Pimped up Tom-toms...Netbooks+GPS: where is the value?

There is something funny going on in consumer electronics and personal computing nowadays. There is the tendency to combine different functionality into one all encompassing device. Management calls it convergence. Sales and marketing call it up-selling. The product guys call it how-to-keep-your-job-important. Consumers see it as a peculiar phenomena where devices become pricier even though they should be getting cheaper.

Here is a good example :

Smart phone = phone + camera + GPS + DVB-H TV receiver + memory stick + music player + ...

OK so I see some value in this smart phone convergence algebra. All the above services may be useful to a user and its great to carry them all in your pocket.

But it struck me as odd that Dell is planning to up-sell its Mini notebooks by charging users for extra GPS hardware. Apart from robotic aficionados who would want such GPS service on a netbook? The significant time it will take to power on a netbook and fire up the GPS would probably mean you've overshot a couple of highway exits before the GPS locks on and tells you where you are. And that will be after you've somehow placed the netbook over the dashboard for line-of-sight to GPS satellites, driving at 70mph. Netbooks with their limited battery lives would make for poor trekking-in-the-Rockies aids (and why would someone carry a netbook instead of a small portable tom tom up the trail anyway)?.

But the guys at Dell must have thought of all this. Even after you remove the management, sales, and product-team views on such matters, there must be someone who tried to write up credible use-cases. What is the killer-app use-case?

In my opinion, there is a very significant business-opportunity here. Dell wants to know where you are, in order to introduce location-based services (e.g. locality-aware advertising) in return for GPS map services. If you think about it, operators have an advantage over other IT vendors because they know (through cellular triangulation) where a user is. Hardware and software vendors would also want a piece of this action because of the significant scope for location-based advertising. GPS gives them that chance (and more accurate location information). Dell could know, through its GPS/map services, that its 13:00 on a Wednesday afternoon and I am sitting in a downtown Berlin park about 3 minutes walking distance from a restaurant serving schweine haxe and Berliner pilsner. I bet I'd take the bait of a 10% coupon to get there! And Dell would get a piece of the pork too.

The rise of the Netbook

While walking in Media Markt's laptop aisle yesterday I was surprised to see the number of mini laptops (Asus EEPC, Acer Aspire 1, Toshiba netbook etc.) in the €299-500 price range. Interestingly, some of them are being sold like cellphones - with a price tag of just 1 Euro with a 2 year "3G data plan". The data plan costs 37 Euros, and probably gives customers a few GB of bandwidth a month.

So adopters get to carry their *free* netbook and Internet connection anywhere, without paying outrageous Wifi hotspot/hotel Internet charges. Perhaps in a few months this Netbook offer will spur many to switch to 3G Internet and give up on tethered Internet (cable, DSL) entirely. Are we looking at this cannibalization in the next couple of years? Low cost cellphones cannibalized fixed line telephone users. Can netbooks with 3G data plans cannibalize tethered DSL?

It all depends on the service quality of 3G data vs. DSL. Now 3G data can seldom serve more than 100s of kbps versus the multiple mbps of DSL connections. But I hazard that there is a sizeable market segment to whom the mobility (and free netbook) will appeal more than blitzy Internet connections.

Another issue will be the scalability of 3G data - 3G infrastructure has some fundamental bandwidth limits - which make a mass deployment in dense areas problematic. There is LTE, the next generation of cellular wireless networks that promises much more bandwidth, but its deployment is only planned over the next decade. Perhaps mass data demand over wireless will speed things up for LTE (or WiMAX).

The multi-person home tethered service is probably safe from wireless 3G data for now. Splitting 3G bandwidth is certainly possible via Internet sharing or a router that accepts a 3G data card and then wifis the bandwidth to multiple home PCs, but the slow speed will be an issue for demanding applications like online video, gaming, etc. 3G data is still a 'midband' service. Moreover, netbooks are difficult to use with their small screens and cramped keyboards. Presently deployed laptops and desktops are certainly more comfortable (minus their limited mobility).

The Netbooks' rise is absolutely remarkable. A couple of years ago MIT's OLPC project was the seed of the idea to create cheap affordable laptops for school children in developing countries. Then Intel threw in its own school laptop competitor. Asus stole the commercial show with its EEPC 701. Intel's spectacular strategy of creating the low-power Atom processor created a captive netbook market for Intel and allowed for smaller and lighter batteries. Microsoft resurrected Windows XP as the Netbook operating system while Linux provided a free alternative to Windows XP. And then there is the 3G data availability through USB sticks.

It all seems to have come together at the right time.