Intel's Ultrabook: Right Idea, Wrong Price

At Computex 2011, a little more than a year after Apple's iPad began to take the market by storm, Intel announced a device category that it referred to as the Ultrabook. The idea behind this device category is that PCs needed to have long battery life, turn on instantly, and be thin and light. In short, Intel wanted the Intel-powered PC to win back consumer wallet share from tablets. While the core ideas behind the Ultrabook initiative -- particularly the focus on convertibles and touch screens -- are good, the whole push itself faces a key hurdle: price.

Why are tablets so successful?
It's no secret that tablets have been a very successful product category, but the real question to ask is why demand has exploded in the way that it has. Many contend that the convenience of long battery life, high portability, and intuitive touch interfaces have been the key drivers of tablet demand. These are certainly factors, but what's interesting to note is that the larger tablets (think 10 inches) have seen waning demand while smaller tablets have continued to grow in popularity. So, is it that people simply enjoy smaller form factors than larger ones? Perhaps, but it's not the whole story.

Indeed, the Taiwanese trade-press site Digitimes published a note claiming that the latest Nexus 7 from Google and ASUS wasn't quite selling as expected. Interestingly enough, while the Nexus 7 is certainly an inexpensive tablet for what it provides -- fast processor, 1920x1200 screen, 2GB RAM, and so on -- and while it received rave reviews, it's still not quite as cheap as most customers, particularly in developing nations, would like.

It's all about cheap
It looks as though the $60-$150 price point is the sweet spot for Android tablets, i.e. the vast majority of tablets sold worldwide. While these devices certainly necessitate compromise on performance and build quality, it seems that the real draw is that they get users on the Internet, watching videos, checking emails, and even playing basic games, for a rather modest entry fee.

That's not to say that these low-end tablets are ideal PC replacements. They're not on many levels, from functionality to performance. However, it is clear that the focus in the PC space over the last two years on trying to upsell consumers wasn't going to fly. The key to reigniting growth, particularly at the very entry level -- which is where the sales have seen a fairly dramatic fall-off -- is to bring these tablet-like characteristics to devices that can still be full PCs.

Intel's new push makes more sense
While Intel is still very much pushing the Ultrabook moniker, the broader strategic and public focus has now been on promoting "2-in-1" computing. In a bid to move this effort along, Intel is finally selling a very competent set of low-power, low-cost processors based on its Atom architecture. Additionally, Microsoft has decided to lower the license fees of Windows 8, as well as of Office Home and Student 2013, so that $350 convertible tablets such as the ASUS T100 could be made possible. This means that both Intel and Microsoft don't get the joy of huge revenues -- and in Intel's case high gross-margin dollars -- per unit sold, but it does allow them to dramatically expand their total addressable market directly into the heart of the tablet market.

This is what both companies should have been pushing long ago, but Intel let its low-power, low-cost Atom lineup languish for five years before it received a meaningful update. Microsoft, too, seemed to insist on hefty licensing fees for its Windows OS coupled with Office. Is it any surprise that cheaper and increasingly functional Android tablets as well as Chromebooks were making meaningful inroads into the traditional Wintel stronghold?

Foolish bottom line
Those who buy high-end will typically always buy high-end. But it's those who can't afford high-end that needed a solution -- and couldn't find one from either Microsoft or Intel -- that drive future growth. This worked out much to the benefit of Google's ChromeOS and Android, as well as ARM's chip partners. That being said, Intel and Microsoft have figured this out and are attacking these markets accordingly. The Ultrabook wasn't necessarily a failure -- improving the quality of the systems is always the right thing to do. But the price points, until the recent launch of the new Atom system-on-chip products, were the problem.  

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple, Google, and Intel. The Motley Fool owns shares of Apple, Google, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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