The Jonney Machine

Forbes Magazine has an interesting feature on Jonney Shih, the CEO on Asustek and how the company decided to build the Asus Eee PC. An excerpt -

A year ago Asus CEO Jonney Shih was searching for a breakthrough for the Taiwan company he has run since 1994. It had become the world's largest motherboard maker and one of the biggest laptop manufacturers. It also has a ten year old in-house brand that sold more than 4 million last year. Yet it was still considered a second-tiered name.

Around that time, two low-cost notebook models were making waves. Nicholas Negroponte's One Laptop Per Child, or OLPC XO, designed for children in the developing world. And Intel 's Classmate PC for a similar market. So, Shih thought, why not make a small, inexpensive laptop for grown-ups?

Last month Asus' 7", 2 lb Eee PCs hit store shelves in Taiwan, and Shih may have his breakthrough. Priced at $340 they sold out in 30 minutes, and buyers around the globe clamored to buy them. They arrive this month in the U.S. and Europe, and in China early next year. Citigroup Hong Kong predicts Asus will sell at least 3 million Eee PCs next year but could easily hit 6 million. By comparison, Apple has sold 4.3 million laptops in the last four quarters. Analysts say the Eee PC will probably have the low-end market to itself for 18 months before the other big PC makers can jump in.

Before OLPC and Classmate, smaller meant more expensive. Laptops were either light and expensive or cheap but heavy. The OLPC though was priced at $200, the Classmate, $200 to $300. But with bright colors and built-in carrying handles, the two models look more like toys. Still they showed that it was possible to produce a small, inexpensive laptop able to perform most of the functions that users need.

So Shih quickly mobilized Asustek to build a one for grown-ups. He knew the computer would need a solid-state memory (it uses a flash drive) --no spinning hard disk taking up space and creating heat. He also knew it must have Wi-Fi, a webcam, Skype interface, speakers, mic and a high-resolution (if small) screen. And it had to be light, so it would serve as more of a personal accessory -a tall order considering they wanted to sell it for less than $300.

The first challenge was to line up a supplier for the chipset, which serves the brains and nervous system of a computer, and the most expensive part. Both AMD and Intel were approached about making an inexpensive, low-powered chipset. AMD was already producing the OLPC chipset, and Intel had a chip for its Classmate. Intel, though, was eager to jump into a project with a bigger market potential than just education.

So Intel signed on in February. Then, having committed money and manpower to the project, Intel asked to see a prototype in one month. Designers and engineers endured sleepless nights and long weekends and managed to put together the basics of the machine in time. Folks at Intel started calling it the Jonney machine.

The rest of the computer is built from common components such as a 7-inch LCD screen and flash memory cards. Here, Asustek easily leveraged its existing business relationships with big component manufacturers to get them cheaply.

A bigger hurdle was designing the user interface (UI). Asustek decided Windows was out of the question. The licensing costs would have been the most expensive part. So it decided to use Linux and build its own UI and that became the most time-consuming part of the project.

The company first said the computer would be on shelves by August, then September, before it finally arrived Oct. 17. The holdup, says Shen, was making sure the UI worked well. To test it, Asustek took 1,000 prototypes and distributed them to employees and vendors. Bloggers on Eee PC Web sites groaned the product was taking too long to come out, but that didn't bother Shen. "The user experience must be very high," he says. "So we delayed, because with all the momentum built up around this product, I want to make sure it's exactly right."

Meanwhile, the prospect of millions of new PC users buying the Eee PC without Windows seemed to worry Microsoft. Just before the launch, it agreed to give Eee PC buyers the option of getting Windows for under $40, more than a third off the standard price.

Shih says Asustek will tap into a new market--consumers unable to buy computers because they're too expensive or just too intimidating. That new market has been nicknamed the second billion. An estimated 1 billion people now have access to computers and the Internet, but even in developed countries, computers are just out of reach for millions. In the developing world that number is in the hundreds of millions.

But Asustek clearly wants to connect with the first billion, too. For instance, the 2- to 8GB memory cards can be upgraded to 32GB and the RAM from 256MB to 1 GB. Asustek also will also provide a 3g attachment, so users can be connected when Wi-Fi isn't available.

The initial interest has come from PC hobbyists; and chat room denizens talking RAM specs and placing orders via the Internet are certainly not first-time buyers. Star Tech, an online retailer in the U.S. that started taking orders for the Eee PC before the specs were done, says its Eee PC page has been averaging 1,000 hits a day and it's been taking roughly 100 orders a week.

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The $40 Windows licensing fee explains why it was suddenly feasible for Asus to bundle the operating system with the Eee PC. But it remains to be seen if running Windows on such minimum configuration will be have an appeal, especially if users are aware a more cost-effective functional alternative.

As for Asus having the low-end market to itself for 18 months, I seriously doubt that. As the article itself mentions, everything in the Asus Eee PC is just about off-the-shelf. There is no reason why other contract manufacturers can't use the same approach and come out with similar products by Q1 end next year.