IT and Business Insights for SMB Solution Providers

Ultrabooks: Market Savior or Fad?

Intel's drive to counter the MacBook Air isn't bringing smiles to channel pros' faces -- yet. By Erik Sherman

You've seen them — incredibly thin and light notebooks with batteries that go all day. But you’re not looking at Apple’s MacBook Air. Browse the shelves at electronic megastores or your distributor’s latest product listings these days and you’ll see one ultrabook after another.

Based on a reference design from Intel, ultrabooks have made a big splash with hardware manufacturers such as Acer, HP, and Dell. So far, however, businesses have barely stuck their big toes in the water. For all the plusses inherent in the ultrabook design, there are enough minuses—including big ticket prices and a shortage of business-friendly functionality—to discourage everyone but early adopters, according to analysts. Yet with ultrabooks boasting stronger specs and lower prices expected to begin reaching market soon, there’s still a chance the svelte new notebooks will be channel pro favorites by the end of the year.

Follow the Leader
The main impetus for the ultrabook was the MacBook Air. Debuted by Apple in January 2008, the Air wasn’t especially successful at first, according to Deron Kershaw, an industry analyst with market research firm Gap Intelligence. It was too slow, the hard drive was too small, and the screen resolution was too low, he says. Plus, the slender Apple device was simply too expensive.

RELATED ARTICLE: 7 Great Ultrabooks for SMBs Square Off

More recent models have changed all that, however. The MacBook Air’s genius is now similar to that of the iPad. Both products reflect a recognition by Apple that what works for manufacturers is no longer adequate for consumers.

For decades, PC companies essentially employed a bifurcated product strategy in which people used either a desktop or a laptop. Portables were originally nicknamed “luggables,” because they were essentially desktops in a box. Over time, though, they became smaller and lighter. The term “notebook” was created in part to reassure buyers they need no longer suffer the physical oppression of hauling a heavy device between the office and the road—or between a cube and their den at home.

However, computer makers still presumed that people wanted (or would simply acquiesce to) a “normal,” desktop-like amount of processing power and capabilities. And some did. But many people wanted a lighter, less bulky laptop, and were willing to give up some power and performance to get it. The PC industry’s first answer to that demand was the netbook, which started out a hit. Eventually, however, consumers realized that along with the netbook’s low price came undersized keyboards, low-resolution screens, and limited chip speeds.

The revamped MacBook Air, with its lower $999 entry price, carved out a new niche. Sleek and light, it nevertheless provided enough processing oomph for most people’s needs.

The Air quickly became a hot property, and seemingly as ubiquitous as ... well, air. “Apple had a unique strategy,” says Mikako Kitagawa, a principal research analyst at Gartner Inc. “The MacBook Air was super-duper thin, light, and beautiful. You really had to have money to buy them in the past. Then they got below $1,000, which is a very low price point for Apple. They placed the Air between the iPad and the [regular] MacBook.”

That was great for consumers, but bad news for PC vendors. The last thing they needed was another mobile device market dominated by Apple. Intel, meanwhile, had further reason to be nervous. Though some MacBook Airs eventually featured Intel chips, how long would it be before Apple, which already designs processors, began using a CPU of its own instead?

A Natural Match
And so it was that Intel created the new ultrabook reference design, and set aside a $300 million war chest to promote it.

Theoretically, many experts say, there’s a lot for SMBs to like about ultrabooks, including their slim form factor, low weight, and—most especially—Microsoft operating system. “First and foremost, they want the Windows client,” says Todd Swank, vice president of marketing at VAR and integrator Nor-Tech, of Burnsville, Minn. That’s the one thing that a low-end Air can’t provide. Windows won’t run on the entry-level Air, nor can any model handle Windows out of the box. Instead, users must install extra software that, some reviewers say, can reduce battery life by upwards of two hours.

According to John Brewer, president of Macon, Ga.-based Med Tech USA LLC, ultrabooks satisfy many of the cravings created by the MacBook Air, particularly when sold into a niche with high demand for light, portable, Windows-based computing power. Brewer, for example, sells to physician offices and HIPAA compliance consultants.

“As physicians go electronic, they have two options,” Brewer says. “They can set up a computer in every room or they can have a laptop they carry around with them.” A typical ultrabook has enough battery life to run all day without requiring doctors to buy extra batteries or set up chargers in every examination room. Plus, they’re light. “It feels more like you’re carrying around a manila folder instead of a briefcase,” Brewer notes.

Other strong target markets for ultrabooks include the professional services and financial services industries, according to Anurag Agrawal, CEO of Techaisle LLC, an SMB-oriented IT analyst firm. “Then there are other verticals, such as manufacturing, that have a large number of desktops installed that they’re trying to replace and refresh,” he continues.

Stopped Before Started
And yet, ultrabooks haven’t exactly been flying off the shelves. In fact, “they kind of landed there with a thud,” Swank says.

According to Kitagawa, Intel is partly to blame. The giant chipmaker chose to downplay the new product family until its latest low-power processor, code-named Ivy Bridge, reached market. “Before Ivy Bridge, they didn’t want to make it a big thing,” Kitagawa says. Thanks to sluggish sales for the computer market as a whole, however, Intel had to sell off a surplus of Ivy Bridge’s predecessor, code-named Sandy Bridge, before releasing the new chip.

Meanwhile, many business buyers opted to hold off on purchasing ultrabooks until the forthcoming launch of Windows 8. With its touch-based interface, the new desktop operating system should be a perfect match for convertible ultrabooks that combine tablet and notebook functionality. Plus, the first ultrabook products were oriented toward the needs of consumers anyway. “They lack a couple of things for professionals,” Kitagawa says, including advanced remote support features and an external monitor connection.

Follow the Money
And there have been other problems as well. Screen resolution on ultrabooks has generally been “subpar,” according to Brewer. Agrawal, meanwhile, says that awareness of the new devices among business customers has been relatively low. In a recent Techaisle survey of more than 800 SMBs, in fact, only 23 percent had ever heard the term “ultrabook” before. To further aggravate matters, Agrawal notes, many vendors call ultrabooks by different names. Some resellers compound those issues, moreover, by telling customers that the ultrabook’s solid-state drives, which provide the instant-on capability many buyers like, are unreliable and too small.

Perhaps most important, many observers say, ultrabook prices have been too high—by a lot. Until recently, ultrabooks generally sold in the $1,000 or higher range. How low those prices have to drop before the devices go mainstream depends on who you ask. Agrawal thinks that the “acceptable price point” is around $800. Kitagawa sees the magic number as closer to $600.

Some VARs could set the bar even lower. “It’s a compelling design,” Swank says, “but the resistance is the price. When it comes to them spending their dollars, I found a lot of customers that want to buy $500 laptops. They might go up to $600 or $700.”

To make matters worse for resellers, margins on ultrabooks are as thin as the devices themselves. One channel professional who didn’t wish to be identified looked up a major distributor’s pricing for the HP Folio 13, a 13-inch ultrabook that’s just 0.7 inches thick. There were 3,000 in stock with a reseller cost of $977 and a list price of $999. That leaves room for about 2.25 percent of profit.

Never Say Never
There’s a difference, though, between saying that a product is currently experiencing challenges and saying that it has no chance at all. After all, did VARs go out of business because margins on PCs were low?

“I feel this is a tremendous opportunity for the VARs,” Agrawal says. “When you sell an ultrabook, you can sell cloud-based storage and remote support along with it. There should be extra revenue for the channel partners. So many employees within SMBs are formally or informally using cloud-based backup or sharing. Why shouldn’t channel partners start to boast these capabilities?”

RELATED ARTICLE: 7 Great Ultrabooks for SMBs Square Off

Indeed, things may soon be looking up for ultrabooks. According to both Agrawal and Kitagawa, the ultrabook market could take off toward the end of the year. Prices continue to fall, Ivy Bridge processors (available since April) deliver extended battery life, and Windows 8 should be available soon, they say. Combine that with reseller solutions that capitalize on the ultrabook’s smaller, lighter form factor, and you just might have an offering that will make customers—and channel professionals—finally sit up and take notice.

ERIK SHERMAN is a freelance journalist based in western Massachusetts.

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