The Death of the PC Is Nigh
At the Walgreens (WAG) -- yes, that's right, Walgreens -- near you is exactly what Microsoft (MSFT) CEO Steve Ballmer, Hewlett-Packard's (HPQ) L?o Apotheker, Michael Dell and his eponymous company, and many others have been dreading: a $99.99 Android tablet.
With a 7-inch screen, 256MB of RAM, microSD storage card support, and Wi-Fi connectivity, it won't be your choice to write a long business report or build the next Facebook. But then, it doesn't have to be. All things come to an end eventually, and now it's the personal computer's turn.
The original PC had only 16KB of RAM and no hard drive storage at all. It used tape cassettes to store and load programs.
It's been a great 30 year ride. However, what vendors, users, and corporations have taken as a given in computing and information services is on its way out, displaced by changing work habits, new models in computing services, and a realization that if you don't need all that power in your hands, you don't have to pay for it. The ramifications are broad and will hit virtually every company in the PC industry, including the giants that build the hardware. And who will suffer most? Microsoft, because it is about to lose control over the user experience, a linchpin in its industry dominance for decades.
Yes, the title of this post is inflammatory, but that doesn't make it less true. If you avoid the knee-jerk reaction to yell about all the things that developers and designers and those running large spreadsheets can't do without a desktop or even laptop for just a minute, you can see that such activity is a relatively minor fraction of what consumers and business users need from computers. And for most of what people do, the PC is overpowered, overpriced, and unnecessary. That spells a seismic shift that will be even more disruptive than the PC's initial introduction, which upset a mainframe and minicomputer industry that assumed only larger and more expensive (and profitable) hardware would do what people needed.
Ironically, mainframe king IBM helped the PC become, as Apple Steve Jobs might put it, insanely popular. The partnership it started in 1980 with Microsoft led to that company's dominant position in software and operating systems -- and to the danger it now faces from new platforms.
David P. Hamilton, Senior Editor, BNET
Which, of course, raises the question of what Microsoft will become as the PC fades. I'd argue that its future looks considerably more bleak than IBM's did -- although in the early 1990s, Big Blue was hurting pretty badly -- because it basically has no backup business lines that it can pump up the way IBM did with IT services. I wouldn't be surprised to see MSFT try to turn itself into a purer cloud-services company, but it's got two problems: First, IBM and a whole bunch of other companies are already there, and second, MSFT's offerings on that front have generally benefited from its Windows and Office monopolies, which just don't leverage the way they used to.
PCs are quickly becoming unnecessary for most of what people want to do. Look at the popularity of the Apple (AAPL) iPad and of smartphones. As more applications hit the web and allow users to check in from virtually wherever they might find themselves and online storage becomes nearly as available as oxygen, there is no reason for a growing number of people to bother with a traditional PC. Here are some indications of the shifting computing landscape:
- PC CPU mainstay Intel (INTC) has warned that weaker-than-expected demand for PCs in mature markets spells danger for upcoming revenue. Furthermore, tablets have become the big question in the company, because the devices, which don't generally use Intel chips, continue a popularity surge.
- Even in back-to-school shopping, global PC sales growth is far below analyst expectations.
- Advanced Micro Devices (AMD) CEO Dirk Meyer recently admitted that tablets are eating the lunch of netbooks.
- AT&T will help Apple sell iPads to corporate users, courting demand for the stylish and popular media consumption devices.
- Apple as well has ramped up its corporate sales efforts because the company has the chance to use iPhones and iPads as a way to gain business clients.
- India is about to see a 3D cellphone for only $97 . Although not a smartphone, it shows just how much a company, particularly one overseas that is hungry to grow, can deliver for a low price. Expect smartphones to hit the sub-$100 range in the near future.
Low-cost, lightweight netbooks, which traded power for cost, began to eat into sales of traditional laptop and notebook PCs until the iPad made people realize that another type of device would be an even better substitute.
In a world of cloud computing, where consumers and businesses can find virtually any capability available on an as-needed basis via a browser, the constant capacity growth of the PC becomes quaint. When a company like Virgin America can shift its 1,700 employees from traditional business applications to Google Apps, how long before Microsoft, which has been forced to expand web access to its business applications, finds itself selling fewer and fewer copies of Office or Exchange servers? For anyone who watches this industry, there is something disconcerting about Microsoft knocking a competitor like OpenOffice. It is as though Starbucks (SBX) felt that it had to defend itself from children's lemonade stands. When it comes to that point, there is something very, very wrong.
Microsoft management actually knows where things are going. That's why the company is pushing so hard on the cloud computing front and why it badly needs a Windows Phone 7 win in the mobile space, even though it doesn't seem likely to get it.
However, Microsoft isn't the only one that stands to lose in a big way. PC vendors are in deep trouble. Not only are there competing devices, but they face a major threat in the form of desktop virtualization, in which multiple people effectively use a single PC. Recently, I spoke with Stephen Dukker, CEO of desktop virtualization vendor NComputing and founder of eMachines, the company that helped drive PC prices into the floor. Not only can NComputing's devices allow dozens of people to make simultaneous use of a single PC, but the essential hardware costs only $10 to $30 to build and the company is licensing this technology to companies like LG, which will build the capability into some of its monitor lines.
So far, PC vendors appear to have worked with other virtualization companies like Citrix (CTRX) to keep prices high enough to avoid mass defection and to maintain margins for all. But when you can hook a monitor into a PC and effectively get a second machine in a home or business, the appeal of spending hundreds on another full personal computer vanishes. "An Android ARM-based device could run Windows with Windows-based applications without being a Windows device and without being an Intel device," Dukker says. "I sat in one of the top 3 PC companies in the world with an exalted vice president. His team saw our stuff running on a $400 PC. They said, 'This is unbelievable,' and then they got glassy eyed and said, 'But we sell PCs.'"
True enough, but for how much longer? When consumers and businesses can spend a fraction of a PC's price to get what they need, chances are that they will eventually realize it and change their purchasing habits. And that means, unless the big PC hardware and operating system companies can make the switch, they may have to make do with much lower levels of sales and importance.
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