What can you get for 100 quid these days? A train ticket to Edinburgh, maybe. A complete DVD box set of The Wire. A couple of cashmere sweaters from Gap. A slap-up dinner at The Ivy – for one. Or a brand new computer. Specifically, the £99 miniature "ONEt" laptop made by Bromsgrove-based computing firm Elonex, which will soon be sold in your local high street, alongside the cashmere sweaters at Next.

At seven inches, its screen is smaller than a copy of Glamour magazine. It comes in pink. And it is the cheapest example of 2009's surefire consumer technology hit, the netbook: tiny, energy-efficient and practical mini-laptops.

At last week's Consumer Electronics Show in Las Vegas, the world's biggest technology trade fair, new netbook models were unveiled not only by Elonex, but by Sony (£849), by Hewlett-Packard (£330), and by Asus (£130), the Taiwanese company that popularised the netbook with its Eee PC, first sold in 2007. Microsoft, too, acknowledged the netbook's rise by confirming that its new operating system, Windows 7, will be available in a specially developed netbook edition.

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Even mobile phone operators are getting in on the act, conscious of the growing demand for constant internet access. Vodafone, for example, has teamed up with Dell to offer the computer manufacturer's Inspiron Mini 9 netbook for free, with a monthly mobile broadband contract – the sort of subsidy previously reserved for mobile phone handsets. At that price, computers could soon be not only as affordable a mobile phone, but as disposable, too.

Netbook sales have already overtaken those of 2008's top gadget, the iPhone. During last year's third quarter, Apple shifted 4.7 million iPhones, compared to the 5.6 million netbooks sold in the same three-month period. And the netbook market is expected to grow by 80 per cent in 2009, with IT research firm Gartner predicting that, by 2012, annual netbook sales will top 50 million.

The laptop comparison website Notebookreview.com monitors the most popular models in the sector by regularly counting the most-viewed products on its pages. Four of the present top 10 are netbooks. "They're so portable," says Luke Peters, deputy editor of T3, the technology and gadgets magazine. "In a business environment, people are buying them for their size. And on a mainstream, consumer level, people are buying them because they're cheap."

Not all netbooks are inexpensive; Sony's new eight-inch Vaio P will set you back £849 when it goes on sale next month. Still, the average netbook retails at around £300. The latest ONEt model will be available in February for £99 direct from Elonex, and even buying it on impulse in Next will cost you just £199. They appeal to businesspeople, bored of trying to type grammatically correct emails on a tiny Blackberry keyboard; to tech aficionados increasing their arsenal of personal computing gadgets; to students and their parents looking for a decent first laptop; to anyone who wants to Facebook on the move, and likes a laptop that fits in their bag.

What do most of us use our computers for, after all? Surfing the internet, writing documents, storing a few digital photos. If we can have all this for a couple of hundred pounds, why would we spend more? "You can do almost anything on a netbook as long as it's not graphics-rich gaming, or serious photo and video editing," says Peters. "A netbook's power now is akin to a decent laptop from six or seven years ago."

Netbooks typically weigh under 1.5kg, with screens of nine inches or less. Many contain Intel's low-powered Atom processor and run on the Windows XP operating system (slightly dated, but less troublesome than the subsequent Windows Vista). They're equipped for the "cloud" computing age: a netbook's storage space may be limited (The Elonex has just 2Gb of hard-drive space, little more than a mobile phone), but it can be networked remotely with your home computer's hard disk – giving you instant access to all your files – and often comes complete with free online storage space.

Thanks to a lack of mechanical moving parts such as CD drives, and the lower power requirements of their processors, they also have a disproportionately long battery life – perfect for long journeys. In a recession, these are the sort of practical, low-cost specifications that most people will want from their new laptop. Previously, we may have bought gadgets for style as much as substance; in 2009 we'll more likely be looking for convenience and affordability. According to a survey conducted in November by Forrester research, one in five consumers who plan to buy a new computer this year will, given the economic climate, spend less than they did on their last PC.

In spite of its obvious qualities, the netbook's rise has come about more by accident than design. When Asus first released the Eee PC (named after the "three Es – easy to learn, easy to work, easy to play") for $245 in October 2007, Peters visited its creators in Taiwan. "They told me they just wanted to make a concept product that fell between the internet-ready mobile phone and the laptop," he says. "They really didn't predict that consumers worldwide would say, 'Hold on a minute, here's a laptop for 200 quid, that has the internet and Word, and that I can carry around with me. That's exactly what I'm looking for; why would I spend a grand on something with a load of multimedia aspects that I just don't need?'"

Cheap computing has been made possible by a manufacturing boom, driven not only by the PC market but by demand for ever more sophisticated mobile phones and MP3 players. Economies of scale have reduced the cost of processors, of LCD screens, of memory. Courtesy of the price war between the gadget factories of the Far East, it's now entirely feasible to turn a profit on a £99 laptop. Inevitably, the netbook has now spawned so-called 'net-tops': low-cost desktop computers like Asus's £214 Eee Box.

But not all those who stand to profit from the netbook's popularity are entirely happy about it. Intel developed the low-power Atom chip for netbooks, thinking that they would become popular only among those who couldn't afford proper laptops, or who felt a need to have a second one. Once it became clear that many people were buying them instead of regular laptops, the company began to pressure PC manufacturers to keep netbooks at 10 inches or smaller so as not to compete directly with the rest of its mobile PC market. Conventional laptops generally contain Intel's more powerful – and, crucially, more profitable – Dual Core processor.

The news that both Samsung and Dell are planning to unveil 12-inch netbooks – the same size as a standard small laptop – has only made Intel more nervous. Dell's Inspiron Mini 12 will run on an Atom chip, but the Samsung will use the cheaper Nano chip, which is made by Intel's rival Via. Meanwhile, fellow chip manufacturer Freescale will drive costs down still further with its new i.MX515 processor, designed specifically for sub-$200 netbooks.

Processor producers aren't the only ones concerned about the netbook's cannibalisation of the laptop market. Launching Hewlett-Packard's $499 HP Mini 2140 netbook in Vegas last week, company spokesman Mike Hockey was at pains to emphasise that the device was a "companion" for a larger PC, not a replacement. The more people buy HP netbooks instead of laptops, the smaller his company's profit margins will become.

In May 2008, it emerged that Microsoft was offering PC manufacturers steep discounts on the Windows XP operating system so as to prevent them turning instead to the low-cost, open-source OS, Linux, for their netbooks. In return, Microsoft wanted assurances that the netbook's screens would remain limited to less than 10.2 inches and their hard drives to a maximum of 80 GB, to prevent them eating into the company's traditional laptop market.

As the netbook manufacturers learnt that they could call the shots, however, these restrictions were eased (to 14.1 inches and 160GB), and the forthcoming Windows 7 OS will require far less computing power to run than its predecessors have done – a sure sign that Microsoft is feeling threatened by the mass adoption of the undemanding Linux system.

If open source platforms such as Linux grow in mainstream popularity thanks to the netbook, it will also provide an opening for Microsoft's rival software giant, Google, whose open source Android operating system is based on Linux. Android was initially devised as a platform for mobile devices such as the new Googlephone, but its basic, user-friendly interface is also appropriate for a netbook. To prove as much, a pair of developers from the technology site Venturebeat installed Android on an Asus Eee PC for a New Year's Day blog, and suggested that an Android netbook could be widely available by 2010.

"We would normally think to market netbooks alongside mobile PCs," says Ranjit Atwal, Gartner's principal research analyst. "But they're now being positioned closer to mobile phones... The difference between mobile phones and PCs is that there's a lot more innovation in mobile phones – you always see varying phone formats, different sizes, different usages. There's not a single operating system controlling the mobile phone market, whereas the mobile PC market is still based on the Microsoft interface.

"Microsoft has benefited from consumer inertia. We're all used to Windows. But for the different usages of a netbook compared to a PC, a different type of interface, such as Linux, might be more user-friendly, and might generate innovation around how we interact with our PCs. As we move away from the mass usage of PCs into a much more specialised, segmented computing market, we've got to re-examine the value of, say, Microsoft, compared to the sort of practical, useable interface we expect on our phones."

One computing behemoth that hasn't yet deigned to enter the netbook race is Apple, whose products have always been at the top end of the consumer technology market. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that," said Apple's CEO, Steve Jobs, in October. The iPhone and its non-phone counterpart, the iPod Touch, arguably offer the same mobile internet capabilities as a netbook, and for a similar price. But that hasn't stopped the rumour mill generating stories of seven- and nine-inch iPod Touches, supposedly being developed to compete in the netbook market.

"I've always compared the PC market to the car market," says Atwal. "Over the past 15 years or more, the car market has segmented based on what sort of car people might need for their personal usage – be it a two-seater sports car, or a seven-seater people carrier. It's the same with the PC market. Over time, it's going to segment, based on varying preferences, needs and usages.

"So we are now seeing a proliferation of different devices, and at the end of the day it willbecome harder and harder to differentiate between high-end mobile phones, low-end laptops and netbooks."

More than Word: The best free software downloads for netbooks

Video

VLC and Miro: With the enormous complexity of video-encoding, two pieces of software go head to head to ensure that we're able to play whatever we might download. VLC is better established, Miro is prettier. But if one can't cope with an errant video file, the other certainly will. Grab them both. videolan.org and getmiro.com

I nstant messaging

Pidgin: All instant messaging software comes free of charge, but having to download and fire up half a dozen applications to chat to friends and relatives can be a drag. Pidgin rolls up many of networks (including IRC, MySpaceIM, Yahoo!, Google Talk, Jabber, MSN, AIM and ICQ) into one convenient package. pidgin.im

Office software

OpenOffice: OpenOffice has become the automatic choice for those who enjoy railing against Microsoft. Its interface doesn't have quite the finesse of Word, Excel or Powerpoint, but it operates in a pretty indistinguishable fashion, and no one looking at your documents or spreadsheets would know you'd been using a freebie. Some prefer it to Microsoft. It's less interfering; for instance, it doesn't decide to tab up or number paragraphs for you as you type. openoffice.org

Music players

iTunes and Songbird: If you own an iPod, you might well already have iTunes installed in order to synch it up, and Apple's dominance of the music download market makes iTunes an essential bit of software. But if you like having a non-corporate option, check out Songbird, which has much of the functionality of iTunes, but none of the smugness. itunes.com and getsongbird.com

Web browsers

Firefox and Chrome: Don't just fire up Internet Explorer automatically. It's by no means compulsory, and as IE's market share dips below 70 per cent for the first time in many years, more people are switching to Firefox (much-loved, easily enhanced by free extensions) or Chrome, the new browser from Google. firefox.com and google.com/chrome

Antivirus

AVG and Avast!: McAfee and Norton are the industry leaders in keeping your PC free of unpleasant gremlins that find their way in via the internet, but there are free options that many seasoned Windows users have total faith in. Avast! is used by more than 60 million browsers, and AVG Free by more than 80 million. free.avg.com and avast.com

Photo editing

IrfanView and GIMP: If your interaction with images is limited to scanning, viewing, cropping, resizing and saving them, IrfanView is a lightweight freebie that does everything you need. If you want to get your hands dirty and Photoshop your images without paying for Photoshop, the freeware GIMP package is an excellent alternative. irfanview.com and gimp.org

Photo albums

Picasa: Keeping track of the photos and images littered around your hard drive can require superhuman administration skills. Google's Picasa makes it easy by scanning your disk and putting together a click-to-open photo album. It also integrates with its online compatriot, allowing you to share pictures easily across the internet. google.com/picasa

Phone calls and videochat

Skype: If your netbook has a built-in webcam and mic, installing Skype is a no-brainer. It lets you communicate via text, audio, video or all three – your only challenge is to persuade your friends to install it too. It also lets you make budget international calls to mobiles and landlines via your broadband connection. skype.com

Games

Grand Theft Auto: Last year's 'Grand Theft Auto IV' might represent the cutting edge of gaming, but if you fancy catching up slowly, its maker, Rockstar North, has been good enough to offer the first two games in the series for free download in exchange for being on their mailing list. It's an aerial view rather than full 3D, but hey – it was released in the late 1990s... rockstargames.com

Rhodri Marsden