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Wal-Mart Puts Best Buy, Netbooks on Notice

Someone forgot to tell Wal-Mart it's not Black Friday. Yesterday we posted a review of a 17-inch Toshiba notebook with a price you usually don't see until the annual tradition of holiday human trampling. For $348, you get a big screen, reasonably-fast (though dated) 2.2-GHz Celeron processor, 3GB of RAM, and a 250GB hard drive. Not only does this machine undercut competition from the likes of HP and Dell by a whopping $250, it makes some netbooks look overpriced. Also, Best Buy has been put on notice, and could easily become the next Circuit City if it doesn't play ball. So, in the long run, is all this good for consumers?

When I look at Best Buy's strategy during this critical back-to-school season, it's clear that the retailer is emphasizing added value instead of rock-bottom prices. It has worked with notebook manufacturers to create exclusive laptops with unique designs. Plus, Best Buy is offering features it normally doesn’t bundle: 12 to 15 months of antivirus coverage (a $59 value) and a free copy of Microsoft's Office Home & Student Edition 2007 (about $129).

The cost of Best Buy's Next Class notebooks ranges from $649 to $799, and they all have pretty robust specs, including fast Core 2 Duo processors, 3 to 4GB of RAM, and 320GB hard drives. But I find it especially telling that Best Buy doesn't list the price of these four notebooks from Dell, HP, Sony, and Toshiba on its Web site's Next Class page, even when you click on the option to compare the systems. (You have to click Shop Now to find that out.)

It's not as though Best Buy doesn't stock shockingly-affordable notebooks of its own. Just today, I saw three full-size notebooks listed for less than $400 on the retailer's site, including one 15-inch Toshiba Satellite and one 15-inch Compaq for $329. But while both of these systems have Celeron processors, they come with less RAM (2GB) and less hard drive space (160GB) than the current Wal-Mart special. And Wal-Mart quickly sold out of a $298 15-inch Compaq a couple weeks ago.

Just as intriguing is how Best Buy and Wal-Mart treat netbooks, which are defined by their low cost, when those systems appear online. Whereas Wal-Mart lists these systems along with full-size notebooks, Best Buy keeps them segregated, lending more weight to the argument that the retailer doesn't want to compete based on price. One could even contend that Best Buy doesn't want netbooks to be found or compared easily with full-size laptops, as this low-margin category now represents a full 25 percent of all mobile PCs sold.

So, now that Wal-Mart has rolled up its sleeves and upped the ante for low-cost notebooks, what does it mean for the industry? First, the retailer's push will make consumers think twice about buying netbooks. Although netbook portability and battery life make them compelling, it's hard to convince the average consumer, who believes that bigger is better, that a $298 15-inch Compaq or $348 17-inch Toshiba with more memory and storage space aren't better values than a 10-inch netbook in the same price range.

Second, Wal-Mart could shift the balance of retail power away from Best Buy, which on the surface is a good thing; the industry thrives on competition. With Circuit City gone, it's good to have another major player to keep the Blue Shirts honest. But I wonder if the price pressure from Wal-Mart will force Best Buy to rethink the types of notebooks it stocks, and the whole industry to rethink the types of systems it creates. Will manufacturers be less likely than before to experiment and innovate if it means potentially pricing themselves off the shelf? I hope the answer is no.

Editor-in-chief Mark Spoonauer directs LAPTOP's online and print editorial content and has been covering mobile and wireless technology for over a decade. Each week Mark's SpoonFed column provides his insights and analysis of the biggest mobile trends and news. You can also follow him on twitter.

Responsible for the editorial vision for Laptop Mag and Tom's Guide, Mark Spoonauer has been Editor in Chief of LAPTOP since 2003 and has covered technology for nearly 15 years. Mark speaks at key tech industry events and makes regular media appearances on CNBC, Fox and CNN. Mark was previously reviews editor at Mobile Computing, and his work has appeared in Wired, Popular Science and Inc.