High-tech Success Made Simple

"Netbooks" were in the spotlight during Computex 2008 in Taipei. (Photo by Huang Chung-hsin)

Publication Date：09/01/2008
Byline：GLENN SMITH

Asustek launched its "sub-notebook" computer less than one year ago,creating an instant hit with consumers and a whole new market segment along the way.

At June's Computex 2008, on the upper level of Taipei's newly built Nangang Exhibition Hall, technology giant Intel unveiled the very latest in microprocessors, mounted on motherboards and arranged like museum treasures amid a maze of booth partitions. Here and there engineers gazed at the displays. However, the heaviest traffic was near a counter full of candy-colored "netbooks"--a term coined in February at the Intel Developer Conference in Shanghai to describe low-priced, mini-laptops built around Intel's Atom processor.

Netbooks stole the show, or so the geek media proclaimed. "Computex: Netbooks Take World by Storm" howled a headline in Tom's Hardware, a product review website. "Computex awash in Atom-based netbooks" crowed Engadget, an IT-focused weblog. "It's a Small (Notebook) World At Computex," declared Datamation, an industry news source.

During that week in June, one could easily forget that Intel had merely announced its Atom processor for mobile PCs and smartphones, that the Atom-based netbooks were prototypes and that months might pass before the first one rolled off a production line. Equally easy to overlook was the fact that the machine that inspired them--Asustek Computer's EeePC--had yet to pass its first birthday.

The symmetry was delightful, however. One year earlier, at Computex in June 2007, Asustek had unveiled its EeePC 701, with a 7-inch (18-centimeter) screen, 900-megahertz processor, solid state drive and Linux-based operating system. Overall, the press were skeptical at the time, especially of the EeePC's announced price of US$199. Nevertheless, on October 17, 2007 Asustek finally began shipping the EeePC under its Asus brand, albeit at a substantially higher price. The EeePC was a runaway hit and the company sold them as fast as it could manufacture them, proving the commercial viability of the new product category--the low-cost, mini-notebook PC.

Some eight months later at Computex 2008, Taiwan's leading IT manufacturers were all touting netbooks. Acer displayed its Aspire One and MicroStar International promoted its MSI Wind. First International Computer, parent company to US-based Everex, sported an Atom-based version of its Cloudbook. The list went on and on, as did the speculation; for instance, that Dell had a netbook in the works or that Sony was pondering a similar move. If imitation is the highest form of flattery, Asustek had a star on its hands with the EeePC and the titans of technology were following its lead.

Creation Myths

Success begs explanation and, in Taiwan technology circles, an often repeated origin myth of the EeePC goes something like this: Asustek had a surplus of inexpensive 7-inch screens, flash memory chips and a handful of out-of-date CPUs lying around gathering dust. Next, presumably, an idle engineer assembled them. The chief executive officer of Asustek, Jerry Shen, has a different recollection.

"Jonney had the idea," he says, referring to then-CEO Jonney Shih, who has since become Asustek's chief brand officer. "Intel was coming out with single core, then double core and quad core processors," Shen says. "Microsoft's Vista required two gigabytes, even three gigs, of hard-drive space. This was fine for power users, but it was driving up the machines' power requirements. Plus this level of specification wasn't what the average user really needed. Price was another issue."

This was in November 2006. Nearly two years earlier, in January 2005, Nicholas Negroponte, founder of the One Laptop Per Child (OLPC) project, had announced plans to build a low-cost device to sell to governments in order to help educate the world's poor. The OLPC laptop, dubbed the XO, was still a year from production, however. In April 2005, Intel had launched a parallel initiative called World Ahead to design the Classmate PC, a rival to the XO. "The time was one of disruptive innovation," Shen says, "but there were problems with the OLPC business model."

To a mainstream IT manufacturer, supplying governments with computers is painfully slow. A single government order might take six months for approval, a life span for some electronic gadgets. Instead, Shih wanted to build a small, lightweight, easy-to-use device offering all the basic computing functions for the everyday user. Last, but not least, it would be so affordable that a typical consumer could buy one as an extra machine.

This would require high production volumes to lower costs and ultimately price. "We had the brand and we had the channels, and we believed there was a market for the second PC," Shen recalls.

Power Team

Toward the end of 2006, the as yet unnamed project landed in Jerry Shen's lap, who was then corporate vice president and headed some eight business units (BU) within Asustek. However, he and Jonney Shih remained in constant touch about it. "I'd be in Vietnam and Jonney would call me and want to talk about it," Shen says. "I'd be waiting to board a plane in San Francisco and end up having an hour-long conversation."

Three months passed with ideas flying back and forth, but without results. For that, decisions were required--Asustek needed a starting point. They focused on the CPU (central processing unit) and, hoping to reduce costs, they chose an old Pentium-M from Intel's catalog of low-power CPUs for mobile devices. "The CPU we had in mind was the Dothan [a Pentium-M variation], which was mainstream in 2005," Shen says. "In this business, that was ancient."

In late February 2007, Asustek contacted Intel executive vice president Sean Maloney and he was told about the plan. Maloney was intrigued. Inside Intel, low-cost, low-power mobile devices were seen as an emerging product that would fuel future demand for its semiconductors. Intel was working on the Classmate PC for the education market and Maloney was excited that Asustek was attempting the first foray at the consumer side of the market.

"We told him Asus was considering two possible choices of CPU--one was from AMD [an Intel rival] and the other was from Intel," Shen says. Negotiations began promptly with Maloney working to build support for Asustek's effort within Intel management in the US. Meanwhile, across the Pacific, Shen began to assemble his team in Guandu, the northern suburb of Taipei where Asustek has its headquarters.

Days later, on March 1, 2007 Jonney Shih called Shen and told him that Paul Otellini, the CEO of Intel, wanted to see a demonstration model on March 29. "We had nothing to demo. Normally a job like this would take three months. For the next 29 days we set records," Shen says. "For motherboards, given a typical layout, the average time needed is two to three weeks. We did ours in four days. For PCB [printed circuit board] fabrication, normally a week is required. We did it in a day and a half. It was possible because of our experience with motherboards."

Within Intel, the project was nicknamed "Jonney's Machine," but Shen deserves credit, too, because without his leadership that deadline would never have been met. During his career at Asustek, Shen had acquired expertise in two areas critical to this project--he knew motherboards in particular and human resources in general.

On the Inside

From a manufacturing perspective, the motherboard is the "central nervous system" tying a laptop's components together. Shen had been vice president of research and development from 2002 to 2006 while Asustek's motherboard business was rapidly expanding to today's roughly 60 million units annually. Later in 2006, Shen was promoted to group head overseeing eight BUs, making him intimately familiar with Asustek's roster of engineering talent.

"Mainly, I chose people from the motherboard group, because their execution is so fast," Shen says. "But I brought in product managers from other BUs ... from notebooks, for example, for styling and user interface." Did the tight deadline require a larger than normal team? "No, our group totaled 20, maybe a few more, but everyone was very experienced," he replies.

Meanwhile, at Asustek's headquarters other teams worked on the software. "Microsoft wasn't interested, so we went with Linux," Shen recalls. Linux is open-source software and anyone so inclined can modify its source code. This has resulted in hundreds of versions called "distributions," which include an operating system (the Linux kernel and a collection of utilities) and typically today, a graphical user interface or GUI affectionately pronounced "gooey."

This diversity of distributions can be perplexing to component suppliers and often they neglect to write drivers for Linux, something they routinely do for the monolithic Microsoft or Apple platforms. In this case, the hardware component suppliers Asustek worked with did not provide the needed Linux drivers. For Asustek, this was a major problem considering the looming March 29 demonstration deadline. To solve it Shen's team had to persuade suppliers to guarantee Linux support.

Next came the task of customizing the GUI to give it a distinctive look and feel, as well as ensure it offered a seamless user experience. "For me, the most difficult part was the GUI," Shen recalled. "When I talked to the project manager, he said, 'We've only worked with Windows and we design around the Microsoft GUI. I don't have the software background.' I spoke with our software people, and they said, 'We have the software background, but we don't know what the user wants.'" When Shen approached the GUI team, he was told, "the project manager hasn't defined the specifications, so we don't know what you want."

After a week of running around in circles, Shen told his crew to pack their overnight bags because he intended to lodge them at the five-star Spring Hotel in nearby Beitou until the problem was resolved. "This happened around March 10," Shen says. "All the key people went to the hotel, more than 20 of them, and they stayed for two days working from nine in the morning to eleven at night." In the end, Shen enlisted the help of Xandros, a company that markets its own Linux distribution, and adapted it to the laptop project.

Model Development

On March 29, 2007 Asustek presented a working model to Intel's Otellini, who in turn approved Maloney's request to put the Dothan chip back into production, but there was little time for celebration. Two months ahead was Computex 2007, the perfect venue to announce the yet unnamed mini-notebook.

 

One of the many competitors at Computex 2008: the M912V netbook from Gigabyte equipped with an 8.9-inch touch swivel screen (Photo by Huang Chung-hsin)

"For the project, we assigned a 'war room,'" Shen says, describing his solution to this problem. "It was a conference room. We had a board. We had a refrigerator. All the key people were assigned seats, and the war room became their office. They worked together everyday. If they had a question they just raised their hand or put a note on the bulletin board. This speeded communication."

Through it all Shen stayed in contact with Jonney Shih, exchanging phone calls and emails and often meeting. The only difference now was that each had a working prototype and ideas flowed from actual user experience. "I took the machine with me everywhere," Shen says. "And Jonney Shih did, too. Every time we found something wrong, we called the team immediately."

Another recurring discussion was the name. What should Asustek call this new device? Apparently, product naming was not the duo's forte as the sales and marketing people rejected a long string of names out of hand. One such candidate was "LV," which was supposed to invoke perceptions of "low-price" and "value," but more likely might have provoked a complaint from fashion house Louis Vuitton. Round and round they went, always returning to the key product value "easy"--easy to learn, easy to use, easy to play. The names "e-squared" and "e-cubed" were proposed and abandoned. Finally, they were left with a sting of "e's" and decided on EeePC, which was also easy to pronounce and easy to remember. The EeePC wasn't ready for mass production, but it was ready for Computex 2007.

Intel assisted with the staging of the EeePC's launch. In his Intel Keynote Address at Computex 2007, Maloney invited Shih to the podium. "Maloney had a very big cell phone in one hand," recalls Shen, "and in the other a very small cell phone. 'This is the very first cell phone from Motorola,' he told the audience. Then he switched hands. 'But this is a cell phone from today. Which is more powerful?'" Next Maloney brandished the EeePC, and repeated the analogous comparison for the crowd.

"Intel liked the EeePC," Shen says. "Of course, it does use an Intel processor chipset, but Intel thought the EeePC was better than the Classmate PC." Shen says Intel even showed the EeePC to government agencies to whom Intel was promoting its own Classmate PC.

The summer passed and the Asustek team was eyeing an October 2007 launch date. In early September, it was time to hand the EeePC over to unbiased beta-testers to find bugs requiring last minute tweaking. "On September 10, we handed out 1,000 EeePCs to employees and told them to let their children play with them," Shen says. This beta test ran for two weeks.

Things were looking good, and when the EeePC finally shipped on October 17, the future seemed bright. During the wait for the product, bloggers built buzz in the tech world. In Taiwan, the EeePC sold out in 30 minutes and in the US and Europe, online retailers already had long waiting lists of customers. Demand came from every corner of the globe.

Intel congratulated Asustek around this time. "Intel told us it wanted to encourage a new segment, which it called the netbook," Shen recalls. "They thought Asustek had proven consumer demand, and that [this new segment] would be good for Intel." Shen laughs good- naturedly. "Intel used us as 'monkey testers' and we were a great success."

Vendor Scoreboard

Three hundred thousand EeePC 701s were sold between the product's release in October 2007 and the end of that year. Now, with two new models--with larger 8.9-inch (23-centimeter) and 10-inch (25-centimeter) screens--Asustek expects combined sales in the millions for this year.

However, in the weeks following Computex 2008, industry analysts hedged when asked to offer predictions for netbooks in general and the EeePC in particular. An early report from IT research firm IDC suggested global sales this year of 3.5 million units for mini-notebooks, says Dickie Chang, market analyst for personal computing solutions at IDC Taiwan. IDC has since predicted global sales as high as eight million for this year.

It should be said, however, that tech-punditry oscillates between the horribly vague and the terribly specific because things can change very quickly in the IT world. Helen Chiang, research manager of the PC and peripherals team at IDC Taiwan, offers an example, saying "there could be a battery shortage." Any problem in the supply chain can foil forecasts.

In the official pronouncement for Taiwan's Market Intelligence Center (MIC) released in mid-June, senior industry analyst Chris Wei wrote that Asustek intends to extend its "Eee" concept to desktops and peripherals. "If the company is successful in using the EeePC brand, it might move up in worldwide PC vendor rankings."

Is that Asustek's goal? Maybe, but it is clear that the company, a major original equipment manufacturer (OEM) for some of the world's biggest IT companies, is moving more and more toward creating its own branded products. That makes some of Asustek's OEM customers nervous, so on January 1 Asustek firewalled the two "businesses" by splitting into three companies. For OEM manufacturing there is Pegatron for PCs and Unihan for components. For products bearing the Asus brand, there is still Asustek. If moving up in the PC vendor rankings is Asustek's aim, the EeePC is one heck of a good start.

How Did Smaller Get Cheaper?

Not so long ago, big was cheap, and small was expensive. If small laptops are cheap today, why were they so expensive in the past?

"If you want a small machine, first you need a low-power processor," Jerry Shen explains. "Second, you need a thermal solution [to prevent overheating]. This costs a lot. Third, there is less space for the PCB, so you need an eight or 10-layer PCB. This is new technology and also expensive."

Today, more companies are making low-power processors and this increased supply is bringing down prices. Intel's Atom already has competition from AMD with its Geode chips, for example, while VIA has released its Nano processors.

For the thermal problem, in the case of the EeePC, Asustek created the Super Hybrid Engine, a feat of engineering that turns circuits off when applications are not running. The development cost of this was mostly for engineering talent, so it is a fixed cost and drops on a per-unit basis as production increases.

Cramming a PCB into a tiny space, however, is a design challenge as well as a production line problem. Costs are incurred both in design and during assembly, so if anything this adds to the cost of the notebook. Luckily, falling prices for flash memory allowed Asustek to forego the heavy, clunky hard drive, reducing the machine's overall size, although it was little help in reducing price.

Most of the savings for the Asustek machine came from switching to open-source software and from lower hardware specifications. For the first-generation EeePC, Asus used a low-cost Linux operating system. Microsoft, sensing that it was being shut out of a new market, later agreed to offer deep discounts on its Windows XP operating system to Asus and other netbook makers.

Lowering the specifications, in particular, is what made the EeePC possible. Consumers might be willing to lower their expectations, but engineers who spend careers dueling each other in an endless battle of "specmanship" find it difficult to do so. The EeePC is essentially a miniaturized Pentium-III laptop, circa 1998, and that is where the genius lies.

It took a lot of guts to build a laptop without a DVD player in this age of multimedia, but are they really necessary anymore given the pervasiveness of wireless Internet, iPods and Youtube? Consumers around the world are voting with their wallets and when they buy an EeePC, their answer is no.

--Glenn Smith

Copyright © 2008 by Glenn Smith