Asus recently began selling a $399 Linux Laptop, the EeePC (on sale here), with a $299 version to be launched soon. That’s a very low price for a 2 lb., 7″ display machine—usually ultra-portables belong to a high-end and expensive category. The Toshiba Portege R500, for example, retails for $2000 or more.

The EeePC is getting great reviews and apparently has been selling one every two seconds in Taiwan. It isn’t the only affordable Linux machine making mainstream inroads—Dell has been selling Linux Unbuntu systems, and Everex just started selling a sub-$200 Unbuntu machine at Wal-Mart. But the EeePC is the first cheap ultra-portable to be marketed to a new niche—not business travelers with money to spend, but average computer users who want an affordable way to take the Internet with them. (The only affordable laptops with a similar form-factor, and perhaps Asus’ inspiration, are those in production for the One Laptop per Child project).

Asus is achieving success in a traditionally perilous niche. UMPCs, for instance, failed to catch on: they were too expensive. And while devices like the Pepperpad are less expensive, they are not cheap enough to capture the market. Tapping this niche isn’t just about creating the right Internet device; it’s also about breaking a certain price barrier. Asus is breaking that barrier both by offering Linux instead of Windows and by eliminating a regular hard drive in favor of 4GB of Flash storage.

Flash storage certainly helps reduce price, but why so few gigabytes? The idea is that customers are doing more of their work and storing more of their data online. With this fact in mind, the EeePC includes links to Google Docs and other online applications (although it also includes the free Microsoft Office-compatible OpenOffice.org suite). Here’s a user review that I think captures the essence of the need that the EeePC satisfies: “Good form factor. Basic apps are all I need. Browser very fast. Boot in a little less than 15 seconds.”

There are a few industry lessons here. The first is that hardware devices are becoming commoditized because of the predominance of Web applications. More and more, such devices are not the endpoint for users, but merely (preferably lightweight and fast) tools to reach the place they really want to be—online.

Here’s the take of Tom Krazit of Cnet:

“End users desire the ability to take the full Internet with them, the experience they have on their PC, in a nomadic or mobile fashion,” said Gary Willihnganz, director of marketing in Intel’s mobile group. That’s language straight from the playbooks of Apple’s Steve Jobs and Google’s Eric Schmidt, both of whom this year have emphasized their commitment to delivering a PC-like Internet experience on a handheld device.

Tim O’Reilly also puts it well:

We are starting to see the real blurring of handhelds, cell phones, cameras, and other consumer devices. Everything is becoming connected, and computing truly is becoming pervasive…. As people get seamlessly connected, wherever they are, devices become less important, even throwaway, and the continuity of the user’s data becomes most important.

O’Reilly’s conclusions are borne out by the PC market decline in Japan in favor of smaller devices. They are also borne out by the recent entry of Apple and Google into the mobile phone market. In fact, Google Android could drastically change the phone market by leading the market toward open source, unlocked phones that allow developers to bring wireless devices to the next level by giving users more choices when it comes to applications. It’s a move similar to the opening up of the Facebook API (with new competitor OpenSocial in pursuit) to allow a greater level of connectedness over the Web—not just via links, but via data exchange and functionality. The point is to bring state of mobile phone technology up to speed with the latest developments in Web applications, and that means especially making them more compatible with social networking and video-sharing applications.

So here’s how I trace these connections:

Social Networking–>Web applications predominance over client software–>Open APIs/Open Source–>Hardware lightening and commoditization in favor of social network access

That’s how I think cheap and lightweight hardware like the EeePC, the “cannibalization” of proprietary software by open source, recent developments in social networking, and Google Android are related.