Bloomberg News

Google Chromebook Under $300 Defies PC Market With Growth

July 10, 2013

Google Chromebook Under $300 Defies PC Market With Growth

Google intends to woo more customers with updates to the machines’ operating system every six weeks, delivered over the Internet. Photographer: Chris Ratcliffe/Bloomberg

Google Inc. (GOOG)’s Chromebook was dismissed as a bare-bones laptop with limited appeal when it debuted two years ago. Now it’s defying skeptics and gaining share as the rest of the personal-computer market shrinks.

Chromebooks have in just the past eight months snagged 20 percent to 25 percent of the U.S. market for laptops that cost less than $300, according to NPD Group Inc. The devices, which have a full keyboard and get regular software updates from Google, are the fastest-growing part of the PC industry based on price, NPD said.

The surge marks Chromebooks as one of the few types of computers able to attract consumers while Dell Inc. (DELL) and other traditional PC makers undergo a shakeout. The industry has already seen notebook-PC sales eroded by the popularity of smartphones and tablets such as Apple Inc. (AAPL)’s iPad. As a result of the shift, worldwide PC shipments fell 4 percent in 2012 and are forecast to decline 7.8 percent this year, the largest annual drop on record, according to researcher IDC.

“While we were skeptical initially, I think Chromebooks definitely have found a niche in the marketplace,” Stephen Baker, an analyst at NPD, said. “The entire computing ecosystem is undergoing some radical change, and I think Google has its part in that change.”

The growth follows the unveiling of low-cost Chromebook models from Google’s hardware partners Acer Inc. (2353) and Samsung Electronics Co. (005930) last October, at prices starting at $199, down from about $300 or more.

Stripped Down

Chromebook’s rising market share is impressive given how the cards appeared stacked against the devices when they were introduced in 2011. At the time, Chromebooks’ lack of built-in software was considered unusual compared with laptops based on Microsoft Corp. (MSFT)’s Windows operating system.

While Windows laptops have software that is loaded onto the devices themselves, Chromebooks are based on Google’s Chrome operating system. Customers access tools from the cloud -- online programs that include Google’s own word processing, e-mail and spreadsheets -- so the machines are essentially stripped-down computers. The cloud services drive more data and, ultimately, more advertising back to Google.

Google and other electronics companies separately make tablets and smartphones based on its Android mobile-operating system. Initially, the bare-bones nature of Chromebooks didn’t win over critics, some of whom said the devices made them long for Windows-based laptops.

Low Cost

“While the Chromebook is a bold idea that may be a harbinger of the future of computing, it’s too limited and buggy today to be the main computer relied upon by mainstream users,” Walt Mossberg of AllThingsD and The Wall Street Journal wrote in a review of a Samsung Chromebook in 2011.

Now, early adopters and buyers in the education market are driving sales of Chromebooks, lured by their low cost, ease of use and transport, and Web-based services. Chromebooks are also benefiting as the market for laptops that cost less than $300 is set to grow more than 10 percent in 2013, Baker said.

Google has also stepped up its support for Chromebooks with new manufacturing partners and retailers, while spending marketing dollars to broaden the devices’ appeal.

Traditional Microsoft allies Lenovo Group Ltd. (992) and Hewlett-Packard Co. (HPQ) both began offering Chromebook models in recent months. And Chromebooks moved into retail locations last October with Best Buy Inc. (BBY) and recently added Wal-Mart Stores Inc. (WMT) and Staples Inc. (SPLS)

Small Portion

Chipmaker Intel Corp. (INTC), another longtime Microsoft partner, also has more than 1,000 software engineers who spend at least some of their time working on Chrome OS, adding to it and making sure it works with the chipmaker’s microprocessors, according to Imad Sousou, vice president of Intel’s Software & Services Group.

“We’re seeing tremendous growth, without a doubt -- massive, massive growth,” said Caesar Sengupta, head of product development for Chromebooks.

Google declined to comment on Chromebooks’ sales figures.

Chromebooks still remain a small portion of the total U.S. market for laptops and netbooks. The devices had about 4 percent to 5 percent share in the first quarter, though that was up from 1 percent to 2 percent in 2012, according to Mikako Kitagawa, an analyst at Gartner Inc.

Google intends to woo more customers with updates to the machines’ operating system every six weeks, delivered over the Internet. The company also has made Chromebooks more like traditional PCs by including tools that let users run programs even when they aren’t connected to the Internet.

Bigger Screens

Google’s next step may be to take Chromebooks more upscale, including new models that appeal to more expensive tastes, Baker said. That could include bigger screens, improved keyboards and more built-in storage. In February, Google began selling its own Chromebook called the Pixel, which costs as much as $1,449 with a built-in cellular data connection.

Among recent buyers of Chromebooks is Richard Wood of Sanford, North Carolina. He recently picked up a $199 Chromebook for a trip to Belize.

Wood, who plans to use the device to keep in contact with students he teaches for an online college course, said he chose a Chromebook because he was previously disappointed with a low-cost Windows laptop.

“A friend of mine bought a Chromebook and fell in love with it,” he said. “So far, I’ve been pleased with it.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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