Early this year while referring to a roadmap of the New Ultra Mobile PC / UMPC, Bill Mitchell, Corporate Vice President of Microsoft Mobile Platforms Division, made a comment that the price "Ideal" Lifestyle PC would be around $500.00. Haiku was announced at WinHEC 2005 for sub$500 and is expected to ship post 2007.
In the summer of 2005, there were a few companies offering ultra-portable notebooks. Companies like Sony, Fujitsu, OQO, and Motion had success offering these small machines to professionals. These designs usually cost just over $2000. The industry saw a value for a similar style system for consumers at a lower price.
Meanwhile the industry was working on a project to help drive that price down, and that was called Origami.
As the buzz about the upcoming UMPC platform grew, Mitchell’s remark was quoted often. As interest in the UMPC platform escalated, the term "ideal" was inadvertently left-out of Mitchell’s quote, so the public expected that the early UMPCs would cost in the $500 range. Unfortunately, when the Samsung Q1 and the TabletKiosk eo launched, many people felt deceived; and they angrily blamed the manufacturers for not hitting the price point originally quoted by Microsoft.
The fact is that everyone involved in the Origami project (Microsoft as well as the manufacturers) strived to bring the retail price as close to $500 as possible. However, due to the current costing scenario, this “ideal” price point was just not possible at the time of the May 2006 launch.
As history indicates, the price tag of new technology is traditionally high. Look at the DVD player, which first came to the United States in 1997 for around $1,000. By Spring of 1999, they were under $300 dollars. Today you can purchase a DVD player for as little as $49.99. Unless of course, you want a Blue-Ray DVD player… As an early adopter of new Blue-Ray DVD technology from Samsung or Sony, that will set you back $999.99.
The most common cost complaint seen on website posts compares UMPCs to existing low-priced laptops. Here is an example:
"I can buy a notebook from Dell for 449.00 with a keyboard and an optical drive so there is no reason why the UMPC can't sell for $500."
To evaluate the validity of this comment, we need to examine the components and business model to determine how an OEM like Dell can offer a Laptop for $449, while current UMPCs start at $899.
- That particular Dell laptop starts with 256 ram, a 40 gig hard drive and Windows XP Home Edition
- When the OS is changed from Windows XP Pro (without the Tablet PC Edition) this adds $149.90, and now the notebook costs 598.99
- Upgrade the ram to 512 and the notebook costs $638
- Upgrade to 1 gig of ram and the cost is $713. ..... and so on and so on.
The fact is that new technology and smaller form factor are always more desirable than old technology. As subsequent time passes, the sales volume grows and companies are able to survive on smaller margins, which results in lower prices for the end user. In addition, this perceived lower pricing is the result of the long term amortization of R&D, and common marketing tactics such as mail-in rebates and loss leaders.
There is no question that the current entry-level notebooks cost less and sell at much higher volume ratio than UMPCs. No one is disputing that. The laptop computer has been around for roughly 27 years. The Tablet PC will be four years old in November and the new Ultra Mobile PC has only been shipping for 2 months.
Two months is not enough time for the volume of sales to affect lowering prices. As the volume of these new devices grows, the prices should come down. And as most early adapters know, owning the “newest, latest and greatest" technology comes at a price.
To better understand the current manufacturing costs associated with the UMPC, here is a breakdown of some of the hard costs that go into each machine. The prices in the table below are estimates and are based on industry averages. The actual wholesale cost per unit also depends on purchasing volume etc.
| HARD COSTS |
|
|
Processor |
$125.00 |
|
Operating System (100.00 - $125.00) |
$100.00 |
|
Hard Drive (average of 2.5" - 1.8") (85.00 - $135.00) |
$85.00 |
|
7" Screen (glass) |
$95.00 |
|
Display (Touch pannel) |
$85.00 |
|
512 RAM |
$40.00 |
|
Motherboard |
$25.00 |
|
Video Chip |
$30.00 |
|
Battery |
$30.00 |
|
Included Accessories (cables, cases, headphones, power, cleaning cloth) |
$25.00 |
|
Overseas Freight |
$19.00 |
|
Restore CD and User Manual |
$8.00 |
|
Microsoft COA, Manual and backup CD |
$6.00 |
|
Plastic Casing |
$5.00 |
|
Packaging |
$5.00 |
|
Packing Materials |
$4.00 |
|
Total: |
$687.00 |
| AMORTIZED COSTS |
|
|
Tooling Costs |
$50K - $100K |
|
NRE Cost |
$250K - $500K |
OEMs would like nothing better than to sell their Ultra Mobile PCs, for that "ideal" $500 price point. However, as you can see from the chart above, the hard costs exceed $500 to build each unit, so it is impossible at this time.
When you consider the costs of R&D, tooling and additional overhead costs such as operating expenses, staff salaries, marketing, MDF, freight, utilities, warranty coverage and built-in dealer margins, you can get a better overview of why this “ideal” price is impossible to attain at this point in time.
This same cost analysis can be applied to the Apple iPod. The pricing for the Video iPod starts at $299 MSRP featuring 30GB drive, and due to the unit’s functionality, does not include the costs of an Operating System, processor or touch screen, – the components that quickly add to the cost of a computer. With the pricing grid, you can see how the price of the iPod would quickly climb, if you had to add the necessary components.
Another important factor in the pricing of an Ultra Mobile PC is the long term cost of customer service and technical support. While you may see what you think is the same machine for less on an unfamiliar or international site, keep in mind that should you encounter a problem, have questions or require technical assistance and you did not purchase your UMPC from the manufacturer, the you very well may be out of luck. Good service and support come at a price and if you need help its a small price to pay.
Lastly, these OEM's must remain profitable in order to stay in business. If the OEM's are not making a profit, there would be no reason for them to continue investing millions of dollars into the research and development that keeps the technology sector growing and moving forward.
For those of us who are early adapters, the convenience of new technology comes with a price tag. It always has and most likely, it always will.
In the case of the new Ultra Mobile PC's, if you can afford a new UMPC, take pride and pleasure from being the first to own this exciting new technology! If you feel that you can benefit from the convenience of having everything you need to stay productive as well as entertained in one compact device, then the cost of owning a UMPC is well worth the price you are going to pay for it.
If not… then hang in there in time the price will come down - it always does.
Linda A. Epstein
Owner/Editor/Publisher: www.TabletPc2.com - www.UltraMobilePCs.com
