My feature story on the state of the PC is now live on the Marketnews magazine site. There’s been a lot of ridiculous speculation about the demise of the PC. Here, I’ve cut the Gordian knot, taking an unblinking look at the PC industry, with plenty of statistical evidence and expert input to substantiate my views. Which are, in a nutshell, that the PC is not going away.
EDIT (14-01-30) – The Marketnews web site is now offline. Marketnews itself has been superseded by Wifi Hifi magazine (print and web). The new publication is carrying on the same tradition of coverage of and for the Canadian consumer-electronics retailer, with largely the same team of experts on tap. Unfortunately, the old Marketnews web content has been a casualty of the transition. However, here’s my story, archived from the Marketnews site, and roughly as it appeared in the last print issue of Marketnews.
FEATURE: CONNECTIVITY & CONVERGENCE
The PC Isn’t Dead, It’s In Transition
The story of the PC has been a long, strange one. The latest chapter has been strangest of all, with pundits falling over each other to proclaim the PC dead and ready for cremation. Those reports are not only premature, they gloss over the real complexities of the situation.
True, the PC has entered a significant sales slump. But what it’s going through is more of a mid-life crisis than a sudden demise. And while new types of devices such as smartphones and tablets are certainly selling well, it’s not at all clear that they are ‘replacing’ the PC. There are many other forces at work.
The statistics certainly do show a decline in sales of traditional laptop and desktop PCs, over the past year or more. However, as recently as Q3 2011, Gartner was still reporting year-on-year growth of 3.2% in worldwide PC shipments. It ranked the top vendors, in descending order, as HP, Lenovo, Dell, Acer and ASUS.
In Q2 2012, Gartner reported that worldwide growth in PC unit shipments, including desktops and notebooks (but not tablets), had flattened or begun to decline. And yet, it noted that ASUS, though still in fifth place, had seen massive year-on-year growth of 38.6%. Lenovo had grown its shipments by an equally healthy 14.9%, and Apple had grown by 4.3% (in the U.S., at least.)
The disparity in performance among these companies is remarkable, and not exactly what you’d expect in a stagnant market. It suggests that the downturn as a whole might reflect a few market leaders having lost their way, and some of the younger, more tightly-focused contenders picking up the slack.
In Q2 of this year, Gartner reported that global PC shipments were down emphatically by 10.9% compared to 2012. This, it noted, was “the longest duration of decline in the PC market’s history.”
IDC’s Canadian numbers are far from rosy, but include some hopeful glimmers. In 2012, PC shipments dropped by 11.4%, says Tim Brunt, Program Manager, Personal Computing & Technology, IDC Canada. So far this year, they’re down another 11.7%. However, IDC is actually predicting a return to growth in 2014, albeit at a skimpy 0.6% rate.
Desktops have taken the worst beating, says Brunt: down 10% in 2012, 12.9% this year, and predicted to decline another 1.6% in 2014. Laptops, on the other hand, should see 1.8% growth in 2014, and 3.3% in 2015.
It’s not that PCs are disappearing; they’re just being replaced less often. “We see a lengthening of the life cycle,” says Brunt. “It will still be that always-there device. It has your pictures, your videos, your documents. Can you rely on a laptop to be the permanent holder of your baby pictures? Probably not. You need a place for your stuff.”
Brunt notes that there’s been downward pressure on ASPs. “We’ve seen so many PCs bought in the last four years for less than $400,” he points out.
However, Darrel Ryce, Director, Technology & Entertainment, NPD Group Canada, sees ASPs bouncing back, mainly due to the elimination of the remaining sub-compact or ‘netbook’ models. Overall, NPD stats are hopeful.
“2012 was not a good year, but it’s not all doom and gloom.” Ryce reports that in the first seven months of this year, notebook sales were down 5%, but revenues were merely flat.
Laptops constitute 79% of current PC sales, Ryce adds. Desktops account for the remaining 21% of units, but 24% of revenue.
While markets are down right now, Ryce sees this as a temporary situation. “2010 was a really good year for the desktop market,” he says. With systems on a three or four-year cycle, the lull should soon be ending. “Looking at 2014, we start to see another good year.”
“There are 500 million PCs around the world, in homes and businesses, that are four years or older,” agrees Graham Palmer, Country Manager, Intel Canada. He notes that even if these systems don’t break down, these do gradually become harder to maintain, and less capable of running the latest software.
The business market has held up better than the consumer side “Have things been stellar in the corporate market? No,” says Ryce. “But have they seen that steady decline, as on the consumer side? No. Enterprises know their business needs to continue.”
“Apple has weathered the storm a little better,” notes Ryce. Today, NPD estimates that Apple has about 25-30% of the desktop sales, in units, and 20-22% of laptops. Of course, the percentages are higher in dollar terms, given Apple’s enviable ASPs
Certain PC accessories are also doing very well. Solid-state drives (SSDs) are a hot item, as an upgrade. So are portable hard drives. “Consumers want their pictures and videos to be on more than one device,” says Ryce. But it’s also a cost-saving option. Users can buy a cheaper laptop, then add storage via USB.
The Tablet Takeover?
There are many factors underlying the downturn in PC demand. We could start by observing that the entire world economy has been dismal for so long that we’ve stopped using terms like ‘recession.’ Given that PCs are not as necessary to existence as food, or cars, or refrigerators, we might expect them to be harder-hit.
The PC business has also been maturing. After an extended period of strong sales, the momentum has finally run down. “This is an industry where double-digit growth was just the norm,” says Ryce. He estimates that by the start of 2012, penetration was at about 70%, with a high percentage of Canadian households owning more than one PC. “Now we’re getting close to replacement rates.”
“People had desktop computers, then bought laptops,” agrees Mini Saluja, Director, Product Marketing, Toshiba of Canada. “Now, most households have two laptops, or more. They do a hand-me-down with older ones.”
IDC estimated the Canadian installed base last year at 1.285 consumer PCs per household. So it’s hardly surprising that things have slowed down. “It’s something we should have expected,” says Brunt. “The writing has been on the wall for five or six years. The frenzied buying couldn’t go on.”
It’s also true that PCs have not seen as much innovation in the past decade as they did in the 1990s. “Right now, there’s not that much on the PC that says I’ve got to have the latest and greatest,” says Saluja. In particular, Windows 8 has conspicuously failed to prompt a wave of early upgrades. (More on this later.)
What about the all-too prevalent theory that the tablet is killing the PC? It’s clear that tablets are on the rise, while PCs are in the doldrums. But very little evidence has been presented to show any cause-and-effect relationship between the two trends.
Gartner predicted tablet shipments would grow by 68% in 2013, and suggested that tablets were impacting PC sales. “In emerging markets, inexpensive tablets have become the first computing device for many people, who at best are deferring the purchase of a PC,” said Mikako Kitagawa, Principal Analyst.
“Many people” is hardly a solid statistic, but even the logic of Gartner’s conclusion seems shaky. Tablets are a relatively new, low-priced category, and bound to see strong percentage growth. Whereas the PC market was already losing momentum for reasons of its own.
In fact, there are good statistics showing that tablets have not been a big factor in the decline of the PC. “We clearly see that tablets are not replacing PCs,” asserts Brunt.
In a study in April, IDC asked businesses several questions. Is your organization planning on replacing desktop PCs with tablets? Only about 7% of respondents said yes. Supplementing desktops with tablets? Affirmatives rose to about 30%. Replacing laptops with tablets? Just 11%. Supplementing laptops with tablets? Just 37% said yes.
IDC research further shows that tablets, once purchased, are not being heavily used.
“Only 65 per cent of tablets purchased are still in use,” says Brunt. This may be because tablets are often acquired on impulse, or as gifts. Others mention high return rates, as purchasers quickly realize how limited the devices are.
NPD has found that 21% of tablet owners don’t use the device every day. Some consumers do report purchasing a tablet to replace their laptop or desktop or PC. But when NPD revisited them six months later, many had realized: “I still need to have my computer.”
About 80% of laptop buyers did not consider buying a tablet instead. “It’s not an either-or,” says Ryce. “Tablets are being purchased as an additional device for the household. You had your PC, then your smartphone. The tablet becomes a third device.”
Neil Hand, Vice President, Personal Computing Product Group, Dell Inc., sees a generational shift. “We grew up needing a big screen, keyboard and mouse,” he says. But the millennial generation has grown up in a world of smartphones. “It’s the phone that’s the first ‘PC’ for them. But I don’t know a millennial that doesn’t need a PC to get a lot done.
“Clearly tablets are having a huge effect,” says Hand. “But we’re not seeing them as a one-for-one replacement. We see designers absolutely wanting tablets, but as secondary, augmentative devices.” He adds that Dell tablets use Wacom-designed digitizers, suitable for professionals. Even so, they can’t do it all. “To turn a sketch into a real building, you need the performance of a real PC.”
“We don’t see PCs going away,” confirms Saluja. “People have not replaced their workhorse. Mobile devices are still secondary.”
Similarly, Kevin Huang, Vice President of Marketing, ASUS North America, does not see the tablet killing the PC. “For some people, it’s just like a companion.” However, he does see the tablet having an effect. “It will probably force the PC to evolve. It isn’t that personal computing is dying. Far from it. But the form factors are shifting.”
It’s interesting to note that IDC in the U.S. has reported a decline of almost 10% in tablet sales, from Q1 to Q2 of this year. True, shipments were still up almost 60% compared to 2012, but a dip in the month-to-month curve should serve as a warning. Tablets may be the current darling, but even they can’t count on limitless demand.
Also, it’s worth asking how analysts are defining the term ‘PC.’ When Microsoft promoted Tablet PCs back in the early 2000s, no one doubted that they were PCs. But today, Gartner probably wouldn’t count a powerful Android tablet with a Bluetooth keyboard as a PC. Whereas it probably would count a Windows 8 device with almost identical mechanical design.
In early September, Acer released the DA241HL, which looks like a 24-inch all-in-one desktop PC, but runs Android 4.2. Meanwhile, Windows 8 has spawned a whole category of hybrid devices, including some that ship without a keyboard. Before rushing to write off the ‘PC,’ we’d better be sure to define our terms.
Even within the aggregate totals, PC markets are shifting. It may no longer be enough to think of the PC customers as a bland and homogeneous mass.
Unlike every other electronic product, the PC has endless functions. The most obvious uses, e-mail and Web browsing, are those that are most easily taken over by other types of devices. Unfortunately, manufacturers and retailers have gotten in the habit of not looking any further, at the more advanced capabilities that really make a PC worthwhile.
“The market is so cost-sensitive and ultra-competitive, you almost have to stay in the mainstream to maintain profitability,” says Brunt. “For the mainstream user, there’s a big reliance on good-enough computing. What are people using their PCs for? They’re not doing CAD drawings; they’re surfing the ‘Net, doing e-mail.”
“The mainstream will continue to be the 80 per cent of the market that will drive sales,” says Ryce. “It’s the 80:20 rule: you’ve got to be successful with the 80 per cent of users.”
Huang agrees. He sees the majority as needing affordability and portability, with prices not beyond the $500 to $700 range. He points out that true enthusiasts are researching and buying online. “They see reviews, read forums, go to gaming events.”
And yet, smaller computer shops are weathering the downturn quite well. Huang still sees room for the ‘whitebox’ PC, especially in Canada. These systems may not match the base price of the name brands, but they’re likely to be faster and more reliable. And a better value in the long run. “You can add more RAM, or upgrade it when it’s two or three years old,” notes Huang.
NPD actually sees PC component sales increasing. “People are going to build their own PCs again,” says Ryce. But he cautions that this is still a minor part of the overall market. “The mainstream will continue to be the mainstream.”
At larger stores, the fear of mentioning ‘speeds and feeds’ borders on paranoia. “Go to Future Shop or Best Buy and try to pick out the PC that has the best specs,” Brunt suggests. “You can’t do it. The average consumer can’t do it. There’s no in-store ‘menu.’ It used to be easy; now people just look at the price.”
“Retailers should ask themselves: why do people ‘go back home and double-check,’ then buy somewhere else?” says Brunt. “If you check online, you might as well buy online.”
Various PC niche markets are showing very healthy growth. Not only is there substantial business to be had by catering to these niches, there may be lessons that apply to the PC market as a whole.
John Peddie Research (JPR) tracks several of the most graphically-oriented niche markets. The company defines three levels of PC: ‘mainstream,’ selling under $1,000; ‘performance,’ selling for between $1,000 and $1,800; and ‘enthusiast,’ selling for over $1,800.
Performance users are people using things like Office applications, which Ted Pollak, Senior Gaming Analyst, notes are “not so great” on tablets and phones. Enthusiasts are hard-core gamers, or technical workstation users, or professional content creators who rely on applications such as Photoshop, Premiere Pro or 3Ds Max. “Or elitists, who just want the best.”
Pollak admits that the true enthusiast “is a pretty rare bird.” Nonetheless, JPR raised some eyebrows by predicting that a single, rather obscure game would generate “over $800 million of PC builds.” Arma 3, from Czech publisher Bohemia Interactive, is virtually the only PC application today that stresses quad-core systems to their limits. JPR estimates that players are likely to spend over $1,000 on a PC, within a timeframe of several years.
Pollak clarifies that $800 million is actually a conservative estimate. The game is likely to sell two or three million copies. Doing the math gives PC sales of over $2 billion. JPR scaled down this prediction, to allow for the fact that most of these systems will be used for other things. But it’s that one game that will drive the purchase.
Pollak estimates annual gaming PC sales at about $20 billion, globally, while non-gaming sales are probably about four or five times larger. “Gaming is not the biggest niche, but it is one of the bigger ones.” What’s more, JPR expects PC gaming to grow steadily at about 3%.
Obviously, any niche that keeps growing while the overall market shrinks will grow more important within the overall mix. “The PC market is shrinking to the core,” says Pollak. “Therefore, the probability that a PC is bought for power use is expanding.”
Asked if the PC market is becoming ‘a mosaic of niches,’ Pollak enthusiastically agrees. “That’s the perfect way of putting it. It’s a mosaic of niches, framed by a shifting mainstream use model.
“Whether you like it or not, the mainstream is shifting,” Pollak emphasizes. “Manufacturers need to be more agile. They need to move quickly, not slowly. The low-hanging fruit is gone. Manufacturers need to understand the customers and the use models.”
At Dell, Hand is in charge of both tablets and niche PC markets: ‘precision workstations,’ ruggedized PCs and the Alienware line of gaming desktops and laptops. “We see areas like those performance PCs as very critical customers, because they care about being professional in what they do,” says Hand. “They’re always looking for a technology that gives them an edge.”
Apart from generating profits in themselves, these performance lines can add credibility and design strength to more mainstream products. “We have been taking some of the things we’ve learned, and putting ‘gaming by Alienware’ on our Inspiron designs,” says Hand. “There are customers who want the best value, not necessarily the lowest price.”
Niche markets are even more important to the second-tier manufacturers. ASUS is a good example. A latecomer to the PC market, the company has become one of the top six laptop manufacturers in the U.S. by leveraging its credibility in ‘enthusiast’ markets to build brand awareness. “We’re creating a premium brand position,” says Huang.
Software is at least as important to the health of the PC as hardware. Since the early 1990s, the trajectory of the PC and of Microsoft Windows have been one and the same. But it’s starting to look like Windows may be losing its impetus, with several recent releases bringing more headaches than they solve.
It’s getting hard to deny that Windows 8 has failed in its two primary goals. It has not revitalized the PC market. Nor has it carved out a significant chunk of the tablet business from Apple and Google.
The reality is probably worse than the dismal hardware stats indicate. Microsoft used its deep pockets to artificially inflate those numbers, plowing huge cash resources into incentives like co-op advertising support. But hardware OEMs have found no huge demand waiting for the elegant new convertible devices they produced.
Microsoft’s decision to compete with hardware OEMs didn’t help. Nor has Microsoft’s Surface done well in its own right. It is almost literally true that Microsoft hasn’t been able to pay consumers enough to take these devices home.
Microsoft’s annual 10-K report to the US Securities and Exchange Commission (SEC) stated that “sales and marketing” expenses for the Windows division in 2013 had been increased by $1 billion, including an “$898 million increase in advertising expenditure associated primarily with Windows 8 and Surface.” That amount is surprisingly close to the $900 million charge Microsoft took for discounting its Surface RT by $150.
An obvious obstacle to sales of Windows 8 devices in general is the extra cost of a touch screen. Saluja points out that there’s still “a price discrepancy,” which she puts at about $50 to $75. “If it was the same price, that might make people switch over.”
Unfortunately, the price delta is magnified at the low end of the market. Standard laptops currently start at about $300, while the cheapest touchscreen models run closer to $500. But even in the $750 to $1,000 bracket, touch is far from a given.
At the same time, Windows 8 devices are too hefty to be mistaken for true iOS or Android tablets, and are priced too high to compete with the latest wave of Android tablets, which now start as low as $150 for 7-inch models. If ‘mainstream’ PCs are all about low price, tablets are even more price-sensitive.
Sales of Windows 8 devices are picking up gradually, but at this point, it’s hard to see Microsoft’s new OS prompting a major comeback in PC markets. And judging by the specs of the Windows 8.1 update, we can expect no dramatic course changes. Microsoft looks ready to double-down on its existing strategy, despite the lack of any obvious enthusiasm from consumers.
There are a lots of things Microsoft could do technically, some large, some small, to make Windows 8 more appealing. Above all, it needs to show some love for the traditional desktop to counter suspicions that it’s being phased out.
Microsoft also needs to show that it’s listening to its users, instead of conspicuously ignoring them. Users who complained about the Ribbon interface, or the integration of Metro into Windows, have tended to be brusquely rebuffed on Microsoft forums.
That undiplomatic approach has extended to “developers, developers, developers.” Microsoft recently killed a program called TechNet that made it easy for developers to stay abreast of software updates. It subsequently axed an advanced certification program, without consulting with those most affected.
Microsoft’s obvious competitor is not Apple, but Google, which is dominating in the mobile space, and creeping into the PC market with its latest wave of Chromebooks.
Above all, Microsoft should recognize that its obvious competitor isn’t Apple, it’s Google. Android now has the majority share in mobile, so it’s the more-tempting target. Ironically, Google gained its lead by offering users and OEMs the same combination of flexibility and openness that once characterized Windows.
The departure of Steve Ballmer as CEO offers an opportunity for a change of approach. Unfortunately, Ballmer stated in the e-mail announcing his departure that he hopes his successor can complete Microsoft’s transition into a “devices and services” company. It’s hard to see Microsoft becoming competitive with hardware specialists like Apple, Samsung, ASUS, Sony, Toshiba, et al. Or with services giants like Google, Amazon and a few others.
It’s equally hard to see how Microsoft’s acquisition of Nokia this summer could be of any help. The deal combines two stragglers in the highly competitive smartphone race, and again puts Microsoft into direct competition with its own OEMs, this time on Windows Phone.
Worse, it raises the unnerving possibility that Nokia CEO Stephen Elop (a former Microsoftie) is being groomed as a replacement for Ballmer. It’s hard to imagine anyone less likely to bring Microsoft’s focus back to its original ‘core competency.’ (Software, in case you’d forgotten.)
Regardless of how these maneuvers work out for Microsoft’s bottom line, they do little to counter the impression that the company has run out of ideas on the software side.
Others are waiting to step in. LibreOffice is already very close to Microsoft Office in capability, at zero cost and with much simpler setup. Recent Linux releases (Ubuntu, Mint, et cetera) are as easy to use as Windows, and their open architecture is starting to make them more reliable and easier to support.
Of course, switching OS ecosystems would be a huge upheaval, for individuals and for the marketplace. Unless Microsoft can get back on track, a likely scenario would be an increasing encroachment of other OS options, with Android, Linux and Mac OS taking increasing chunks of the market. That could lead to a more vibrantly competitive software landscape, comparable to what we saw in the 1990s.
What would it take to make the PC a hot product again? No one is really sure. Many analysts have rushed to say that media consumption tasks have permanently shifted to tablets and smartphones. If this is true, only some entirely new type of application would draw users back to the PC.
“Ten years ago, there was something new, always,” says Saluja. Today, the potential for a new ‘killer app’ is actually larger than ever. Hardware has continued to evolve according to Moore’s Law, doubling in capability roughly every 18 months. But software has been at a virtual standstill for a decade or more, seeing mostly minor tweaks and cosmetic changes.
Nonetheless, when it comes, the next paradigm shift is more likely to materialize on a wide-open, leading-edge PC, than on a closed, appliance-like tablet. “The PC business is the ultimate Darwinian, it evolves at a very rapid pace,” says Palmer.
A more immediate possibility is that the PC industry could get its act together, and move the PC into the 21st Century (already in progress). There are endless ways that both hardware and software could be better, without being radically different. This would require no great innovations, merely a sharpened focus on individual user needs.
“I think the product development piece has been disappointing,” agrees Brunt. “I haven’t found very many laptops that do the things I want a laptop to do. They do some, but there’s not one really well-designed laptop, for me personally. Manufacturers have done really well at exploiting the low end of the market.”
Intel seems to favour this view of the near future: no breakthroughs, but an accumulation of improvements. “It’s no longer about the ‘killer app,'” says Palmer. “It’s about a totally integrated environment where you can do what you want.” He notes that an IDC study showed that simply “having to wait” is one of the biggest gripes with PCs.
For Intel, battery life has become a major concern. Putting better graphics in the chip gives a performance improvement “almost free of charge,” says Palmer. But it also reduces power consumption. “Better battery life has been a real driver.” Being able to work for eight hours has opened up a whole new sector of use.
Putting capabilities like video decoding on the main processor chip can also unlock new capabilities, such as videoconferencing. Or 3D facial-recognition, for better security. Or eye-tracking, allowing users to control events on the screen just by looking at them.
Slicker, more seamless PCs could also enable emerging home PC scenarios. “The idea of a ‘digital shoebox’ has become really important on the consumer side,” says Hand. He feels that five years from now, parents will be looking for that photo they took of their kid’s birthday, and they’ll expect to find it at home. The PC is a natural repository for this kind of material.
Innovative new form factors will certainly help. Huang notes that ASUS came out with a two-in-one design in 2012, and has a three-in-one for this year. Saluja sees laptops becoming smaller and lighter, with nicer keyboards. And a nicer appearance. “We’ve got some good products coming up for the holidays,” she says.
PCs continue to be in demand. But they’re no longer going to just walk out of the store on their own. Manufacturers and retailers will need to re-learn both the product’s capabilities and the customer’s needs, and give some real thought to how the two may be connected.
- The PC market has hit a mid-life crisis of sorts, with the upgrade cycle lengthening, tablets and smartphones posing competition, and traditional leaders presumably having lost their way.
- With computers on a three or four-year cycle, and 2010 having been a good year for the market, many expect things to look up in 2014.
- There’s little evidence to back up the thought that tablets are killing the PC; the rise in the former may not be what’s having an effect on the latter.
- Lacklustre performance of Windows 8 has impacted the PC market as a whole; but the rise of alternatives, like Mac OS, Android, and Linux, could lead to a more vibrantly competitive software landscape.