Time for pay-to-enable-features computer devices

There is much chatter about the hyper-commoditization of computer devices causing a "race to the bottom". Additionally, the confluence of smartphone and mobile PC markets has not only the potential to disrupt either market, but also adds new hardware requirements to the traditional mobile PC market which are influenced from smartphones. One doesn't have too look far to see new netbook/notebook devices announced which include 3G, GPS, and touch screen. Intel's Classmate design even has an accelerometer, which could open up some really interesting usage.

But then the classic question is, if high-volume low-price devices need to be ever increasingly equipped with hardware features, how to device OEMs and chip vendors make money, especially given the disruption to higher margin devices which used to sit higher on the food chain?

I believe the time has come for manufacturers to usher in a new era of pay-to-enable-features devices. With this comes a necessary shift in business model from squeezing profits out of initial sales, to collecting incremental and/or reoccurring revenue after sales have occurred. For example, a netbook device which has a superset of the functionality required to sell into a low-price high-volume market could be sold near or even below cost. If the consumer would like to enable 3G or the accelerometer, they could then pay an additional cost to enable such features. Want to enable your processor to go faster, or enable the latest WiFi? Click to enable and pay. Merely having more features than are initially offered, gives a teaser vehicle to allow consumers to try-before-they-buy. Once they get hooked, the restistance to purchase goes down significantly.

This strategy dovetails nicely with the proliferation of online app-stores. Take for example a more open one like the Android Market. Games tend to enjoy popularity by viral marketing, as do many other categories of apps. A popular game might request use of the accelerometer. So too could a personal navigation app. What a great driver to convince a consumer to purchase an incremental hardware feature that they didn't previously need!

How such incremental revenues are split between the various component, system manufacturer, software and web vendors, are up for grabs. I can't imagine this would be an easy transition. But this is an area where a company like Intel could exploit and take leadership. They tend to enjoy a healthy silicon process advantage that perhaps makes including extra functionality a real possibility, where other vendors can't necessarily absorb the additional silicon real estate costs.

Could an app store essentially be subsidizing your future netbook purchase? Will there be a race to be the key apps that drive incremental purchases of certain hardware features because those app vendors receive a kick-back? If the answer to these questions is yes, look for the kings of the hill of process technology (Intel) and mobile device open platform and apps store (Google) to benefit.

Disclosure: no positions