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Google Chromebooks Are Deadlier to PCs Than iPads

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The Internet-centric notebook PCs are making huge waves in the computing market.

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Apple's (NASDAQ:AAPL) iconic iPad tablet gets an awful lot of credit for throwing a monkey wrench in the gears of the typically reliable PC sales cycle, where demand would grow with the release of each new Microsoft (NASDAQ:MSFT) operating system.

As I wrote in December of last year, PC sales spiked immediately when Microsoft released Windows 7 in 2009, while 2012's Windows 8 release saw nothing of the sort. The release of the first iPad in 2010, and the vastly superior iPad 2 in 2011, most certainly played a role as consumers and businesses embraced the tablet formfactor for basic computing tasks, namely, social media and entertainment.

Microsoft has not been blind to the impact of the iPad and the ensuing flood of tablets from the vast Google (NASDAQ:GOOG) complex. It has entered the fight, albeit with limited success, with its Surface line.

However, Microsoft should be even more scared of the emergence of the Google Chromebook market.

What Is a Chromebook, Anyway?

Chromebooks are Internet-centric notebook PCs running Google's Chrome OS that rely on the cloud instead of traditional software. While there are high-end models like the $1,299-and-up Google Chromebook Pixel, the most popular models come in the $199-$299 range, packing hardware that is pretty basic, but still good enough to handle the average person's computing needs, like streaming movies on Netflix (NASDAQ:NFLX) and playing around on Facebook (NASDAQ:FB).

Folks editing movies or playing high-end games will stick to high-powered PCs and Macs, but an increasing number of users are finding that Chromebooks can get things done just fine.

How Big Is This Trend?

In July, market research firm NPD said that Chromebooks took 20-25% of the sub-$300 US laptop market over the prior eight months. As far as the broader market goes, Chromebooks had 4-5% of the overall portable PC market, up from 1-2% in 2012, according to Gartner.

For the back-to-school shopping season, NPD said that Chromebook took 3.3% of the PC market, accounting for "all the growth in the challenged notebook market." Meanwhile, Windows notebook in the $300-$700 range fell 16%.

And interestingly enough, just last week, a Google VP told Business Insider that 22% of school districts in the US are using Chromebooks.

Care for an Anecdote?

As of the time I'm writing this, the two top-selling laptops on Amazon.com (NASDAQ:AMZN) are Chromebooks, with Hewlett-Packard's (NYSE:HPQ) just announced Chromebook 11 sitting in the number two spot.



And Another Anecdote: The Brooklyn Coffee Shop Indicator

I've long held the belief that the New York City subway system is a near perfect microcosm of what's going on in the mobile device market. Sure, anecdotes only have so much predictive value, but I saw an awful lot of iPods, iPhones, Nintendo DSs (OTCMKTS:NTODY), and other gadgets on the subway before they went mass market.

But let's talk about another information source: Brooklyn coffee shops, where creative types, freelancers, students, and plain old coffee drinkers pass the time on their computers.

Now I'm not sure if you know Brooklyn well, but it really is Apple city.

Apple has 12% of the global PC market, but in Brooklyn coffee shops, it may be more like 80%.

And I'm starting to see Chromebooks pop up.

And Why Not?

Most people don't push computers to their limits, and as we moved to a more cloud-based media consumption model, the argument for a traditional laptop simply gets weaker and weaker.

For example, I have a pretty big music collection on my iMac. But I never use it because my Spotify Premium account automatically syncs up between my home and work computers and my iPhone. And then there's Netflix for movies and TV, Google Docs for productivity software, and so forth.

If you need a basic computer with a keyboard, a Chromebook makes a lot of sense.

So What's the End Game?

It's simple: We are moving into an era of disposable PCs. With the need for local storage disappearing and the price of admission now in the $200-$300 range -- and going down -- the value of a computer is quickly headed to zero.

Remember, 25 years ago, PCs were fairly novel and primarily used by people who were mostly just into computers. But as they went mainstream, the value shifted away from computers themselves to what they can access -- a trend I call Toasterization.

PCs are rapidly turning into household appliances for most people. Let me ask you, what do you like more? Drinking coffee, or owning a coffee machine?

The Toasterization trend is very good news for Google, for multiple reasons:

1. It gets people into the Google ecosystem at a very cheap price.

2. It puts more eyeballs on Google-served online ads.

3. It hurts the competition, primarily Microsoft.

iPads may be dangerous to the laptop market, but the Chromebook concept is even more of a problem because of the similarity in form factor, and the even more extreme price differential.

When I first learned about the Chromebook concept, it seemed a bit silly, but I'm really starting to see how forward-thinking the idea is, given the increasingly cloud-based nature of computing and the spread of free Wi-Fi.

Microsoft should be scared.

Twitter: @Minyanville

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Position in AAPL.
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