A few years ago, notebook computers -- lightweight, portable PCs that can easily fit inside a bag or briefcase -- were the preserve of the elite in India, used only by corporate executives, the super rich and super geeks. They accounted for a very small fraction of total personal computer sales in the country. But the picture has been changing rapidly, and in just a few years one out of every two PCs sold in India is expected to be a notebook.
The rise of the notebook as a primary computing device may seem remarkable in a country where PC penetration is just 2% to 3% and the total installed base of PCs is estimated at only 28 million units. "The notebook, despite the advantage of offering mobility, has long played second fiddle to the much larger and more established desktop market in India," says Rajiev Grover, director of the personal systems group at Hewlett Packard (HP) India. HP is the largest player in the country's notebook market, with over 35% market share in unit terms. "It was seen as a niche factor and not meant for the burgeoning mass market. But now, it is on the threshold of a mobile-phone-like revolution in India."
According to Sumanta Mukherjee, PC market analyst at research firm IDC India: "The notebook story in India is clearly one of phenomenal growth." The numbers bear this out. According to IDC, in calendar years 2005, 2006 and 2007, notebooks grew over the previous year at respective rates of 148%, 108% and 81%. Between January and September of 2008, notebook shipments grew by 54%. As a percentage of total PC shipments (desktops and notebooks) in 2004, notebooks accounted for a mere 5.5%. In the first nine months of 2008, notebooks, at 1.87 million units, accounted for almost 30% of total PC sales of 6.42 million units.
Even as notebook sales have flourished, desktops have experienced a slowdown. According to IDC, desktop sales growth dropped from 19% in 2005 to 7% in 2007. For the January to September period of 2008, shipments fell by 5.4%. "The growth in the PC market in India is being driven by notebooks, and with notebooks continuing to show robust growth on a larger base, it is clear that their story is still strong," says Mukherjee. "We expect that by 2012 the split between notebooks and desktops will be equal."
Vinnie Mehta, executive director of the Manufacturers' Association for Information Technology, agrees that the market is transforming. In a September 2008 statement, he stressed that notebook sales had driven India's PC market during the April to June quarter. "With sales crossing 610,000 units in the first quarter of this fiscal year, notebooks account for close to a third [33%] of the total PC market in the country, up from less than 3% four years ago. With shifting consumer preference in favor of notebooks over the desktop, this proportion will only get larger with time."
Driven by Price
"The explosive growth of notebooks," says Amar Babu, managing director of Lenovo India, "is a great example of what can happen when there is the right technology that meets specific customer needs at the right price point."
Affordability is certainly a key reason that notebooks are taking off. According to IDC, over the last few years notebook prices in India have been dropping by about 10% a year, primarily because of technological advancements, changes in the customs duty structure and growing volumes. Prices have not dropped at the same rate in the more mature desktop market, so the price difference between a desktop and a notebook has been reduced substantially.
Using rough estimates, industry players point out that four to five years ago, while a notebook was priced around US$2,000, a desktop was about half that. Today, notebooks are available for around US$500, desktops for around US$400. As Sameer Garde, country general manager at Dell India, notes: "Price by itself is no longer a major deterrent for someone looking to buy a notebook."
The growth in the telecom ecosystem and recent advancements in wireless connectivity have played an equally important role in driving notebook adoption. "Increasing globalization has led to a more competitive landscape, and the norms of productivity therefore are changing rapidly," Garde says. "Both organizations as well as individuals in India are realizing that mobility and connectivity are a very potent combination when it comes to increasing productivity. A whole new usage model is being driven by this." The model taking hold in large enterprises is one of notebooks no longer being limited to top management; instead, they are percolating down the ranks to middle managers and sales teams to enable a faster information flow and improved decision-making.
Not only the corporate world has embraced the notebook: Other segments driving the market include education, small and medium businesses, and consumers. For instance, notebooks have ushered in a new way of delivering education in areas such as engineering and management, and many educational institutions factor the price of a notebook into their fee structure. For consumers, notebooks are fast becoming a lifestyle product. According to IDC, in 2006 and 2007 the consumer notebook segment grew at 261% and 248%, respectively. In 2008, it is estimated to have grown at 95% over the previous year.
"In most mature markets, because of the high penetration of PCs, most people start off with a desktop and then get a notebook as their second PC or as a replacement," Lenovo's Babu says. "In India, a lot of people are leapfrogging to buying a notebook itself as their first PC." According to IDC's Mukherjee: "India is a very price-sensitive and value-conscious market, and notebooks are satisfying both these needs for first-time buyers."
The entry of new user categories has redefined the notebook market. Vendors have introduced different products for different target segments. HP, for instance, has its HP-Compaq portfolio for commercial users and HP Pavilion and Compaq Presario for individuals. Dell has the E-series for corporate customers, Vostro for small and medium businesses, and the XPS, Studio and Inspiron for consumers. Lenovo has the Think Pad for corporate users and the Idea for consumers. Acer has the Aspire brand for consumers and the Extensa and Travelmate for the commercial segment.
Global Strategy at Work
One may argue that these target-specific products are part of the vendors' global strategies and are not specific to India. But the very fact that vendors are looking at segmentation in a market where PC penetration remains low is a clear indication of the potential they see.
There are other indicators. India was the first country outside of China where Lenovo forayed into the consumer space, introducing its products to that market in 2006. India was also the first country in the Lenovo world to get a film celebrity to endorse its consumer brand. The case is similar with Dell and its recent "Take Your Own Path" campaign targeted at small and medium businesses. When Dell launched its new Latitude E-series globally in October, New Delhi was one of three cities chosen for the launch (along with San Francisco and London). The New Delhi launch was by none other than company chairman Michael Dell.
HP's global re-launch of its Compaq brand in 2007 was held in Mumbai. HP is now introducing its "Digital Clutch" (the notebook that HP has designed in collaboration with fashion designer Vivienne Tam) and targeting it specifically to women. With consumers becoming a larger piece of the pie and the notebook becoming more of a lifestyle product, features such as better sound quality, screen size options, different colors and different finishes are coming into play.
"Earlier, all the innovation was around making the notebook more robust and more secure for the corporate customer," says HP's Grover. "Now, the innovations are around providing different benefits to the different user groups. It is very important that we fulfill both the spelled-out as well as the unspelled-out needs of the different segments. For instance, with the notebook transforming into a lifestyle product, women clearly have different expectations [in terms] of style and colors."
Meanwhile, with the universe of notebook buyers and users growing beyond the metros to the smaller cities and towns, vendors are getting closer to customers. In addition to increasing their reach through multi-brand outlets, vendors are increasing their numbers of exclusive stores across the country. HP has doubled its stores to 180 in the last three years. Acer has more than 100 exclusive stores and Lenovo has 157. Just a few months ago, Dell opened its first two exclusive retail showrooms. All have plans to add more.
Vendors are also wooing customers through large-format retail stores such as Croma, Next, e-Zone, Staples and Metro. "The buying experience of a notebook has become an important parameter in the purchase decision along with product features, brand and price," says S. Rajendran, chief marketing officer at Acer India. "The growth of organized retail in India will also give an added [stimulus] to notebook buying."
Netbooks Stake Their Claim
Rajendran also sees potential in the Indian market for netbooks -- small, lightweight notebooks suitable for accessing web-based applications. He cites figures from market research firm DisplaySearch, which show that in July-September 2008, netbooks accounted for 14% of total global notebook shipments, with Acer emerging as the leader with a share of almost 40%. "We expect netbooks to be popular in India also, especially among small and medium businesses, and also as a second computing device in upper-middle class homes." Rajendran predicts that India's netbook market will be around 300,000 units this fiscal year.
Ravi Bapna, associate professor of information systems at the University of Minnesota's Carlson School of Management and executive director of the Centre for Information Technology and the Networked Economy at the Hyderabad-based Indian School of Business, is optimistic about the role of netbooks in India. "The netbook could have a potentially larger penetration ability as it could become an aspiration device for the lower-middle class," he says. "However, a stronger ecosystem of applications and services innovation is needed for the full potential to be realized. Can it really solve the day-to-day pain points felt by this segment of society? At present, the answer would be no, but that does not mean future applications will not."
Industry players largely expect the market to grow further once 3G wireless technology is introduced in the country. "[3G] will impact every user segment, [whether] commercial or consumer, and will definitely be a trigger for further growth," says Dell India's Garde. Lenovo's Babu agrees: "Wi-Fi drove a certain level of growth in the usage of notebooks, despite not being pervasive wireless. 3G will certainly drive a fresh wave of growth in this space."
Bapna, however, sees it differently. "It depends on the competing technologies that can provide high-speed mobile Internet," he says. "I doubt 3G technology is going to have a significant acceleration effect on notebook adoption. In contrast, my prediction is that the growth will occur in high-end mobile handsets [and] iPhone-type devices. Their quality and the functionalities provided are bound to keep improving as the bandwidth constraints get eliminated."
Meanwhile, apart from concerns about the global economic slowdown's potential effect on the growth of India's notebook market, one long-term constraint may be language. "A large part of the Indian market is vernacular, but the entire ecosystem of the personal computer is very English-oriented," HP's Grover notes. "For further growth, we need to remove this language barrier. In order to do this, different players like the government, device manufacturers, Internet service providers, content providers and others who are all working currently in silos need to work together to develop the ecosystem."
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