Dave Shen

The PC industry is highly competitive where companies are required to sell in large volumes to generate an incremental profit. The traditional PC business model (e.g. Dell, HP, Apple) for introducing innovation to their product line (and thereby attempting to differentiate) by adding the latest hardware features (CPU, memory, hard drive, motherboards) and sell it much higher because the cost of the components tended to be higher or introduce a new design. Over a period of time, by reaching certain volume, the cost of the machine tends to decrease because the cost of components decrease as well as manufacturing costs are cheaper. e.g. Dell could sell a company at $3500 in year 1 but the same company in year 2 would be $2000, etc..

The Netbook has changed the PC’s way of innovating by introducing low-cost ultra-portable machines with small amount of CPU, hard drive, and memory. Asustek “borrowed” the concept from Negroponte’s OLPC initiative with Quanta. Quanta and Asustek are the largest Taiwan computer manufacturing firms — Asustek discovered this early and decided to re-define the industry. Rather than simply be the outsourcing partner for the majority of PC firms, they decided to develop these machines with their own brand (eeePC) leveraging their existing resources to develop the machines. The major PC manufacturers were slow to market because they felt their products were superior and that customers would not the “Netbook” experience — suprisingly — it became a success and all PC manufacturers had to adapt and develop their own version of the Netbook. The Asustek “eeePC” has become the most common netbook brand. The challenge with these Netbooks is that it eats into their higher margin PCs — as Asustek continues to innovate and introduce better Netbooks, they would be closing the gap compared to laptops and indirectly reducing their competitors profit margins.