to buy a notebook with a budget of Rs 30,000, after seeing the form factor and price of the netbook they often opt to go for the netbook instead. They are then left with a budget of Rs 10,000 in hand, with which they don’t hesitate to buy accessories. The netbook does not come with an internal ODD, so we have seen many customers opt to buy an external ODD along with the netbook to enable them to play DVDs and CDs on their netbooks. Students also opt to buy USB drives with larger memory capacities so they can save songs on the drives, then transfer the songs to the netbook and listen to them,” elaborates Agarwal.
Challenge of limitations
While retailers are enjoying the growth in the demand for netbooks, it is still considered a push-product. “We often have to keep the netbook on display and pitch the product to the customer. Since it was launched just a few months back, customers are hardly aware of the product,” says Sanjeev Pathare, CEO, Computer Shoppe, a Pune-based retailer who sells netbooks from Acer and Asus.
“The fact that vendors are not strongly promoting the product category is also not helping to increase awareness among customers,” opines Pathare.
Adds Balraj Singh Bhati, director of Indore-based retailer, Friends Computers, “Because a netbook doesn’t have an ODD, the first-time user is usually reluctant to buy one as he wants to go in for a full-fledged notebook that has an ODD in it. In order to initiate demand from this particular segment, the vendor needs to bundle an external ODD with the netbook.”
With the proliferation of netbooks, retailers will also face increased competition from alternate channels such as mobile stores. Care Office, for instance, is looking at selling netbooks through large organized telecom outlets. “We have already seen many large telecom stores in Mumbai selling netbooks to consumers. Thus, we think that large organized mobile outlets will be the next prime segment we can sell netbooks through,” says Shah of Care Office.
Future scope
There is no doubt that netbook sales will grow at a fast pace despite the slowdown. In the near future, the prices of entry-level netbooks are expected to come down to Rs 12,000, and this would make it more affordable to a larger customer base. Also, just as customers change their mobile phones frequently, they could do the same with netbooks when the prices of netbooks and high-end multimedia or smart phones are at par. Yet with the increase in the proliferation of netbooks, there will also be added competition for IT channels from mobile phone and consumer durable channels. |