In the Retail Notebook Market, Thin Is In

by Nicole D'Onofrio and Sam Bhavnani
PC Research Analyst, Senior Analyst Mobile Computing

It's been said that in life, one can never be too rich or too thin. At the beginning of 2004, bulky notebooks with low price points drove sales and dominated the market. However, 2005 is right around the corner and Baby New Year is screaming, "Thin is in!" as the thin and light segment of consumer notebooks begins to take off.

This is not the first attempt for the thin and light design--notebooks that weigh less than six pounds-- to make its mark on the retail channel. Historically, the thin and light segment targeted a niche market--consumers focused solely on notebook design. Manufacturers traded functionality for portability, excluding key features such as integrated optical drives and powerful processors to offer a lightweight machine. In addition, consumers had to pay exorbitant price premiums.

As Bob Dylan famously said, "the times, they are a changin'". The segment that once could not capture more than 5% of the retail channel has experienced unprecedented success. In the past year, thin and light market share has grown from 6% to 20% among the top retail players. This achievement demonstrates a fundamental shift in the notebook consumer market that will drive the retail channel in 2005. The shift, initiated by changing buyer preferences, new industrial designs, and downward price trends, allows thin and light systems and desktop replacement systems to coexist on retail shelves for the very first time.

Notebook Replacement Buyer

Until very recently, the consumer notebook audience consisted almost entirely of desktop replacement buyers. Typically, first-time notebook buyers look for powerful systems with standard 15-inch displays (and, more recently, 15.4-inch and 17-inch models) and robust, battery-draining P4 processors. As 2004 wraps up, the notebook space is shifting from the desktop replacement buyer to the notebook replacement customer.

A notebook replacement customer is more sophisticated when it comes to shopping for technology. Weight and battery life, two things that matter very little to the desktop replacement buyer, are in huge demand with the thin and light customer. Further, this consumer expects features to be married to performance. The newest trends driving the notebook market are widescreen displays and internal DVD burners. The combination of these technologies in a sleek and sexy package is the ideal for the notebook replacement buyer. Sony and HP got it right with their fall product launches and are leading the pack in this growing niche.

Industrial Design - Sleek and Sexy

As is true with most notebook trends, such as WiFi and the graphical user interface (GUI), Apple was the first to market with a trendsetting industrial design that incorporated WiFi, widescreen, and an integrated DVD burner. In 2003, Apple was able to package these capabilities in a 15.2-inch widescreen display that weighed in less than six pounds. However, like most Apple creations, only Apple users were able to take advantage of this thin and light design. The thin and light segment needed manufacturers such as HP and Sony to help these designs reach a broader market.

Sony was one of the first manufacturers to place a thin and light widescreen model with WiFi and an integrated optical drive on the majority of retailer shelves. The company's VGN-S150 sported an intriguing 13.3-inch widescreen display, a new look for notebooks in the mainstream retail market. (Fujitsu was the first to market with a 13.3-inch display but did not make it widely available in retail.) The S150's unique packaging and rich features brought attention to the previously ignored thin and light segment.

However, its success in the marketplace was surprising given its high introductory price. The $1,999 S150 ranked consistently in the top ten notebooks sold in retail. Its successor, the VGN-S260 (currently on retail shelves for $1,999), ranked in the top five products sold in retail seven times in the last 11 weeks. Both systems did considerably well considering they were priced approximately $1,000 higher than other products in the rankings. Customers proved willing to pay a premium for the Sony thin and light system because it featured an integrated optical drive and a state-of-the-art Pentium M processor in addition to a unique display size.

It is fitting that Sony's design jumpstarted the growth of thin and lights since Sony's focus has always been on design and innovation. However, the high-end manufacturer's price premium typically limits the success of its products outside its loyal customer base. The thin and light segment needed the help of a mainstream player to get its design out to the masses. This is where Hewlett-Packard stepped up to the plate and smacked one out of the park.

Price Performance

HP transformed a standard 14-inch notebook into an innovative, popular machine with its dv1000 line. By stretching out the conventional 14-inch corporate screen, dropping the weight to 5.3 pounds, and lowering the height to 1.2 inches, HP has created the "standard" notebook form factor for 2005. In addition, HP brought this model's entertainment features to the next level by incorporating an integrated DVD burner and "instant on" capabilities.

Its best feature is its price. The average selling price (ASP) of HP's predominant thin and light SKU in retail, the dv1040, is $1,499.Its base Celeron M model, the dv1010, has a price of $1,299. As HP's dv1040 ranked third in retail during the highly price competitive Black Friday week, it is clear that the right combination of features, form factor, and functionality has finally hit mainstream price points.

Although Sony's VGN-S150, S260, and HP's dv1000 line have driven most of the initial growth in the thin and light segment, Averatec, Compaq, and Gateway also have designs in select retail locations. Despite limited distribution to date, they have all played an important role in driving the thin and light movement and offer a sub-six pound notebook that falls below the $1,499 price point.

The surge of new models within the $1,000 to $1,499 price band has led to an overall price shift for the thin and light segment. The market started the year with an ASP of $1,749 but ends it with one of $1,399. The year has also seen a growth of thin and light market share, ultimately bringing the segment within reach of the mainstream consumer.

The buying preferences of the notebook replacement buyer will be forever altered by the sleek, industrial designs and mainstream price points of the thin and light notebook. As we saw widescreen explode in 2004, 2005 will be the year for thin and lights.

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