Tech on Deck: Gunning for the 'Gaptop'

May 12, 2008 — -- The U.S. consumer notebook market continues to grow at the expense of the low-end desktop PCs.

According to the NPD Group's Consumer Tracking Service, unit sales of notebook PCs were up 20 percent from the first quarter of 2007 to the first quarter of 2008, while sales of desktop PCs were down 10 percent over the same period.

And notebook PCs aren't the only smart portables. Fueled by products that offer inexpensive QWERTY keyboards, such as Palm's Centro, and engaging user interfaces, such as Apple's iPhone, smartphones now account for 17 percent of all U.S. handset sales in the first quarter of 2008, up from 7 percent the previous year.

It's clear that consumers want more functionality on the go, but ultraportable notebooks with 10-inch to 12-inch screens have traditionally been a premium item.

The average selling price for a laptop with a 10.4-inch screen was $2,126 in the first quarter of 2008, according to NPD's Retail Tracking Service, while one with a 12-inch screen was $1,195 during the same period.

In contrast, the price for the Asus Eee when it debuted in the United States was just $399 with a version of the Linux operating system that lacked support for many popular Windows programs. Asus now also offers Windows on the Eee along with a 9-inch display for $549.

And recently, HP, the world's largest PC company, began selling its own inexpensive Windows portable with a 9-inch screen for $599. Unlike the Asus product, it has an aluminum case, larger keyboard keys, a hard drive and a card for high-speed data. Students are a key target market.

Dell CEO Michael Dell has already announced that his company plans to enter the space. And Intel, which makes the chips that drive most of the world's PCs, is coming up with a tailored chip called Atom for even more of these products. However, with a 7-inch to 10-inch screen or larger, they are generally intended to be used while seated, like a laptop.

There's also an emerging class of mobile companions for something even smaller, products with 3-inch or 4-inch screens that would presumably serve as a higher-end version of a smartphone -- a jack-of-all-transfers that wouldn't be burdened with having to make phone calls.

Early versions of these products, such as the Nokia N810, Sony Mylo and Archos portable media players, can all connect to the Internet via Wi-Fi and handle a variety of tasks including video playback, Internet phone calls and Web browsing.

The Archos products, many of which include large hard drives, can hold vast libraries of video, deep genre collections of music and a well-chronicled decade of photos.

The iPod touch, which can already surf the Web and look up addresses via Google Maps, will also soon take on a range of new features as Apple offers other companies the ability to develop other programs, such as games, for it this summer.

Intel also sees a market for these kinds of devices, which it calls MIDs -- Mobile Internet Devices. The name may also be a reference for something in between a cell phone and laptop. While some, like the N810 and Mylo, may have a slide-out keyboard, they are primarily intended for use on the go.

With all kinds of digital content, from humble blogs to Hollywood blockbusters, becoming a more important part of our lives, it's becoming clear that many consumers would benefit from something small and lightweight enough to carry with them throughout the day, more optimized for eyes and fingers than mouths and ears.

These everyday mobile companions are offering unprecedented capabilities and useful battery life. And faster wireless networks on the way promise to keep them connected. Their potential lies in that elastic space between consumers' tolerance for too limited a device and their patience for reaching a less accessible one.

Ross Rubin is director of industry analysis for consumer technology at The NPD Group.