Netbooks Damaging The Tech Economy? Say What?!?

from the a-little-tech-economic-history,-please dept

Well, here's an odd one. Apparently, an analyst at NPD Group, Stephen Baker, is worried that the rising popularity of netbooks is bad for the tech economy. He's claiming:
"History tells us that when we offer lower-priced products, it tends to drive down the average selling price across the board. The net result is to drive down revenue overall, even if there are more units out there."
I'm curious which tech history books he's reading, because that seems to go against pretty much every history of technology evolution I've ever seen. If you've watched the tech industry over the past few decades, things always get cheaper. It's the whole Moore's Law thing at work -- and every time things get cheaper, it allows for more to happen, making products more valuable to more people, and tends to expand, not contract, the wider overall market. Yes, the average selling price decreases, but that's a tautology. Of course if you decrease price, average selling price goes down. That's not analysis, that's saying 2 = 2. But to then say it means overall revenue goes down isn't necessarily true -- and in many tech sectors isn't true at all. In the end, providing a good product, at a reasonable price that many, many people want, is never "damaging" to the economy. It may shift things around, but it always opens up new opportunities.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Dan Stevens, Jan 26th, 2009 @ 1:04am

    I am no expert, but do I assume correctly that the high price that these devices would sell at when they were first released makes up for their fall in price later in their product life cycle? Furthermore, can I assume correctly that if the tech industry continue to innovate and release new products with a high perceived value they can charge premium prices for at least some of their product range, avoiding low prices 'across the board'?

     

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    Keith, Jan 26th, 2009 @ 1:12am

    don't want to drive down profits......no no.

    Is this guy for real? To paraphrase, cheaper VCR's are bad for the tech sector because they drive down profits, everyone should be happy to pay $800 for one. Jump ahead a decade and the same thing applied to DVD players, fast forward another decade and we're now talking about it with Blu-Ray players and laptops.......If we had all happily paid $800 for each or our VCRs, we'd still be rewinding tapes before returning them. The increased competition forced companies to be innovative, the result........ we have 1080p now instead of 480i!

    I hope they don't pay this guy too much, he's wasting their money.

     

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    Kenny, Jan 26th, 2009 @ 1:15am

    "Yes, the average selling price decreases, but that's a tautology. Of course if you decrease price, average selling price goes down."

    You should be fair to Baker. His argument wasn't that decreasing price for a single product causes average selling price to go down for that product, it was that selling prices would go down across the board, including desktops and laptops.

    In the original article you can clearly see the context of his quote was in reference to fast laptops: "In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks."

     

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    JPFife, Jan 26th, 2009 @ 1:30am

    I've actually noticed an increase in the price of laptops in particular here in the UK. Until the net books appeared there was no 'buffer' for laptop prices. Now that laptops are a step up from net books there seems to be a price range laptops wont go into. You can still get cheap laptops but they are few and far between and not very well specked.

     

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    Lawrence D'Oliveiro, Jan 26th, 2009 @ 1:52am

    It's About Margins

    On the hardware side, it's hurting Intel's margins, as these netbooks use cheaper "Atom" processors instead of more powerful (and power-hungry) "Core" chips.

    On the software side, it's really hurting Microsoft's profits. The hardware is so cheap that the cost of a Windows licence is becoming the single most expensive item on the bill of materials. This is why you see so many netbook vendors offering Linux as an alternative, either as cheaper models with the same spec, or as higher-specced models at the same price.

    Microsoft's current resource-hungry Windows Vista OS is totally unsuited to running on these low-power machines. So it's been forced to keep its elderly Windows XP version hanging around, to offer at a cutthroat price. The upcoming Windows 7 version will apparently run OK on netbooks, but that doesn't solve the problem of the price that Microsoft will be forced to offer it at: does it let netbook vendors bundle full-function Windows 7 at a cut-down price, and run the risk of buyers of more expensive hardware wonder why they're suffering price discrimination? Or does it produce a cut-down version of 7 to justify the lower price, and end up making the Linux option look more attractive?

     

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    george Kraev, Jan 26th, 2009 @ 1:56am

    some merit

    Provided that more and more people use notebooks as work machines ( not home computers ) then I can see how it can decrease sales. Usually you are given an office computer and if you have a job that requires you to move between offices you will probably require a computer in each office an that could drive the number of sales up. The only problem with a logic like this is that professionals like the ones described already use notebooks and have been using notebooks for well over 10 years now. There isn't a consultant out there that doesn't have an office notebook. Also from my experience notebooks tend to last a lot let longer than an average desktop computer. So even with a lower price ( which is far from the truth ) they should drive the economy up because there will be a need for new computers in a shorter amount of time than before. In a corporate environment where you use your computer 8 hours a day you will probably en up replacing the battery every 1 to 1 1/2 years and the notebook every 2 years. On the other hand a desktop does not need a battery and you end up replacing it eery 3 to 5 years. And most of the time it is not because the computer is dead but because this is the company's policy. ( supposed productivity gain an such ) So go ahead switch to notebooks.

     

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    Griff (profile), Jan 26th, 2009 @ 2:49am

    Finally facing the truth

    The ugly truth for the tech industry is that people have stopped wanting PCs that are twice as fast every 18 months. They are fast enough now and so people would rather see them halve in price every 6 months.

    I bought a netbook this month that is the same spec as my 4 year old Dell notebook (which by the way is still absolutely fit for the purpose I got it for), but half the size. It fits on a fold down seatback tray table easily, (& in my small backpack) and has superb battery life. The netbook has XP which is fine (why would it not be, my job requirements have not changed).

    Finally they are going to have to start investing in things that users need, rather than just pushing new technology at us because they can.

    (I also recently got a new cell phone that is JUST a cellphone, not a camera - what a refreshing change that makes !)

     

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  8.  
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    Kevin, Jan 26th, 2009 @ 3:44am

    I'm not seeing it

    I have a netbook. I know 3-4 other people with netbooks. All of us also have laptops. And a desktop PC or three. Some of us even have servers at home too. Don't forget lots of hard disks, both portable and as external arrays. Most of us bought a netbook because we needed something more powerful than a PDA to carry around with us ALL the time, even when we didn't need a full-fledged laptop. For us, the netbook is a compliment to our existing computing tools, not a replacement for them. I bought a new laptop last year. I probably won't buy another new laptop for a year or two, but I did buy a netbook this year. Had the netbook not existed, that's one less tech purchase that I would have made. So at least in my case (and in the case of several people that I know) the netbook is an "extra" sale for the industry.

    The other thing is that the economy is in the toilet right now. Tech sales would be decreasing anyway. Selling netbooks at a lower price than laptops is a GOOD thing, because it means that manufacturers can meet a lower price point without having to cut prices on their laptops too much. Would a manufacturer prefer to sell a netbook at $350-$400 or a full-featured laptop at that same price?

    In the original article you can clearly see the context of his quote was in reference to fast laptops: "In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks."

    That's a bullshit statement. If you're a laptop maker you don't lower your laptop prices to compete better with netbooks. You make a netbook of your own to compete with everyone elses netbook, and almost all laptop manufacturers are already doing that already. This actually insulates you from having to lower full-fledged laptop prices, because you now have a lower cost product to compete with everyone else.

     

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    PaulT (profile), Jan 26th, 2009 @ 4:01am

    The fact that a lot of computer manufacturers have to face is that most people can already do what they want with existing hardware. If they can browse the internet, do basic photo editing (e.g. red eye removal), write a document, play a music or DVD then no fancy new hardware will be any better for them than their old stuff.

    Netbooks are taking off because they offer a cheap piece of hardware that's light and small. That means that makers of "traditional" laptops and desktop need to come up with something compelling to justify the extra expense, weight and lower battery life.

    If the tech industry starts shrinking as a result of netbooks, it just means that people aren't convinced they need the bigger hardware. Historically, the increase in tech power has been driven by new consumer needs or compelling breakthroughs. With the PC games market shrinking and the power-hungry Vista being a complete flop, many people simply don't need the more expensive hardware to do what they want to do.

     

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    pawn, Jan 26th, 2009 @ 4:16am

    Re: I'm not seeing it

    Sure, but a guy I work with wanted a laptop. He then found out about the netbooks and spent less money than he'd originally planned. That's a lost laptop sale and less money going into the tech industry.

    But we've seen this point discussed on this site before. Some economic trends can be bad for individual sectors of the economy, but can be good for the economy as a whole.

    Stephen Baker believes that offering the best product at the best price is a bad thing.

    He needs to remember that in his business two things are constant. Change and competition. He may be at the point where he wants both to stop so he can just cash his checks.

     

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  11.  
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    Monarch, Jan 26th, 2009 @ 5:23am

    Re:

    I'd almost give him credit for that assumption. Except, a top end netbook is around $700 still, and I could get a full sized laptop with the same functionality if not better for that $700. So what I'd be paying for is the smaller size and portability in that case.

     

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  12.  
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    Anonymous Coward, Jan 26th, 2009 @ 5:41am

    Re:

    Aren't desktops given away in cereal boxes now? I mean a year ago I got a 2+ ghz, 500 megs, 240 gig HD, dvdrw for $169 bucks. I popped in more memory and it has server me well since.

     

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  13.  
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    AJ, Jan 26th, 2009 @ 5:53am

    econ 101

    The only thing he's afraid will be damaged is his pocketbook. Once people become comfortable with their lives, the thought of having to compete just scares the be-jeesus out of them. Its far easier to close the door once your in to keep the others out so you don't have to share, than to innovate, think, compete and add value.

     

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  14.  
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    Anonymous Coward, Jan 26th, 2009 @ 6:03am

    im sure this was mentioned in the replies already ubt i haven't read them all, so in case it wasn't:

    ok so netbooks are cheaper but in his statement he is assuming that netbooks are a good alternative to notebooks.
    IE instead of buying notebooks that are more performant and can handle tasks netbooks cant ppl will stick to netbooks and forget the rest.

    but that is not what will happen, ppl that a laptop with high graphics capabilities aren't interested with netbooks (granted those cut in the Market share of the higher performance Laptop but not that much).

    In fact as always lower priced items will allow ppl who cant afford or not willing to pay for Notebooks to get a netbook.

     

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  15.  
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    Anonymous Coward, Jan 26th, 2009 @ 6:07am

    Re: Re:

    seriously, if you are willing to build your own machine depending on how much pre-existing hardware you want to vulture (like hard drives haven't really improved a great deal and I don't need a terabyte of data) you can build a freaking monster. Or for the same price a smaller monster pre-built.

     

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  16.  
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    Anonymous Coward, Jan 26th, 2009 @ 6:35am

    Re:

    "In addition, computer makers will have to cut the price of their faster laptops to compete better with netbooks."

    Well, in that case, he is just wrong. High-end laptops don't compete with netbooks. Someone looking for a high-powered laptop won't even glance at a netbook as a possibility. Only the "value" laptop (previously aroung $500) will see a significant price drop. And even those give you something substantial for the price difference: a larger, higher-resolution, more vibrant display.

     

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    james (profile), Jan 26th, 2009 @ 6:39am

    hmmm

    What I've noticed, is that abstractly, prices haven't really changed, only the technology has. 10 years ago, top of the line (non-beast gamer rig) desktop was about 3,000. Today, it';s still about 3,000. Someone mentioned the vcr originally selling for 700, today it's the blu-ray. Same with console tv's compared to plasma's and the like. laptops and netbooks are basically the same way, with netbooks being the "new kid on the block". There are always exceptions to this, but as a general rule, that is the trend I have seen. Netbooks hurting tech? Nope just another doorway.

     

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  18.  
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    agrumbri, Jan 26th, 2009 @ 6:51am

    Re:

    Trust you to let simple facts get in the way of a delicious put-down.

     

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  19.  
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    Peter, Jan 26th, 2009 @ 7:03am

    Backwards Tech

    What I don't want to see is the lack of technological progress. With the selling of these so called laptops. Faster and more powerful will not progress as fast in order for the masses just to get there E-mail and surf the net. It's been way to slow just to get to 64 bit. We should be looking at 128 bit at this point in time.

     

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  20.  
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    Alex, Jan 26th, 2009 @ 8:30am

    Apple?

    Somehow Apple didn't get the memo about the cheaper prices and the lower profits.

     

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  21.  
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    chris (profile), Jan 26th, 2009 @ 8:45am

    Re:

    You should be fair to Baker. His argument wasn't that decreasing price for a single product causes average selling price to go down for that product, it was that selling prices would go down across the board, including desktops and laptops.

    welcome to the industry. the bathroom is down the hall and on the left.

    the price of computer hardware is constantly falling, netbooks are just the current indicator. in the past it was cheap desktops, server appliances, shared web hosting, or $500 laptops.

    when you consider that in the 50's a computer was tens of millions of dollars, the race to the bottom becomes apparent.

    my netbook, an EEE 700, purchased last christmas for $350, is less than half the machine that you can get this year for the same price. in another two years, a $250 netbook will have more power than my current gaming rig.

    the internet was invented essentially because it was cheaper to connect research computers together than it was to buy them for the research teams that needed them:
    http://www.amazon.com/Where-Wizards-Stay-Up-Late/dp/0684832674

    now the cellphone that you got for free from your carrier has more power and functionality than was available to NASA during the apollo program and with nice desktops hovering around the $500 mark, the idea of multiple people sharing time on a single system seems barbaric.

    it seems that about every 5 years, some new thing shakes up the hardware market and people talk about the end of the industry as we know it. in a sense they are right.

    i remember when the sub $1000 desktop was a big deal in the mid 90's, right around the time that consumer access to the internet became commercially viable.

    the price of a desktop fell below $500 a few years later when ISPs started subsidizing the price with service contracts. coincidentally, this is when dial-up internet access fell bleow $20 a month and DSL made AOL pretty much irrelevant.

    in 1999, e-machines made the infamous "E-one" which was a computer built into the monitor for $399 when subsidized by the ISP.

    http://lowendmac.com/imac/eone.shtml
    http://en.wikipedia.org/wiki/EOne

    the only difference between now and a decade ago is that that ISPs are no longer subsidizing the cost of the PC and netbooks offer a much smaller form factor than previous low end notebooks and desktops.

    the $500 laptop was a reality around 2002 which is when they started being a fixture in every classroom.

    that's the way the hardware industry works, as the sale price falls you have to sell more and more units. this is why blade servers were so popular a couple of years ago (double the servers in half the space!!1!) and why "teh cloud" is such a big deal this year.

    with evdo, 3g, and the prospect of wimax or ubiquitous wifi, i think the Next Big Thing will be the tiny laptop as a replacement for a smart phone, and/or the super smartphone as a replacement for a laptop.

    the redfly mobile companion is not yet ready for prime time, in my opinion, but it's a signal of what's to come in mobile computing:
    http://www.celiocorp.com

    imagine a device like that for the iphone. there would be little need for a macbook.

    i would also put the safebook in this category as a device that's ahead of it's time:
    http://www.devonit.com/products/products_Safebook.php

     

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  22.  
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    fasat, Jan 26th, 2009 @ 9:26am

    Its on the company to then create new products that will not fall into the low price range. Like DVD and blu-ray.

     

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  23.  
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    Anonymous Coward, Jan 26th, 2009 @ 12:43pm

    This Computer

    XP Pro
    2X Quad Core Intel Xenon @ 3.0 GHz
    3 GB RAM @ 2.99 GHz
    NVIDIA Quadro FX 1700
    Dual 21 inch monitors
    yada yada yada

    Point is that this machine will likely be replaced within 3 years and I'd guess it costs 3 - 5 grand and will save my company A LOT of money in the long term by allowing me to work that would be impossible without a high end machine, like 3D CAD, FEA, CFD, and so on. We buy lots of these guys and will continue to do so forever and computer manufacturers will continue to charge us lots and lots of money for them. Companies will provide lots of revenue for computer manufacturers.

    Personal computers might be another story, but would you buy a netbook to game? No, you buy a high end desktop not unlike my work computer. You let a kid have a netbook or laptop? no, you give them a cheap laptop or better yet a shared family desktop.

     

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  24.  
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    chris (profile), Jan 26th, 2009 @ 1:27pm

    Re: some merit

    Provided that more and more people use notebooks as work machines ( not home computers ) then I can see how it can decrease sales.

    i don't think that many corporations will be deploying netbooks since the typical road warrior has a very specific idea in mind of what a laptop is and should be.

    now, the idea of a netbook as a supplement to a desktop might have some value to corporate users, especially if it can add low cost mobility to people who do things that require high end desktops (engineers, graphic artists, etc.) rather than trying to solve both problems with a high-end laptop.

     

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  25.  
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    chris (profile), Jan 26th, 2009 @ 1:54pm

    Re: It's About Margins

    On the hardware side, it's hurting Intel's margins, as these netbooks use cheaper "Atom" processors instead of more powerful (and power-hungry) "Core" chips.

    the PC hardware market for traditional desktops and traditional laptops is about as big as it's going to get.

    how do you convince people to buy an extra laptop or desktop when they already have budgeted (money, space, and in some cases, power and cooling) for a desktop and/or a laptop?

    one option is to make models that cost less and use fewer resources (space, power, etc.) and are engineered for specific uses (set top box, portable email/surfing).

    intel knows this and so does microsoft. that's why vista included [unsuccessfully] so many media features, like the media extender for the xbox 360 and why they made windows FLP to compete with linux and piracy in the third world:

    http://en.wikipedia.org/wiki/Windows_Fundamentals_for_Legacy_PCs

    does it let netbook vendors bundle full-function Windows 7 at a cut-down price, and run the risk of buyers of more expensive hardware wonder why they're suffering price discrimination? Or does it produce a cut-down version of 7 to justify the lower price, and end up making the Linux option look more attractive?

    for all of it's failings, vista represents microsoft's concern with security and stability, which are two of the biggest reasons people switch to linux or mac OS.

    microsoft looked at the competition and tried to respond. it failed miserably, but at least it responded. a great many american companies could learn something from microsoft.

    an example of where microsoft has succeeded in addressing these same concerns are on the server side, with the windows server 2008 core install. the core install is dedicated to a single function and has almost no gui. this is said to take up less disk and memory, to be more stable and secure, and to require less maintenance.

     

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  26.  
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    Derek Kerton (profile), Jan 26th, 2009 @ 2:05pm

    Netbooks =

    More netbooks =

    - more wireless data connections and service sales
    - bigger investment in 3G and 4G technology
    - increased use of cloud computing due to the limited horsepower, but high portability of netbooks
    - increased competition between linux and MSFT
    - New runtime environments competing with Windows, like Splashtop, and Phoenix Technologies HyperSpace
    - Portable computers more and more affordable, getting into the hands of less affluent people in developed countries.
    - Netbooks, continuing the trend, will soon be cheaper than Negroponte's OLPC computers. Netbooks may bring the world's poor online.
    - Many wealthy people will buy this as an adjunct to their existing PC or laptop, for mobility, or "for the kids" or for the family room.

    Overall, this will open up a new category, get more laptops in the hands of more people, make data more mobile, drive cloud computing, and further ingrain technology into the lives of people. Not sure how this harms the overall industry!

     

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  27.  
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    Anonymous Coward, Jan 26th, 2009 @ 3:03pm

    Re: This Computer

    "Personal computers might be another story, but would you buy a netbook to game? No, you buy a high end desktop"

    Or, you buy a netbook and an XBox 360 or a Wii. Doesn't help your PC manufacturer, does it?

    "You let a kid have a netbook or laptop? no, you give them a cheap laptop"

    You might want to proofread a little as that makes no sense...

    Anyway, you're missing the point, as a lot of people whose livelihood depends on having an up-to-date machine do (who do you think will care about your desktop specs anyway?). 90% of the general population, especially those who don't use such a machine for work, don't think like that. they look at price, and want light, portable machines.

    The issue here isn't whether netbooks are going to take away the demand for high-end workstations. Of course they're not! The demand for that type of technology is still going to be there, but how much of the "traditional" tech market is people buying machines to write letters and surf the net compared to gamers, CAD artists, etc.?

    I'd be willing to bet that the clueless parent who used to buy the more expensive machine makes up the larger segment. The question is what happens when those people stop buying the $599 laptops in favour of netbooks. Up until netbooks came along, "desktop replacement" laptops were the fastest-growing domestic PC market. Think about that...

     

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  28.  
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    Horatio Alger, Jan 26th, 2009 @ 3:40pm

    Masnick, can you write one blog post -- just one -- that doesn't come off as a whiny, petulant diatribe from a child who's cross over not being able to steal music and download pirated software. After a while, it gets old.

     

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  29.  
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    Mike (profile), Jan 26th, 2009 @ 4:44pm

    Re:

    Masnick, can you write one blog post -- just one -- that doesn't come off as a whiny, petulant diatribe from a child who's cross over not being able to steal music and download pirated software. After a while, it gets old.

    Odd. I would suggest this might say more about your reading comprehension skills than my writing style. I have never written a single post asking for free music or pirated software -- that's because I don't want either.

    This post, in particular, has to do with netbooks. I'm not sure why you would bring up the issue of piracy on it.

    But, my point (as I *thought* was clear, but apparently only to those who read) is to talk from the perspective of the content creators. It's got nothing to do with encouraging piracy. It's got everything to do with teaching content creators how to take advantage of new distribution and promotional means.

    How that comes off as petulant over not being able to get free stuff... I really can't say.

    Though, I really am curious... what possibly gives you that idea?

     

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  30.  
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    Jimmy The Geek, Jan 27th, 2009 @ 3:11am

    $100 price point coming.

    Low cost net books are coming in a year or two, using ARM processors. Good luck to MS then, the only thing they have ported to run on ARM is WinCE.

     

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  31.  
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    Gene Cavanaugh, Jan 27th, 2009 @ 4:18pm

    Netbooks being bad

    Right on, Michael! It brings to mind the story of Charlie Spork of National Semiconductor and Wall Street.
    Charlie said "we are making this chip at 9 cents, and it sells for 5 cents, but we will make it up on volume!".
    Wall Street was aghast, and panned what turned out to be one of the most successful chips (in profits as well as volume) in the history of the industry.
    If you don't know where your mouth should be, it is easy to get your foot in it.

     

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  32.  
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    Erv Server, Feb 12th, 2009 @ 12:08pm

    Prices

    So this dude, Stephen Baker, suggests that high prices are better for a society? Was he a member of the Bush administration?

     

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