Can Apple Have A Netbook Its Way?

The rumors are flying that Apple is preparing a tablet form netbook, as noted Larry Dignan at our sister site ZDNet. And as my colleague Michael Hickins so correctly notes, the company has multiple good reasons to make the push. But I think ultimately it are doomed to failure, caught in the cross fire of the current market’s dynamics and a long-established business model.

Clearly the headline on this post is a takeoff on a noted fast food chain’s slogan. The reference brings up the basic challenge that Apple will find difficult to overcome: It is entering a commodity-driven market, a space in which it is ill-equipped to win. It’s not that Apple couldn’t make something that would allow a low price. Far from it. But Apple’s strategy and, more importantly, shareholders are addicted to high margin products. But last quarter showed that Apple is feeling significant net sales pressure. And you just have to see how iPhone prices keep dropping (and started dropping shortly after they were initially introduced) to know that getting a helping hand from there isn’t likely.

Yes, the company has volume. Yes, the company is getting better on costs. But net revenues are where management faces the real gating factor on what the company can make, and at Apple, the strategic approach is to keep per unit prices high. There’s absolutely nothing wrong with that, as not every brand must be a commodity, and there’s a lot of flexibility in premium pricing.

But to be competitive, a netbook cannot be expensive. Heck, as the numbers show, the $200, and even $100, PC with monitor is likely on its way. That probably means very cheap full laptops as well, meaning that netbooks would almost be eligible as a Cracker Jack prize, if only they could fit into those little boxes.

This is not an area where Apple can play. To drop as low as necessary for real long-term success in the netbook arena would effectively take a machine gun to its overall business strategy, and could also undercut its laptop sales. According to Larry, a main hope to stay competitive and keep prices elevated would be to rely on Apple’s multi-touch interface:

Apple’s game plan will revolve around its multi-touch patents to cook up something different from your generic netbook. Munster’s theory makes a lot of sense. A netbook would tarnish the Mac’s average selling price and potentially cheapen the Apple brand. A tablet wouldn’t. Double bonus: A Mac tablet would compete with the Kindle.

But there are two problems. One is that there seems to be considerable room to challenge the validity of Apple’s patents. Two, Microsoft has a multi-touch patent application that pre-dates Apple’s. Apple opted for accelerated processing, which speeds things along, but that doesn’t mean Microsoft couldn’t also receive a patent. In any case, the stage is set for a process called interference, which means that Apple is not sitting pretty.

Furthermore, Microsoft is building multi-touch into Windows 7. Now consider all those cheap netbooks running some variation of Windows, maybe with a special low price to help keep them competitive with devices running Linux, Android, or some other OS. That means lower-priced devices also with a multi-touch interface and Microsoft’s strength in the value pricing marketing game. Either Apple’s historic business model starts to bend, creating havoc with its “exclusive” positioning, or its netbook sales expectations do.

Peanuts image via stock.xchng user woodsy, standard site license.