Netbooks failed, but what does that mean for tablets?

mike dano

Last year netbooks were all the rage in the wireless world. And what wasn't to like? The mini-laptops were cheap, they had built-in 3G wireless and they offered Windows XP computing via long-lasting batteries.

Today, however, netbooks are everyone's favorite whipping boy. Consider:

  • AT&T's (NYSE:T) Vice President of Emerging Devices David Haight acknowledged recently that netbooks haven't caught fire with consumers.
  • Nokia's (NYSE:NOK) Niklas Savander told Cnet Asia that the company's Booklet 3G "did not blow the numbers out of the water," and noted that Nokia underestimated the competitive nature of the netbook market and the prices people are willing to pay.
  • Finally, ChangeWave research earlier this month found that just 14 percent of respondents who plan to buy a laptop in the next 90 days said it will be a netbook--10 percentage points below the results of a similar survey in June 2009.

So what's the problem with netbooks that sport built-in wireless?

"Sales [of netbooks] have met my expectations--I expected that relatively few people would buy a netbook that effectively cost over $1,600 over a two-year period," said Current Analysis analyst Avi Greengart. "Consumers don't count the service cost when they buy phones because they consider a plan a necessity, but a data plan for a netbook or tablet is a new obligation. So when you take a device that is sold largely on the basis of it being cheap, making it expensive is not a path to success."

Added IDC analyst Ramon Llamas: "People already pay for the data plan on a smartphone, so why pay for another one on a netbook?"

Concluded Neilsen analyst Roger Entner: Consumers "don't want to have a two-year contract attached to it [a netbook], even if you get the netbook for free."

Clearly, netbooks are on the downswing. However, many expect tablets to start the fire that netbooks did not. Already Samsung expects to ship more than 1 million of its GalaxyTab tablets this year--but will those shipments result in additional data customers for wireless carriers? The answer is unclear, at best.

Apple (NASDAQ:AAPL) announced that, through Sept. 25, it sold a total of around 7.5 million iPad tablets. However, on Sept. 21, AT&T CEO Randall Stephenson said the carrier counted around 500,000 iPads on its network. While there are a number of factors that could play into AT&T's half-a-million-iPad figure--the 3G version of the device was not available on launch, and Apple's sales number could reflect significant international shipments--it nonetheless could portend sluggish tablet sales for wireless carriers.

Indeed, the first iteration of Research In Motion's (NASDAQ:RIMM) PlayBook tablet won't even have built-in 3G connections; instead, it will connect to WiFi or existing BlackBerry smartphones through Bluetooth. Co-CEO Mike Lazaridis pointed out that the Bluetooth pairing scenario means "no new data plan" for PlayBook owners. Left unsaid by Lazaridis is that the strategy also likely eliminates new revenue streams for wireless carriers.

Obviously, consumers are willing to fork over lots of cash for the latest and greatest smartphones. However, I think wireless carriers will have a very hard time convincing shoppers to pay to connect any additional devices, be it netbooks, tablets, smartbooks, MIDs or whatever other gadgets become the favor of the month.

A final addendum: Now that netbooks are out, what is Google going to do with its still-forthcoming Chrome OS? --Mike