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Published: January 31 2008 02:00 | Last updated: January 31 2008 02:00

An unfamiliar brand name sits atop the Amazon.com bestseller list for notebook computers. This hourly-updated popularity contest has recently been dominated by Taiwan's Asus rather than Silicon Valley's Apple. Five of the top 10 at one point this week were Asus machines, compared with three Apples, one Toshiba and one Hewlett-Packard unit.

Unlike the sleek, powerful $1,000-plus (€676, £503) MacBooks, the Asus notebooks were $300-$400 variations on a basic laptop model called the Eee. It has a feeble processor, a small seven-inch screen and a tiny two to four gigabytes of storage. Yet the Eee is being seen as more indicative of the future of computers than the MacBook Air, the wafer-thin laptop unveiled to gasps by Steve Jobs, Apple chief executive, at the Macworld trade fair this month.

"Asus is showing that a new model is developing, the Eee is a very nice device and it's sold 300,000 units in its first two months," says Stephen Dukker, who as chief executive of eMachines in the 1990s helped drive down the price of desktop PCs from an average of about $700 to $400. EMachines sold 2m of its bare-bones machines in its first year but this entry-level price has barely been lowered by others in the intervening years.

"Desktop PCs reached terminal pricing about 10 years ago; with the $300 notebook, we're now reaching terminal pricing there," he says.

If so, it comes at a critical juncture. Such is the growth of laptop sales in recent years that Intel, the world's biggest chipmaker, is predicting a crossover point for next year, when notebook sales will overtake those of desktop PCs. It expects the mass adoption of portable PCs in emerging markets and is introducing lower-power chips for smaller, cheaper machines. It is also producing its own $300 "Classmate PC", in concert with local manufacturers in the developing world, to be used in schools

Meanwhile, One Laptop Per Child, a non-profit organisation founded by Nicholas Negroponte of the Massachusetts Institute of Technology, has developed the XO, a bright green laptop with protruding antenna ears that currently costs $188 to produce. The aim has been to reduce its cost to just $100, far below the $300 level that Mr Dukker and Asus see as currently feasible.

OLPC lost its chief technology officer this month when Mary Lou Jepsen left to start her own low-cost laptop company, Pixel Xi, which aims to produce a $75 or even a $50 laptop in the next two to three years. "Computers have been an exception. If you look at consumer electronics, a DVD player was about $800 10 years ago - now they sell for $20," she says. "The [computer] industry has been able to keep the price flat by focusing on gazillion-gigahertz machines running really bloated software and that's worked for years since the IBM PC revolution."

Her point is that PC prices are kept constant by convincing consumers they need more memory, storage and processing power, the cost of which comes down, allowing the industry to offer more for the same price and maintain its margins.

"But do you really need that if you just want to write an e-mail or use the internet? It turns out that OLPC really touched a nerve and I found out that everybody wants this laptop for kids in the developing world."

OLPC found a strong uptake for a "give one, get one" campaign it launched in North America in November. It discovered consumers were willing to pay $400 for an XO - the price meant another XO would be given free to a developing-world child. It is now launching OLPC America to extend the cheap laptop concept for children in the US.

"We didn't set out to impact the market: we were trying to solve the problem of providing kids with learning tools," says Walter Bender, OLPC president of software and content. Nevertheless, he thinks OLPC may have influenced companies such as Asus and Everex, maker of another low-price laptop, the Cloudbook. "I'm not even sure why they are doing it, because there's not much margin there and there's never going to be much margin," he says.

Mr Bender says the move to a lower-margin model triggered by OLPC could be the reason "we have got so much grief", referring to industry criticism of the project led by Microsoft and Intel. He says the price can be lowered further as volumes rise - about 250,000 XOs have been built since November - and components are reduced. "[The XO has] 800-900 parts - it would be nice if it was 60 parts and we are heading down that path."

More stripped-down laptops such as the XO and Classmate appear to be on the way. "There's so much interest and anticipation for more affordable devices that we are seeing interest from our [PC maker] customers in the Classmate's design," says Lila Ibrahim, vice-president of Intel's emerging markets platforms.

The PC industry is torn by the prospect. Notebooks have been relatively high-margin products since the price of desktop PCs was driven down. EMachines found its business model was unsustainable and was bought by Gateway, which was then taken over by Acer. HP merged with Compaq in the biggest example of consolidation. Dell has struggled in recent years and lost its number one status.

Mr Dukker says OLPC has set unrealistic expectations with its $100 laptop. He says it still costs nearly double that price, with the total cost of ownership running into hundreds of dollars more once delivery, taxation and technical support is taken into account.

He now heads nComputing, a company offering low-cost computing technology for schools and small businesses. The power of a single desktop PC is shared with six other terminals, each one equipped with just his company's small $70 black box, a monitor, keyboard and mouse.

Others argue that neither desktop nor notebook PCs can meet the needs of emerging markets. Mark Dean, who holds three of the patents for the 1981 IBM machine that kick-started the personal computer revolution, says it is time to move on - to mobile phones.

He points out that phones can allow farmers in rural India to check market prices for their crops, they can act as wallets, location finders and can store all of a child's schoolwork for a year. Phones can now be connected to keyboards and monitors or even project their own screens.

"I'm pretty optimistic that the cellphone will get there - it will have the performance, storage capacity, connectivity and the application delivery to do the things that we can do today with our laptops," he says.

But computers will have a big role to play for some time, insists Ms Jepsen. "The developing world is about to come online. Like the revolution when we moved from the mainframe to the IBM PC, now we are moving on to low-priced laptops, where all of the world can take part in the conversation."

FT.com / Companies / Media & internet - PC-makers mull their margins as the low-cost laptop arrives