Here Comes the 'ASUS Freee PC'

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ASUS shook up the industry with its $300 — $600 mini notebook last year. ASUS continues to dominate the market for super small, super cheap mini-notebooks. It may sell as many as 5 million Eee PCs by the end of the year – far more than all other competitors combined.

It wasn’t supposed to happen this way. Microsoft and OEM partners Fujitsu, General Dynamics Itronix, HTC, OQO, Samsung and even ASUS have been planning, designing and building Ultra Mobile PCs that were supposed to be so good people would pay $600 to $2,000 for them. Many of these devices attempted to re-invent the sub-notebook wheel with funky form factors, goofy keyboards and exotic feature combinations. Worse, some took Microsoft’s advice and made the gadgets dependent on Vista, which is a lousy OS for a full-size, full-powered desktop PC and a disaster for an ultra-portable.

It turns out that people just wanted a regular laptop, but much smaller and cheaper. When ASUS came out with its mostly solid state, plain vanilla PC running Linux (and now XP), the masses flocked. And now, Acer, Dell, HP and possibly Sony, as well as a smattering of smaller companies, are rushing their own cheap-and-tiny offerings.

Soon, the market will be overwhelmed by what I like to call “mini me too” laptops — commodity ASUS clones that will drive margins for all players toward zero. There will be no real money to be made in direct sales of cheap mini-notebooks to consumers.

I’m predicting that the successful pricing model for “mini me too” laptops will look nothing like the notebook pricing model (where you always pay full price for the hardware), and a lot like the cell phone pricing model where you buy a service, and the hardware is heavily subsidized or given away free.

This will happen because improvements in solid-state design, economies of scale through mass production, aggressive competition and other factors will drive the cost of producing tiny laptops down even further. Manufacturers will make their money by selling large quantities to companies who have more profitable products and services to sell. They’ll use the lure of free PCs to steal customers from competitors and upgrade existing customers.

Don’t believe me? It’s already happening in Britain and Canada.

In the UK, PowerupMobile.com will give you a free ASUS Eee PC if you sign up for a two-year contract for a specific T-Mobile mobile broadband service called Web ‘n’ Walk Max, which costs about $68 per month.

Years ago, banks used to give away toasters (and other things) to encourage people to sign up for new checking accounts. Fast forward to 2008, and the Royal Bank of Canada is giving people ASUS Eee PCs if they open one of two accounts.

My prediction is that by the middle of next year, “mini me too” laptops will be given away in the United States, and by so many companies that they’ll become hard to sell at any price. Here’s what you’ll have to buy in order to get your free mini laptop:

• Mobile broadband services. Phone carriers will use “mini me too” laptops to lure existing customers into faster and more expensive pricing plans. They’ll give you a good reason to upgrade to 3G, for example, by giving you a free 3G Eee PC if you upgrade. They’ll also use them to attract new customers.

This makes a lot of sense because a two-year contract at, say, $30 per month (or $30 extra on top of your existing wireless cell phone plan), means $720 for the carrier. But with dropping prices and buying in bulk, they might pay less than $100 for the laptop.

• Online storage and synchronization services. ASUS announced recently that customers in Taiwan would get free online storage for one year with the purchase of an Eee PC. After the year is up, presumably, they can stop using the service or pay a monthly fee. I think this is bass-ackwards.

A new breed of online storage and synchronization services, including SugarSync, Syncplicity, DropBox, FolderShare, Carbonite, Mozy, Upline and others are all trying to make money in their own over-crowded niche. The two were made for each other, because mini-notebooks are almost always secondary systems. By definition, anyone with a mini-notebook needs to synchronize files with their PC, or at least needs online storage. One of these companies is going to figure out that giving away a laptop along with a two-year commitment is a compelling way to beat the competition.

• Software. Hundreds of companies make vertical applications or applications suites for specific types of professions, and sell these software titles for hundreds or thousands of dollars. It’s only a matter of time before they start selling their software already installed on a mini-notebook. Imagine, for example, a suite of Real Estate applications pre-installed on an ASUS Eee PC, where agents could check listings and do all their work from anywhere. Or insurance. Or sales.

• Non-technology related products and services. Vacation packages, new cars, bank accounts (like in Canada) – you name it. Mini-notebooks will become the new toaster, and will become popular giveaways for raffles, radio programs, universities trying to lure freshmen, and others.

I’m not saying all “mini me too” laptops will be free. I’m saying they’ll be priced like cell phones. That means the low end of the market will be free, the mid-range will be heavily subsidized ($50 to $100, plus you have to agree to buy some service or product) and the yet-unannounced Apple product will be over-priced and totally unsubsidized.

It’s a wonderful time to be a nerdy cheapskate.