iPad the Destroyer: It's Getting Ugly for Netbooks

Netbook sales have been falling off a cliff as iPad sales ascend. Should Microsoft start worrying now?

A few times in this blog I've tried to make the case that netbooks and the iPad serve different purposes and audiences. But the sharp decline in netbook sales so far this year has me rethinking this notion.

While it's true that netbooks are the more affordable choice with better keyboards, USB ports, faster processors, superior e-mail and Flash usability, and a variety of models to choose from, the popularity of netbooks have been in a freefall just as the elegant iPad is catching fire.

Could this be happenstance? Maybe. The netbook trend may just be played out regardless of the iPad. But a new report from Morgan Stanley argues there is a direct correlation.

In addition to forecasting that the iPad will cannibalize iPod Touch sales, the Morgan Stanley report provides data showing that the netbook craze hit a crescendo in July of 2009, with a stunning 641 percent year-over-year growth. But after the holidays, netbook growth took a big fall, and it's been dropping each month since. In April, netbooks only experienced 5 percent year-over-year growth.

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That the iPad was announced in January, rode a wave of hype and anticipation through February and March, and then released in April, does indicate that it is smothering netbooks. The iPad wasn't announced until January 27, but invitations were sent out January 18, and the rumor mill began much sooner, so the steep drop in netbook sales likely began in the days before Christmas.

Fortune's Apple 2.0 blog cites a Morgan Stanley/Alphawise survey from March finding that 44 percent of U.S. consumers who are planning to purchase an iPad said they are buying it instead of a netbook or notebook.

Bad news for Microsoft? Somewhat, yes. If the netbook era is coming to an end (and a drop from 641 percent to 5 percent year-over-year growth in 10 months does signal that the end is near) Microsoft will still survive. The truth is Microsoft and its hardware partners didn't like netbooks anyway; those pesky, low-priced small wonders were killing profit margins. But like I argued in a previous blog post, "The iPad Threat to Windows: It's Not about Netbooks", Microsoft's enterprise products like Windows 7 and Office and SharePoint 2010 will comfortably compensate for netbook losses.

But for how long? Microsoft can rely on enterprise revenue like it always has, but that's not the greatest long-term solution to the iPad's potential steamrolling of netbooks and notebooks. Going forward, if iPads wipe out netbooks, will Microsoft just hope more people start buying pricier regulation-size notebooks just because the economy is improving? It's possible consumers may begin opening wallets more, but the real solution for Microsoft is still to get Windows 7 on tablet PCs and go head to head with the iPad.

That proposition got very complicated when Hewlett-Packard bought Palm. On April 28, Redmond's main Windows hardware partner acquired Palm for $1.2 billion and then a day later Microsoft canceled development of its much-hyped dual-screen foldable Courier tablet PC. Right away, HP execs started indirectly referring to an HP Tablet PC powered by Palm's WebOS.

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