Is Mobile Innovation Dead?

I have a very long history when it comes to being involved with laptop designs. In 1984, as part of my consulting work with IBM, I was asked to be part of the team that worked on their first laptop. The core design team was based in Austin in those days but for months this team and another in Atlanta would go to IBM’s Boca Raton facility where they would work on the original design of this forerunner of their ThinkPad line. At least twice a month, I would fly to Boca Raton to meet with them, review the work and give input from a mobile researcher and user standpoint.

Since our research had a strong mobile user focus, I also got involved with laptop research design work with many of the PC clone companies back then and got to see up close how portable computers evolved from sewing machine-styled designs to the clamshell form factors we still have today. However, I have been surprised that, given that clamshells came into the market in 1985 via the original Panasonic laptop, clamshells are still the dominant mobile computing form factor.

The good news is that, over time, the screens have gotten better and now are touch sensitive, their battery life is longer, there are more storage options and they are lighter and thinner. But they are still clamshells. Not that this is bad. This form factor has proven to work well but I believe there at least needs to be more innovation applied to this design if it is to remain the dominant one for mobile productivity.

Of course, Microsoft could argue their Surface has broken the mold of the clamshells and represents an important innovation in portable computing. But all it really is is a large tablet with a keyboard. Together, it is still clamshell-like in its overall design. A few weeks back, I wrote a piece that talked about how Lenovo’s Yogabook was an example of a radical design with two screens and provided a greater level of versatility in portable computing. I have also been talking to some OEMs who have suggested they are working hard to go beyond the clamshell designs and make their mobile devices more powerful and more versatile as well.

While I am excited that OEMs are trying to break the clamshell mold and create some new portable computing designs for the future, I am pretty sure the clamshell is not going away soon. If true, then we need more innovation in this form factor.

One of the more practical innovations I have seen recently comes from HP in a new laptop they have that has a virtual privacy screen. If you are working on a laptop on a plane or in areas where people are sitting right next to you, it is good to have a privacy screen on your laptop so that only you can see what is on your display. Privacy screens you can place over a display have been around for decades but HP has a unique hardware and software solution that, at a touch of a button, gives the display a privacy filter. This is a brilliant idea and I wish all laptop makers would add something like this to their laptops.

Another important innovation comes through next-generation cameras such as Intel’s Real Sense camera appearing in some high-end laptops today. This adds 360-degree images to the mobile experience and, over time, could become an important vehicle for user created content for AR and VR.

I also see innovation coming through Microsoft’s Hello and its link to advanced biometrics. Biometrics can help deliver another level of security to a laptop design and add multiple levels of authentication through iris scanning and next-gen fingerprint readers. In this day and age, where local information on a laptop needs even greater protections, biometrics is an important advance in keeping our laptops more secure.

There is also some interesting work going on in eye tracking and, with the addition of Cortana on Windows and Siri on Macs, voice adds another dimension to the navigational functions in laptops.

One last innovation to mention is waterproof keyboards. Dumping coffee or soda on a keyboard happens more often than one would think and unprotected keyboards get fried when this happens. Lenovo and others have introduced various models with waterproof keyboards and I think this should be a default feature on all laptops.

These new technologies are a good way to innovate on a clamshell platform but I would like to see even greater innovation, including the addition of VR and AR within these PC operating systems. While I actually hope someone comes up with a really radical design in laptops, clamshell portable PCs will be here for at least another decade, I hope the vendors who make these mobile computers never stop innovating.

iPad Pro and Surface. The Future of Notebooks

There is an unquestionable trend emerging — tablets are evolving into notebooks. This does not mean all tablet/notebook combinations will replace PCs. However, it does validate the opinion that there is a segment for these devices and our conviction is that the segment is quite large.

In my view, what Apple has done with the iPad Pro has legitimized the Surface form factor. Our data and analysis of overall PC shipments continues to highlight that 2-in-1 tablet and notebook hybrid sales have remained relatively small as a percentage of the mix of pure notebook and desktops. But it does feel like this is about to change.

Our firm has long been predicting these worlds would converge and all notebooks — at least, the vast majority of them — would converge around this form factor. There is a place for the pure notebook form factor. Think of it as a portable desktop. But the issue remains that the market for a portable desktop is very small. The market for a 2-in-1 PC is actually quite large, especially when you lump in consumer market sales, which is nearly half of the ~300 million ~ desktops, notebooks, and 2-in-1 form factors shipped today.

The iPad Pro validates the 2-in-1 form factor, albeit with a very different philosophy which I will discuss shortly. It is likely to help fuel the sales of these products in the market and is likely to help Surface in its enterprise adoption specifically because these are markets where a “Desktop OS” is still necessary. For example, one thing the Surface can do the iPad Pro can’t is run two Excel documents side by side. There is a place for a desktop OS in enterprise environments and I still believe Windows based 2-in-1 PCs fill this space.

Certainly, the iPad Pro will have its enterprise deployments. However, its opportunity there as well as its opportunity with creative professionals is simply smaller than the broader opportunity for consumers.

Tim Cook said, in a very calculated statement, “The iPad is the clearest expression of our vision of the future of personal computing.” This statement has implications and needs some unpacking.

First, we must establish the point the iPad Pro contains desktop class capabilities but runs a mobile OS, not a desktop OS. Although we can argue the specific version of iOS built for iPad is maturing to be more desktop-like with the simplicity of a mobile first experience. Second, and not to take anything away from Macs as they have their place in Apple’s lineup, this statement means Apple believes the future of computing runs on ARM not x86 (perhaps a thought nugget for those who believe Apple will bring ARM-based chips to its Mac lineup).

The Future of Personal Computing Running on ARM

This statement makes quite a bit of sense. Platforms running on ARM dominate the mobile landscape today. These platforms are Android and iOS. All the mobile first, consumer-centric developers are already writing for ARM. But when it comes to the tablet’s ability to take on notebooks (not desktops), Apple’s philosophy of leveraging the developers of the mobile ecosystem is central. I’ll make the point this way. If you were betting on developers that could carry the future of computing forward, would you bet on Windows developers or iOS developers? Hopefully, this question is easy to answer. This is where the philosophical difference between Windows 2-in-1 devices diverge from that of the iPad Pro.

Microsoft has corporate developers, this is certain.

ARM/iOS/Android has consumer developers and much more global ones at that. One market and one developer ecosystem, is significantly larger than the other. This is why it makes sense for Apple to bet on iOS developers from the viewpoint that Apple is broadening computing hardware capabilities for their developers to start thinking about the future of computing beyond pocketable screens.

It is within this vein of thinking Tim’s article about Android on “PC like” form factors makes sense. As the founder of the Remix OS said to Christopher Mims of the Wall St Journal in this excellent article on tablets:

“If two-thirds of the population of the world has not gone online yet, and if they do go online using and Android-based cellphone, then when they want to move into the productivity space, chances are they will want to use a familiar operating system.”

This was essentially what I proposed in this report on tablets. As consumers graduate to and have a desire to move up in this mobile-only world, it makes sense they stay with a mobile-first OS. Hence, our strong recommendation of late-to-PC OEMs to look at Android for the 2-in-1 form factor as a variant OS for their hardware.

The iPad Pro helps to further my conviction that Windows will remain a niche operating system in the personal computing market.

Creativity vs. Productivity

One last point. I’m continually frustrated by the commentary that states “real work” is defined by productivity. In my mind, for consumers, tools that let us create are just as important as those which help us produce. Making a home movie is more fun than creating a budget. But both sets of tools are necessary. My point is the idea of proclivity is not exclusive to Word documents and Excel spreadsheets. It also consists of making films, art, and creating things worth sharing with friends and family. This is why I’ve often been stunned Windows has never come bundled with software like the iLife suite (iMovie, iPhoto, etc.). Steve Jobs may have said it best, “iLife would do for creativity what Office did for productivity.” Consumers value the ability to create at a deeper, more emotional level. This angle is another one I’m intrigued by the upside potential of the iPad Pro, not just in vertical markets, but for the broader consumer market as well. It is up to Apple’s developers to take it there.

Insight on the Consumer Notebook and Desktop Market

It is clear a massive behavioral shift has taken place in consumer markets. In the recent past, the PC industry was growing and filled with optimism as consumers began to buy PCs and, specifically, to buy notebooks. Consumers valued the freedom to use their PC anywhere in their house as it became clear consumers value mobility. This was a fundamental reason netbooks hit the scene and spiked sales. The lessons we learned from consumer behavior around netbooks was the best writing on the wall of what was coming for the consumer PC segment. Netbooks were not being used by the mainstream to replace PCs. Instead, they were simple additional “internet terminals” for use in the home. We look around today and take for granted how many screens we have in our possession capable of browsing the internet. But in the days when the netbook was surging, most people had, at best, two internet terminals in the home. The netbook made for an additional and inexpensive internet terminal, helping to solve the battle for usage in multi-person homes.

Much of what we observed in the consumer segment from a behavioral standpoint of notebooks and netbooks usage predicted the coming disruption of the consumer PC segment by smartphones. I did some specific research on consumer notebook use in those days and discovered an interesting point. The average consumer used less than 5 apps on their PC and none were CPU intensive. This observation was the paved road which leads to the reality that PCs for the most part over-serve the needs of the mainstream consumers and smartphones are well positioned as the primary computer. It is within this framework I struggle to see how the PC ever returns as a dominant or primary computer to mainstream consumers.

So what happens to the consumer PC segment? This is a question those in the PC industry need to focus on. There is no doubt the commercial PC segment is healthy and will remain so. While the global PC industry can remain healthy if we lose the consumer PC segment’s average annual contribution of approximately 155 million units, the PC industry can not sustain the many players in it today with those volumes. Which means I expect consolidation will happen.

While I don’t believe the entirety of the approximately 157 million global consumer PCs will go away, I could see that number dropping closer to 100m in the next few years. Meaning, annual PC shipments would normalize to the approximately 250m range vs the roughly 300m number we see today.

Who Competes for Consumer PCs?

While this seems like a somewhat doom and gloom narrative for the PC sector, it is not. It is my belief that, as we see PC volumes normalize (meaning those who want and need them remain the customers, and those who don’t really need them move on), we will see healthy ASPs remain. If you know you need a PC, you value it and therefore you are willing to invest in it. So the true TAM for a notebook or desktop will be in search of a product worth investing in. This is where quality, specs, innovation, and a host of other very positive things for the category become sustainable across the board. I truly believe it would be a fool’s errand for the PC players to simply rush to commoditize PC hardware in search of consumer volumes I don’t believe exist.

I believe four companies will remain in the PC business and compete for both commercial and consumer PCs. Lenovo, Dell, Apple, and Microsoft. Lenovo and Dell will be more heavily geared for commercial volumes than consumer in terms of their mix of unit shipments. Apple remains well positioned to gain share in the PC sector in both commercial and consumer notebooks and desktops. Going back to my point that those who know they need a PC and value it will be looking to make an investment. They know they won’t be replacing it any time soon and will want it to last. This is the sweet spot in Apple’s value proposition and, with the additional customer service they offer at Apple Retail, it helps as well for consumer peace of mind. Lastly, I believe the consolidation in the PC vendor area will bring Microsoft forward to become more aggressive in making PCs — more than just the Surface. I believe it is inevitable Microsoft will make notebooks and even desktops at some point. Given Microsoft’s increasing retail experience, I believe they could compete well in the consumer PC market.

Desktops Re-Emerge in Consumer Sector

With regard to PC pricing, I am talking specifically about notebook ASPs. I believe the notebook form factor should essentially maintain its ASP and even climb closer to premium ASPs. This goes to a point I’ve been making that the notebook, more than any PC form factor, is becoming a specialized device. Something for the most mobile worker who needs and values portability and is therefore willing to pay for it.

Desktops, on the other hand, I see becoming more commoditized and thus better positioned as the mainstream consumer PC. I remain convinced the short-lived love affair consumers had with notebooks has shifted to their smartphones. Consumers simply do not use their PCs hours and hours each and every day like those in the commercial segment. Therefore, for a product you don’t use every day and only need on occasion, how much will you pay for it? This is perhaps where a flexible desktop comes into the picture. Which is why, for the time being, I can still see a role for the consumer all-in-one PC.

More specifically, I’m optimistic on the value proposition of the portable all-in-one for the consumer PC segment. This form factor offers a new paradigm for a desktop computers that are untethered from the desk and can bring in other use cases than just deep work. Family gaming on a large touch screen, using it as portable TV for around the house or yard, etc., all bring in additional use cases than what people have expected of their PCs. But the point remains, I don’t believe consumers will spend upwards of $700 on such a product. If these portable-all-in ones can get into the $500 range or lower, I believe we could see this segment become attractive to consumers. My advice to all PC OEMs is to be aggressive on price in this form factor and not notebooks.

Lastly I’ll openly admit our crystal ball related to the consumer PC market has never been this foggy. We, like many of our colleagues in this industry, do “Intent to Purchase” quantitive research and the answers we’ll get from the mainstream consumer market will likely offer extremely mixed signals. More mixed than any year previously. It makes predicting exactly what consumers will do with any confidence extremely tough right now. We know there are somewhere in the range of 300-400m consumer PCs in use that are getting old and are ready to be replaced. However, given the behavioral shift I mentioned, we aren’t sure what percent will actually make a move to refresh their PC this year, next year, or ever. What I’ve articulated here is a mix of both my best and worst case scenarios for the consumer PC segment. The holiday quarter 2015 will be the quarter where we see what consumers decide. My hope is that, by Q3, we get some insight as to what may happen in the consumer PC segment so we can update the industry.

MacBook and the Future of Laptops

The good looks of the new 12 inch MacBook got most of the attention when the light, thin laptop was unveiled. But the most important components were hidden inside the case and may be the important changes in the coming generations of laptops.

In fact, the real story is what was left out of the case. Internal components have been disappearing from laptops, especially the ultra-light, ultra-thin competitors. The optical disc drive was eliminated and traditional storage disks were replaced with solid-state drives.

The most dramatic change in the MacBook are the batteries–yes, not battery. As shown in the pictures above, (( All pictures are from ))   the power supply consists of several odd-shaped components. Until around 2000, batteries–first nickel-cadmium, then lithium–had to be made as rectangular prisms. As lithium polymer (LiPo) cells came along, it became feasible to make the battery follow other shapes.

But the MacBook is dramatically different. Apple has been receiving patents back to 2012 that allow it to group thin LiPo cells in stacks. This is what makes the Mac Pro battery layout possible. The battery components virtually fill the insides of the case, fitting into areas designed for them in the case of milled aluminum.

MacBook case

The batteries fit into the fancy sockets–two on each side, two more in the two spaces just below the motherboard. The batteries fill nearly all the space and they, along with the glass of the display, generate most of the laptop’s minimal weight. Apple has not specified the MacBook’s battery storage capacity, but is promising nine hours of running time.

Motherboard drawingsThe motherboard is stunningly tiny, even in comparison to the MacBook Air. Until iFixit gets a chance to tear one down, we won’t know how Apple has revised the choice and design of components to achieve this miniaturization, but it is impressive.

The shrinkage of the Mac, especially its thinness, has forced some other critical design changes. The most noticed, of course, is the replacement of the MagSafe power connections and USB-B ports with a single USB-C. And there is no fan.

Changes were also forced in the design of the trackpad and the keyboard and, in both cases, Apple claims a much better as well as thinner design. (I was impressed by both during a brief try, but I’m going to reserve my judgment until I have a chance to work with the MacBook.) The ForceTouch uses four pressure sensors and haptic feedback to provide the sense of a click from a pad that does not move at all. The Air trackpad moves on links at the top of the rectangle, causing the response to be uneven over the course of the pad.

The keyboard doesn’t quite eliminate movement, but it replaced the “scissors” system used in general on laptop keyboards with what Apple calls a “butterfly” mechanism. (( I like the design but hate the name. The butterfly keyboard name belongs forever to the opening keyboard of the IBM ThinkPad 701, the invention of the late John Karidis. )) The goal, Apple claims, is keys that respond equally to pressing any where on them. The keys are also bigger than those on the Air and feel very good even though their vertical travel is very short.

Thin and light laptops are, of course, making their way through the Windows market too, but Apple seems, once again, to have jumped out in front of the market. The combined goal of very light weight and very long battery life seems to be a way to encourage owners to use the MacBook as a sort of “super tablet”. Not everyone will like it and, for now, the Air and other MacBooks are all staying in the market. But I think it will shake the design of the field up more than the Air.

Research/Data: Phablet Impact Continues to Grow

The device market continues to evolve and grow, following paths that aren’t always as obvious as one might presume.

PCs were dead, and now they’re not. Tablets were taking over, and now they’re not. Phablets were only going to be for a small minority, and now they’re not.

Despite the challenges, one of my roles as an analyst is to create market forecasts and try to bring some sense of order to what often seems like chaos. In the process of creating my firm’s latest predictions for smart connected devices (a term I coined while I was an analyst at IDC to describe the combination of PCs, tablets and smartphones), it became obvious to me that one over-riding factor is now driving a dramatic shift in the device landscape. In a word, “phablets,” which I define as large smartphones with screens that are 5” and greater.

The phablet phenomenon has only had a modest impact so far in the US, but in many other parts of the world—particularly the fast-growing Asian markets—large smartphones are quickly become the common choice of most smartphone buyers. For some of those buyers, in fact, a large smartphone is their first true computing device and serves as their entré to the wonders of the Internet.

While in the US, phablets represented just 13.1% of Q4 2014 shipments, worldwide they already captured 27% of smartphone shipments. In fact, with shipments at just over 100 million units last quarter, more phablets shipped than all PCs or all tablets for the same time period

Plus, the momentum for the category is really only just starting. Here in the US and certain other markets, the 5.5” iPhone 6 Plus finally “legitimized” the phablet market and the momentum behind it is now enormous.

Not surprisingly, I’m predicting very strong growth for large smartphones and believe they will surpass 1 billion shipments in 2019. In fact, they’re the sole reason the smartphone market is continuing to grow because I believe small smartphones (those with screens under 5”) peaked in 2014, and will continue to decline through the end of the decade.

Phablets are doing more than just driving smartphone market growth, however. Large smartphones have also had a negative impact on tablets. Worldwide tablet shipments barely eked out any growth last year and US tablet shipments fell between 2013 and 2014. The small tablet market (defined as those with screens from 7”-7.9”, like the iPad Mini), in particular, is already taking a beating from larger smartphones and the situation is expected to get worse over the next few years. Many people are finding that large smartphones can easily take the place of smaller tablets for most of their activities. Plus, large smartphones have the added benefit of an always-on data connection through the cellular network. As a result, I’m forecasting that worldwide tablet shipments peaked last year and will continue to decline over the next 5+ years.

Interestingly, because of this decline, I believe phablets are also impacting the PC market. When people were predicting that tablets would take over for PCs (the Post-PC Era anyone?), the PC market suffered. Now that it’s clear that wholesale PC replacement is not going to happen, we’re seeing stabilization worldwide and even modest growth in the US PC market. Many people are discovering that PCs and large smartphones make for great companions and meet all the computing and mobility demands that most people have.

The chart below summarizes my new TECHnalysis Research forecast for all the major smart connected device categories through 2020. As you can see, the phablet phenomenon is not only real, it’s reshaping the entire device landscape.


You can find out more about the TECHnalysis Research forecast by reading the press release here and downloading a summary presentation of the results here.

The Lasting Impact of the Lenovo Adware Crisis

Last Thursday, various security research groups posted their findings about the potential impact of Lenovo adding “adware” from Superfish to various models of consumer laptops they have sold since last September. The gist of the problem is Superfish apparently hijacks certain certificates needed to access various ads and can redirect them in many inappropriate ways. Some researchers have even suggested it served as a wiretap although that seems to be a stretch as to what Superfish does and can do.

However, Lenovo quickly owned up to the fact they did not do enough research into the way Superfish went about trying to get to ads faster and has now given users ways to remove Superfish from their machines — installed in over a million PCs. Here are two links that give more details on the story if you want clarification.
“Lenovo slipped ‘Superfish’ malware into laptops”
“Lenovo releases tool to purge Superfish ‘crapware'”

Hopefully, Lenovo can rebound from this and move on but it has caused serious damage to their image and, over time, that must be repaired too. While this has been bad for Lenovo, it will ultimately be a good thing for consumers. All PC vendors add various software to their PCs as a way to try to differentiate themselves from the competition. While they can’t alter the Windows OS, they can put what they call “value added software” on these machines to try and give users applications and services that make their overall user experience better.

Unfortunately over the years, PC vendors overdid this and most of these add-ons are considered by users to be crapware. The bottom line is most users don’t even use these add-ons and often seek to jettison them from their machines as soon as they find them. Of course, there have been cases where these add-on programs are helpful, especially in areas like music, photo management and security.

I suspect what has happened to Lenovo will now put the fear of the Consumer Gods into all PC vendors and trigger, at least, three key things when thinking of adding extra software and services to their PCs. The first is all PC vendors will go the extra mile to study any program they are considering for inclusion on a PC to help them add value and differentiate their PC from the competition. Their motto needs to be “Do No Harm” and live by it.

The second is it should force them into a minimalist approach even if they do decide to preload extra software on PCs. The third would be to not include any special software that, for most consumers, is considered crapware and just sell them the cleanest PC possible.

I fear this third item is probably not going to happen and the first two will be how they approach this issue. PC makers do need to differentiate their offerings and the only way they really can do this, besides industrial design, is in software. That is why the minimalist approach may be the best option.

Lenovo has learned a valuable lesson the hard way and, besides warding off lawsuits over this, they will  need to work harder to repair their image and gain greater favor with consumers if they hope to thrive and keep growing.

But for the PC industry in general, it will provide a powerful reminder that the past business practice of preloading software is not a great idea for the future. Let’s hope they learn this lesson and abide by it.

The Wire-Free PC

One of the ways smartphones and tablets have a clear advantage over typical PCs is in the area of wires—or should I say, the lack thereof. Most people regularly use their smartphones and tablets completely free of wires. Yes, they charge the devices at night with a power cord, but that’s usually about it. When it comes to actually using the devices, doing so while plugged into anything (including power) seems kind of odd.

In the case of PCs on the other hand, even with the extended battery life available with today’s notebooks, most people tend to use a PC while it’s at least plugged into power. Perhaps as a result, it’s also not the least bit unusual to have other peripherals plugged into the PC. Whether it’s just a keyboard and mouse, or a printer, or a full-on docking station replete with all kinds of wired connectivity options, PCs often feel like they want to be plugged in.

Of course, that’s also one of the real benefits of a PC—the ability to extend its capabilities via plug-in peripherals has been (and continues to be) one of its key advantages and differentiators. Want to attach a larger display, plug in an external storage device, listen to better speakers, or attach a specific function peripheral like a MIDI musical keyboard? PCs are almost always the best choice in those scenarios.

But let’s be honest. Wouldn’t it be nice to have the option to do all of those things without wires? Just as we’re starting to see the beginning of using smartphones and tablets with more peripherals (ironically, wired in some cases—such as for projectors or large displays), so too are we seeing a growing interest in using more things wirelessly with a PC.

For years, the problem has been limited by both technology and competing standards (and, to be honest, there are still a few challenges with each). However, important progress is being made—not just on PCs, but in supported peripherals. The latter is critical because the limited number of peripherals that actually support a given standard has always been one of the big problems with trying to go wireless. For displays, multiple standards have converged around Miracast and WiDi, and now many projectors, TVs and displays include built-in WiDi receiver capabilities. There’s even support for WiDi built into Windows 8.1 (as well as Windows 10). For many other peripherals, Bluetooth support has become faster, more common, and more robust.

The last missing link has been power. The power cord and wired charger are still ever-present reminders of how we aren’t completely wireless. But there’s hope on the horizon. The mobile phone industry saw modest uptake of wireless charging pads using the Qi standard, but there were important lessons learned from these early induction-based chargers (similar to the technology used for years in cordless electric shavers or toothbrushes). For one, without proper placement on a charging pad, the technology didn’t always work. Second, it was terribly power inefficient, often using much more draw from the wall than a direct wired connection. Third, it wasn’t designed to charge the larger batteries found in devices like notebook PCs.[pullquote]The power cord and wired charger are still ever-present reminders of how we aren’t completely wireless. But there’s hope on the horizon. [/pullquote]

As a result, work has been done with magnetic resonance technology and one of the outcomes is the Alliance for Wireless Power (A4WP) industry group’s Rezence standard. While no Rezence-based products have started shipping yet, many are on the horizon. By the end of this year, we should have a range of charging pads and devices with built-in Rezence support to choose from. Importantly, the A4WP organization recently announced a merger with the Power Matters Alliance (PMA) organization, yet another standards body made up primarily of retail stores, restaurants and battery companies like Duracell. The companies apparently will settle on a new name still to be determined.

The combination of these two important groups should resolve some of the intra-industry standards battles that have slowed adoption of a technology many people could clearly benefit from. (To be fair, the Wireless Power Consortium and their Qi standard are still evolving. In fact, version 2.0 of Qi is also being based on magnetic resonance principles, but there does seem to be a great deal of industry momentum around Rezence.)

Intel is planning to bring Rezence-based wireless charging support to notebook PCs later this year, as part of their Skylake platform. When that happens, the possibility of having a truly wire-free PC—and even one that’s completely free of ports or connectors of any kind (since they wouldn’t be necessary)—will finally come to pass.

Intel and Qualcomm’s Challenges

It is interesting to see some of the challenges facing once dominant semiconductor companies as the evolution of computing continues. Intel is and has been challenged to maintain the relevance of their architecture as personal computing shifted from desktops and notebooks to mobile devices. Similarly, Qualcomm is facing challenges in the next phase of mobile. Both Qualcomm and Intel have many similarities. Both focus on innovation to drive next generation chipset growth. Beyond advancing the capabilities of computing devices, the goal is to use this focus on innovation to keep the ASPs of their chipsets from falling. However, as hardware is commoditizing, maintaining ASPs is becoming more difficult.

With Intel, the writing on the wall happened with the commoditization and dropping ASPs of PCs. On top of this trend, the PC industry is not growing. Hence, most of Intel’s revenue strength has come from servers, not necessarily client PCs. Intel hit their mark of 40m tablet shipments in 2014, largely driven by the white box Chinese tablet market. But, outside of servers, Intel is facing headwinds with declining ASPs.

For Intel, growth markets like smart phones seem essential for the company to grow share. However, even that isn’t as black and white as it seems. While the smart phone market is huge, with our estimates above 1.5 billion smart phones sold in 2015, the market is seeing ASP declines faster than any segment. Intel has some insulation in the PC market but would have no protection from being forced to compete in commodity hardware in the smart phone sector.

Commodity smart phone hardware is what Qualcomm is facing as well right now. With a range of factors, from China regulatory and licensee disputes, to the potential loss of Samsung as a customer for Snapdragon, are all causing Qualcomm to issue lower guidance for next quarter.

Qualcomm is facing the reality that the era of smart phone growth where they could get a premium for their chipsets is about to end. Companies like MediaTek are able to compete more on price with Qualcomm at the low end of the smart phone market — which is where nearly all the device growth is going to come from in the next few years.

Both Intel and Qualcomm have to become competitive in the lower-price tiers, going against the grain of how these companies are oriented, if they want to capitalize on the upside volume. There is certainly a case to be made they can continue to serve the premium segment of the market with next generation innovations. However, the problem with that reasoning is it is becoming clear Apple is the only major player able to sustain in premium. Apple only needs a discreet modem from Qualcomm and does not use a Snapdragon processor. Similarly, should Intel have a shot at winning Apple it would only be with the discreet modem and not the entire SoC. Both companies get more money for the whole SoC over the just the discreet modem.

Looking at Qualcomm’s financials it is clear Apple’s impact on Samsung is having an effect on them as well. In fact, Apple’s role in this situation is hard to ignore. Their clear domination of the premium segment is locking out potential customers in the space where both Intel and Qualcomm could hope to sell more premium parts. This makes a strategy that Intel and Qualcomm are using to maintain ASPs or sell premium innovations, thus monetizing their RND spending, a little more difficult. If all you are left with are customers who want to sell cheap things, then this model is challenged.

What is interesting about this from a Qualcomm and, to a degree, an Intel viewpoint going forward is how ARM inherently created this situation. Since ARM is a licensable technology, from an architectural standpoint, the ARM ecosystem enables a wide range of competitors to compete in the ecosystem. Essentially, Qualcomm’s latest processor one year is the baseline ARM offering the next. I’m generalizing, but this is essentially the case.

This is what has enabled MediaTek, and really any other new upstart, to compete with a premium ARM licensee. And more to the point, when the market wants low cost chips, the competition in the ARM ecosystem gets incredibly intense. This headwind is what Qualcomm and Intel are up against in this next phase of mobile.

Mobile Security: The Key to a Successful BYOD Implementation

A great deal has been said and written about BYOD (Bring Your Own Device) programs and their real-world impact on today’s businesses, employees and IT departments. Regardless of your feelings on that matter, there’s no doubt that BYOD has and will continue to influence the conversation around how IT departments need to adapt to the changing world around them.

For most companies, BYOD is seen as a positive move forward. But it does have challenges. Last year, my firm, TECHnalysis Research, fielded a survey with over 300 US-based IT professionals split evenly across small, medium and large businesses. One particularly interesting data point from this BYOD report is that 20% of overall respondents and nearly 30% of mid-sized companies said that, while they dove into BYOD headfirst early on, they’ve started to pull back a bit recently. A key driver for those pullbacks, in many situations, is bound to be security-related issues.


©2014, TECHnalysis Research

Virtually every week we hear and read stories about critical corporate data being compromised because an individual employee’s device was lost or stolen. Given these security concerns, it’s probably not surprising to hear that, according to that same survey, 43% of all companies with BYOD programs have a policy to wipe corporate data from a lost or stolen device. But what is surprising is that a larger 46% of that group wipe out all data on the impacted device—both corporate and personal. Given the increasingly important role that personal mobile devices play in people’s lives—they’ve become the primary camera and digital photo storage device among many other things—completely wiping all that data is clearly an unacceptable solution. Plus, only 26% of employees thought their company wiped all data on a lost device, demonstrating a huge (and potentially litigiously dangerous) gap in understanding between the two groups.[pullquote]Nearly 30% of mid-sized companies said that, while they dove into BYOD headfirst early on, they’ve started to pull back a bit recently.”[/pullquote]

In order to address these concerns, IT clearly needs to develop policies that honor the company’s right to safeguard its own data, while at the same time respecting the individual employee’s desire to not lose their precious data. (Plus, if we’ve learned anything from BYOD, it’s that IT needs to develop win/win solutions for both themselves and employees, otherwise employees will find ways around whatever perceived restrictions IT puts into place.)

One key answer to these challenges is the use of containers, which can separate personal data from work data. Solutions that enable containers allow IT to continue managing access to corporate data and applications, while leaving personal data intact. Not all container solutions are created equally, however.

IT managers need to consider all aspects of a container solution as they do evaluations. How does it work with user authentication and identity? What mobile and desktop platforms does it support? Is it a complete solution or only a partial one that needs to be cobbled together with several other products from several other vendors?

By deploying a robust container solution, IT can feel free to impose very strict, very secure policies around corporate data, while still giving employees access to their own data. In doing so, they can enable all the potential benefits of BYOD, without falling prey to its potential pitfalls.

When a Smartphone Becomes Your PC

Some of the most interesting things I see at CES are not on the show floor. They come from meetings I have behind closed doors in various suites and small rooms tied to a company’s bigger booth. One such meeting took place at Silicon Image’s suite in the Sands where they showed me a product code named Spider.

Silicon Image is famous for being behind and providing silicon solutions for the HDMI standard. They are also known for Mobile High Definition Link (MHL) and they have become a very important company in the tech supply chain. As you know, HDMI is a major standard used in all digital televisions and they deliver key solutions for MHL. MHL is an easy to use technology that’s revolutionizing how people experience mobile content. With an ecosystem of more than 750 million products, MHL is the de facto standard to connect popular mobile devices to TVs, monitors, audio receivers, and more. The current MHL 3.0 standard supports 4K Ultra HD video and enhanced 7.1 surround sound audio. Millions of smartphones are MHL compliant and are used to connect smartphones directly to MHL compliant TV’s all over the world.

The Spider product is unique in that it marries a smartphone to a laptop shell and turns this shell into a functioning computer. If you’ve ever seen the Motorola Atrix + Lapdock you may have an idea what this is all about.


The problem with the original Motorola Atrix with the Lapdock is, in 2011 when it was introduced, smart phones were very underpowered and trying to use it to power a laptop just did not work. However, with today’s smart phones sporting processors running one to two billion transistors, they have more than enough power to work in this configuration.

Although this product may never catch on in Western markets, Spider will be used by some major players in India and parts of Asia where even low end smart phones have enough power to work with a laptop shell. I understand that in India, a low cost smart phone will go for about $129-$159 USD and the laptop shell will be no more than $50, including a screen and an extra battery in the shell itself.

It will use MHL for the connectivity from the smart phone to the laptop shell and, in essence, give these folks a laptop to use as part of their personal computing experience.

We in the West have a hard time wrapping our minds around the fact many people in these regions actually run full businesses off their smart phones. With a Spider-like configuration, they could use the laptop shell to give them more productivity power and make running these business more efficient.

As you can imagine these folks can barely afford a smart phone so buying a laptop is out of the question for most. This gives them the best of both worlds at a price many in these countries can afford.

I don’t see this concept being big in the West, but for India, parts of South East Asia and Africa, it could be a godsend for many who want more in the way of a better computing experience.

Mobile App Development Challenges

Despite all the hype around enterprise mobility, there are still significant challenges many organizations are facing. The simple truth is many organizations are finding the move to mobile applications more challenging than it might appear. Obviously, there’s going to be a great deal of pressure for IT organizations to start creating mobile apps—from their end users, corporate management, partners and others—but despite that pressure, the path to mobility can be long and arduous.

First, there’s often a resource constraint. It’s not that corporations don’t have access to in-house programming talent—they usually do. However, most of that talent is going to have experience on the Windows side, not necessarily on popular mobile platforms like Android and iOS. Of course, as discussed in a previous post, Windows can and should be a part of any mobile platform discussions.

Even if these organizations focus on adding Android and iOS programming talent, they also have to deal with recruitment challenges. Let’s be honest. If you’re a hotshot 27 year old mobile programmer, are you going to look for work on a corporation’s in-house app development team? Or are you going to try and join one of the seemingly never-ending supply of mobile startups that offer the promise of making millions with the latest hot app?[pullquote]If you’re a hotshot 27 year old mobile programmer, are you going to look for work on a corporation’s in-house app development team or join a startup?”[/pullquote]

Not only are there resource and experience issues in creating mobile apps within many companies, there are also organizational challenges. As mentioned in another post, some of the most compelling ROI stories for mobile apps can be made for line of business (LOB) workers, particularly those who are regularly out on the front lines or in the field. The problem is in many companies, LOB are not comfortable going to IT for custom solutions. In fact, the links between corporate IT and LOB in many organizations are relatively weak, making it difficult to organize meetings between the two groups to even start the process of defining a mobile application. On top of that, there are often serious questions about who manages, who funds, and who owns a mobile app created for a specific line of business group.

Another challenge for many organizations falls around metrics—or the lack thereof—for mobile applications. While most companies have clearly defined standards for measuring the success of desktop-based custom applications, many have yet to create solid standards for mobile apps. In some organizations for example, mobile end user performance does not matter to IT, because wireless network issues often fall under the auspices of a separate telecom group.

The desire and need for custom mobile application development is real, but many organizations are finding the reality of creating those apps is challenging on many fronts. The key issue is, in many IT shops, mobility is still more of an afterthought than a core guiding principle. In order to overcome this, companies are going to need to not only do some soul-searching regarding their development priorities, they’re also going to need to find resources and partners they can work with in order to help make mobile app development a key part of their strategy moving forward. It’s what the world is demanding of IT and it’s what IT needs to do.


The Danger of the $200 PC

There have been rumors of the return to netbook pricing in the PC market. We believe this could have an irreversible impact on overall PC prices. When we study the PC market, we see a high degree of health in the higher end segments of the market. Companies like Apple and other vendors who have legitimate premium offerings have secured their slice of the PC pie with a sustainable hardware strategy. Our concern on the Windows front is, if the price of Windows PCs drop significantly, those price points will become the “new normals” and eliminate any real chance of premium offerings by other Windows PC vendors. Currently, the ASP of notebooks is approximately $700 and desktops approximately $550. But those high ASPs are because of Apple’s Macs. The ASP of a strictly Windows PC is about $430 which is about as low as a full featured Windows PC has ever been (excluding netbooks). At that price, it is already difficult for many Windows OEMs to make much money on hardware. They are all currently looking for more software, services, and accessories revenue as a point of emphasis.

Competing with Apple is hard enough for vendors in the Windows ecosystem. A significant drop of ASP will likely eliminate any chance of premium offerings by them. There will still be an enthusiast Windows community but that community is already quite small. The build-it-yourself PC community and the hard core PC gaming category, while extremely healthy, are still too small to sustain the ASPs of the entire Windows PC market. So as of right now, this is a look forward forecast of the ASPs of certain categories.

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However, given this article I posted a few days ago on low cost tablets, I’m already due to update my outlook for tablet ASPs in 2015. Should the notebook and desktop space truly become a race to the bottom, then I will have to adjust the 2015 ASPs of notebooks and possibly desktops to trend more into the negative than I think is healthy for the category.

Part of the drive to bring down the ASPs of PCs is to kick start the broader upgrade cycle in consumer markets and perhaps compete more with tablets in the entry level PC space (first time PC/tablet buyers). There is some sound logic to this. However, with “good enough” computing established in these markets, the concern would be that nearly the whole market would gravitate to these lower cost PCs and cause a sweeping shift in price points to the lower end where margins will be even further squeezed for the OEMs. Overall, our concern is the destruction of the “value and premium” segments of the market with “good enough” options being offered in the <$400 PC market.

Using my viewpoint of what happens with low cost tablets in consumer markets, I feel it would be smarter if vendors left the bottom to those tablets and focused on features and functions that will remain “valued” by end users. I can see a scenario where consumers start to gravitate to desktops in their homes instead of notebooks. They can use the tablet or their smartphone as their mobile PC and pair it with a desktop for their fixed PC usage. Due to the lengthy refresh rates, our research indicates consumers would spend more on these PCs because they intend to hold onto them because they want to them last longer than previous upgrade cycles. Those who need notebooks because they are traveling or are mobile workers will still utilize and spend on the product because of its value to them from a productivity standpoint. Bottom line, I believe there is still money to be made in PC hardware if Microsoft and the vendors can avoid letting certain players collapse the ASP of the PC category. Should the race to the bottom happen, even those who would pay more because of the intrinsic value the PC provides will no longer have to since they can get the same features as mid and even high end PCs at rock bottom prices.

Eventually, I can see the PC market going one of two ways. Either it becomes a race to the bottom and only a few current vendors are left standing or value can remain in the category. Ultimately, it is up to Microsoft and the Windows OEMs to decide which future they want.

Why Chromebooks Have No Consumer Market Future

The question of whether Chromebooks will have a future in pure consumer markets is an intriguing one. There’s no question Chromebooks are well positioned for education markets where they are selling in volume. But I don’t see Chromebooks being successful in pure consumer markets.

At a fundamental level, we have to understand consumers do very little “heavy lifting” with their current PCs. While it is true consumer do quite a bit of basic web browsing on their PCs and this is a primary point for Chromebooks in consumer households, that activity has largely shifted to their smartphones or tablets, which now have over a 53% household penetration in the US. Other devices currently serve consumers with the same value proposition of Chromebooks and offer even more. As larger phones increase penetration, it hurts the Chromebook consumer proposition even more.

The other challenge is the form factor. A Chromebook is a clamshell which means where and how it is used is limited. Things like phones and tablets are more easily carried and used in more convenient ways around the house to browse the web and more. It is the clamshell form factor I also believe is not attractive to general consumers.

Lastly, there is the issue of software. If we step back and look where ALL the software innovation for consumers is happening, it is on smartphones and, to a degree, tablets (meaning the iPad). There is simply no software value proposition on Chromebooks that consumers can’t get on their existing PCs or even their smartphones and tablets.

Even with a fundamental leap in consumer-facing cloud software/apps, I believe the pure consumer market has largely moved past the PC. All the innovation happening in native apps for mobile is accelerating this shift not just in time but priority, with value being placed on mobile computing devices and not “fixed” ones like notebooks and desktops.

Some things I think could be very interesting from Google’s ChromeOS are tablets and smartphones. I think media consumption as a large percent of time spent with mobile devices plays into a future where thin-client and heavy back end server computing can come together nicely. I still feel ChromeOS may be the future of Android but that is just speculation. Where I have a strong opinion is that ChromeOS has little to no future in pure consumer markets in the shape of a clamshell PC.

Takeaways From IBM’s Black Friday E-Commerce Report

Recently, IBM released their post Black Friday analytics report. As always, it includes some interesting takeaways around devices and platforms used for Black Friday e-commerce. Before digging into the report, I thought this tweet from Benedict Evans was insightful in context.

Screen Shot 2014-12-01 at 9.14.00 AM

Tablets functioning more like PCs in the home rather than mobile devices should be obvious for those who use them. However, this observation has some interesting implications. In particular, it further validates that tablets are more like PCs than smartphones in many aspects of usage. This chart is one I’d like to dig into a little more.

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Note that tablets represent a fairly small percentage of website traffic compared to smartphones. Yet, they have higher conversion rates and much higher average order values. Furthermore, more consumers made a purchase on a tablet than a smartphone. As a percentage of sales tablets made up 16% of purchases where smartphones made up 11.8%. Both the conversation rate and the average order value of tablets are more in line with PCs than with smartphones. The picture this data paints is how that many users do quite a bit of browsing/research on their smartphones but then move to their preferred purchasing platform — either the tablet or the PC — to complete the transaction. The low percentage of traffic from tablets is perhaps representative of the smaller installed base vs smartphones and PCs in the US. It also could suggest that, after consumers decided what they wanted, they moved to the tablet to complete the purchase.

While the picture painted from Black Friday of tablets and smartphones is interesting, I’m not sure this dynamic continues forever. By next year, I believe Touch ID-equipped smartphones will have a larger impact on the Black Friday device e-commerce landscape. Apple is working to eliminate payment friction in both the physical and the digital world and, by next year, my sense is the large US installed base of Touch ID-equipped iPhones may shift this picture quite a bit.

For now, the IBM report paints a non-surprising picture of iOS vs. Android users when it comes to online purchasing.

Screen Shot 2014-12-01 at 10.01.32 AM

It’s worth noting the above chart is not a breakdown of iPhone vs. Android smartphone users but the platform as a whole. Which means iPad is playing into these statistics as well. Some key stats from the report:

  1. Average Order Value: iOS users averaged $121.86 per order compared to $98.07 for Android users, a difference of 24.3%.
  2. Online Traffic: iOS traffic accounted for 34.2% of total online traffic, more than double that of Android, which drove 15% of all online traffic.
  3. Online Sales: iOS sales accounted for 21.9% of total online sales, nearly quadruple that of Android, which drove 5.8% of all online sales.

One other stat that stood out was that average page views on Android devices were higher than on iOS devices. This is interesting because the installed base in the US of iPhones and iPads is quite a bit higher than Android phones and tablets. While on a monthly average basis iOS leads Android in US in web browsing, it didn’t on Black Friday. Some have suggested this means Android users are more “window shoppers” than iOS users. While that could be true, it could also mean more iOS users were out shopping at physical retail stores, thus spending less time browsing. The disparity between Android purchases and the high average page views could also suggest Android customers are a bit more calculated, possibly even frugal, than their iOS counterparts. Meaning, they are more selective in what they purchase, even though they do roughly the same amount of research.

The picture painted here of iOS vs. Android users is not surprising and likely the gap in spending between iOS and Android users will increase over the next year and should be evident in the data this time next year.

Lastly, the dominance of the PC for e-commerce still shines. It led in every category for online purchasing. This shows the trust and comfort level many in the US have in making purchases on the PC. While this isn’t terribly surprising, what struck me is how different this picture is with regard to the PC and e-commerce in the US vs. other regions I study, particularly markets like India and China. E-commerce from mobile devices is dramatically higher in those markets than the US and I believe it has everything to do with, for now, the high PC penetration and comfort level with PCs in the US. Which, as I will flesh out more at a later time, is potentially a roadblock keeping the US from progressing to the mobile reality the rest of the world is living in. Perhaps this is just a matter of time, but the centrality of the PC in the US may be a negative compared to innovative things happening in markets where the mobile is the center of consumer’s universe.

What Foxconn Making a Nokia Tablet Tells Us About the Future

Something interesting happened today. Many people missed what is perhaps a significant development when Nokia announced the N1 Android tablet. Lots of folks saw the announcement and proclaimed Nokia back in the hardware business, making and selling tablets. A deeper look reveals what the real story is.

The release states:

The N1 will be brought to market in Q1 2015 through a brand-licensing agreement with an original equipment manufacturer (OEM) partner responsible for manufacturing, distribution and sales.

So a “brand licensing agreement” between Nokia and an OEM has been established. We have since found out this OEM is Foxconn, which is technically an ODM (original device manufacturer). That is where this really gets interesting.

The release goes on to point out:

In addition to the Nokia brand, Nokia is licensing the industrial design, Z Launcher software layer and IP on a running royalty basis to the OEM partner. The OEM partner is responsible for full business execution, from engineering and sales to customer care, including liabilities and warranty costs, inbound IP and software licensing and contractual agreements with 3rd parties.

So what is going on here? Several very important observations need to be made.

Nokia has developed a tablet design. A pretty decent one at that. They have also licensed the Nokia name as well as their own design to Foxconn who will make the tablets, handle sales, engineering, customer care, etc. Basically, Nokia has handed Foxconn a cookie cutter product to be sold and marketed under a global household name. So why does this matter?

If you read much of what I write, I am fascinated with the hardware business model in the mid-to-low end segment of the smartphone and tablet market. There are virtually no margins to be made in the commoditized tablet and smartphone world we are quickly moving toward. How hardware vendors sustain themselves has always been a key question for me. Yet, I’ve concluded long ago other companies using business models other than just monetizing hardware under their brand are well positioned to succeed in this future. Foxconn’s business is manufacturing and, as long as they make things, times are good. I’ve heard for some time that Foxconn has been thinking about ways to use or develop its own brand to go to market with products. In areas like India and Brazil, there are import fees that make it very hard for external parties to succeed. Foxconn has a plant in Brazil and is well positioned to make handsets in the region, without an import tax, and do very well. Foxconn has a business model going for them and all they needed was a brand. Now it appears they have it.

It is true they cannot make phones yet due to the Nokia brand name licensing deal with Microsoft. I fully expect Foxconn to start making Nokia smartphones in 2016 when the smartphones brand agreement between Nokia and Microsoft is complete. Foxconn can make these devices and sell them at dirt cheap –commoditized–prices and it fits their business model.

Foxconn also has a similar deal with Blackberry. But they have yet to do much with it and for good reason. The Nokia brand gives them more credibility in the markets where I think they seek to enter. Sure, there will be challenges. How does an ODM do sales, marketing, and support? We will have to wait to see to get answers. But what Foxconn is doing addresses a business model problem I think businesses have in selling commoditized hardware to the next billion plus consumers.

For Nokia, this is an interesting move. They have done the design and maintain some quality control in order to protect their brand. What they are doing sounds very similar to what Polaroid tried to do. This is an intriguing move by Nokia and one that, if successful, could be quite sustainable.

Regardless if this scenario works or not, how big companies navigate the business model challenges of connecting the low income majority of the planet will be fascinating to watch.

The New Dell vs the New HP

As I sat through various sessions at the recent Dell World event in Austin, TX, I could not help but think about the new Dell vs the new HP.

In a recent Techpinions article, I wrote about how Dell, as a private company, was making major strides in growing and becoming a profitable company again. However, in one conversation I had with a very high level executive, he pointed out that, when they were a public company, at least a quarter of his time was spent dealing with Wall Street and the legal matters and pressure brought by shareholders and that this took away from him spending as much time as possible on products and services and meeting the needs of their customers. He said while he still has to work to keep his division profitable, the majority of his time is now focused on products and their customers and pointed out this is why their overall sales grew close to 20% in the last quarter.

Dell also has the advantage of all of the various divisions working together in harmony and supporting each other. Michael Dell told me two thirds of their enterprise business comes through their PC division and he has allocated a specific amount of money towards R&D with an eye on creating innovative products. This is the new Dell.

Now contrast this with the new HP. The new HP, which includes the PC and printing division, is still part of HP and very much a public company. I asked Michael Dell what he thought of the HP split and he said this was done strictly for the shareholders. That is not news. All one has to do is look at the structure of this deal and its impact — a decrease in HP employees and the goal of splitting lower profitable businesses from the HP Enterprise company. You can see Wall Street written all over this restructuring.

But by staying a public company, they still have all of the pressures of Wall Street and, more specifically, have to lead the company on the whims of their shareholders, at what I consider the expense of their customers. Since the PC and printing division is now separate, with their own P & L, how will this group work with the enterprise group in an integrated way while still being very separate. This is an important question HP has not addressed as of this writing.

Also, the PC business and printer business are very different. I know this well. When Carly Florina was CEO at HP, she put the PC business under the printing business and made the head of the printing business, Vyomesh Joshi or VJ as he was known, head of both groups. VJ knew printers but his grasp of the PC business was challenged. I was asked to help with the PC marketing strategy for his team and at the time Ms Fiorina tried to tie the two together and create the equivalent of bundled PC/printer deals that pretty much failed. Each product has a different purpose and while they can work together in certain settings, each stands alone when it comes to focus and functionality. Bringing printers and PCs together again I believe will prove a real challenge for the leadership of this new HP division.

By the way, this will be the third time they have combined two groups under one head. In March of 2012, HP put the PC and printer group under Todd Bradley and that experiment did not go well either.

I have concerns about how successful this new HP will be, especially the PC and printing division. They have Lenovo taking aim at their market share and even Apple is eating into some of HP’s enterprise business. In fact, I am certain the Apple/IBM partnership will make competing, especially with HP, a major focus in the new year. At the low end they have new PC players that are about to come out of the Shenzen ecosystem and tie local content to competing tablets and PCs by the end of 2015, potentially eat even more into HP’s international business. Add to that the fact they have constant pressure to perform for Wall Street and the shareholders and I see an HP being challenged more than at any time in their history.

Chart: Internet Access by Device

As our readers know, every now and then I like to post a chart and tease out the highlights. Today, I want to do that with some updated data. Across many global markets, consumers were asked which devices they have accessed the Internet on, either through an app or browser, over the past 30 days. This data is updated frequently so we can track the growth of internet access by device over time.

Screen Shot 2014-11-07 at 9.30.04 AM

Mobile/Smartphones: This is be obvious and we can expect continued growth in internet access by smartphones for the foreseeable future.

Tablets: Tablets remain the other growth area. Given the slowdown of tablet growth overall, we can make a few observations. The first is the tablet is continuing to steal internet time from other devices, mainly the PC. The second is the tablet market is actually growing. However, it is doing so by the secondary market. Meaning that many of those initial rush of iPad buyers are continuing to hand down older iPads to other family members as they upgrade their iPad. Since this upgrade isn’t happening all at once but is trickling in over time, we see slower sales but larger use of tablets. Another is the continued explosive growth we see of Chinese white box tablets. In certain markets like Russia, India, Mexico, Brazil, and to some degree China, these low cost, no name brand tablets are quite popular. Most are dedicated game players or portable TVs, but internet access at some level should also be assumed. This is happening to a degree in the US as IDC highlighted RCA being in the top 5 of tablet vendors for Q3 2014.

As I see this data on tablets and see quarter after quarter of more people say they are getting on the internet with a tablet than the quarter before, it shows us the category is still viable and still growing.

PC/Work PC: I like that these two categories are separated in the survey. It helps us get an understanding of how much larger the consumer PC segment is vs. those who use a PC at work. When you look at both numbers, it is possible to interpret their lines and believe the PC market is simply not growing. This certainly looks to be the case. We are not adding brand new PC users at anywhere near the rate we once were. Also, as I alluded above, more PC users’ internet use is likely shifting to other devices.

I point this out in many of my focused PC industry analysis reports through my firm Creative Strategies. What we discover when we study PC behavior in both consumer and enterprise environments is the device is becoming a much more focused product than a general purpose one. People use it for specific tasks and have now defined what tasks it is better for vs. others. A great example of this is Facebook. In our studies, we found over 75% of daily US Facebook users access Facebook on their phone but while sitting at their work PC. Facebook has a browser based version so why not just use it? We find people simply prefer the mobile version, so we see this dual use of a PC and smartphone at the same time. Responses we’ve heard were that it was faster, more private, more convenient, and they could use the mobile app to get a particular task done, even though they could have done the same thing on the PC. If general purpose computing moves from the PC to devices like the tablet and even more so to the smartphone, it will bring dramatic implications to the PC ecosystem.

Television: Increasingly, more people are accessing the internet from their TV. It is important to note in this data that a game console or set top box is included. This is not referring to a dedicated connected internet TV, but to the use case of connecting to the internet in some way from your TV. Clearly Netflix, online console gaming, and other use cases drive this, but the fact it is slowly increasing tell us quite a bit about the role the TV will play going forward and the internet services are poised to be monetized from the big screen.

Given this survey comes from over 30,000 responses, what the lines also show approximates volumes. The higher the percentage of the line, the more people using the device to access the internet. Like most surveys, it does not include mobile only consumers, but we can be assured there are more people accessing the internet from a mobile device than a PC, even though these lines don’t show that. What this chart sheds light on is what the internet by device landscape looks like in the multi-screen user world. The “internet embedded into everything” is the theme. What devices dominate its usage is the interesting part to watch going forward.

Research: Who’s Buying What Tech around the Globe This Holiday Season

We have some research that gives us insight into what tech products are on the interest horizon for purchase over the next six months. While intent to purchase surveys don’t always lead to purchases, it does give us an indication of what products are top of mind and more importantly how that may differ from each region across the globe. This research comes from surveys across 32 different regions and over 30,000 people in total. With as much data as I have, I struggled with the best way to display it. Since percentages did not equal 100% and were also based on sample size from each region making the percentages vary, I decided to weight the values numerically by priority. 12 is the highest priority / interest to purchase over the next 6 months and one is the lowest.

Here is the chart from a global standpoint with all 32 regions included.

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As you can see, globally tablets, smartphones, and a PC (laptop) have the highest interest level/priority to purchase over the next six months. While mobile phone numbers shouldn’t be surprising, it is interesting that, in all regions, the tablet still remains the highest priority with the PC (laptop) third. As I look at what we see happening in the market, my gut tells me there is still a large number of global consumers struggling with whether to get a laptop or a tablet. I’ve been saying for some time that, when the consumer market moves and finally upgrades their PC, we will see how the tablet and PC conundrum plays out. Still, looking at the data, one has to believe companies like Microsoft and Intel look at this and believe the 2-1 value proposition is strong if a buyer is struggling between both products.

To look at the data more granularly, I’ve broken it out by some of the larger regions by population. The sample sizes were also quite a bit larger in these regions giving us better detail of who intends to buy what.

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As you see, most regions are prioritizing the tablet from a purchase intention standpoint. A few markets like China and the US are prioritizing mobile, thanks to these two regions being extremely seasonal with mobile purchases. When it comes to the PC, it still ranks high, but only Brazil consumers have it as their top priority over the next six months. What is interesting to me is other categories on this list which can also be served by a tablet should the consumer desire. Take the e-reader for example. While lower on the priority list, a tablet can also be an e-reader. Perhaps, as a consumer gets savvy to this, it sways their decision more toward a tablet or a 2-1 rather than a desktop or clamshell? The tablet or 2-1 could also conceivably fill the role of a game console or even a DVD player where access to digital movies exists. What this highlights is my point about the tablet as a much more diverse device due to its form factor than previous heavy computing devices like notebooks and desktops. The tablet form factor can simply “morph” into so many things thanks to the software and services. As consumers become more knowledgeable, I believe the value of the tablet increases.

One point that stands out and is worth highlighting is India’s intent to buy a mobile phone. Look at the data point and you would think buying a mobile is simply not a high priority for Indian consumers. When in reality it is the highest priority among the masses from a tech purchase standpoint. Keep in mind, to take this survey, you have to be online already in some capacity with a smartphone, PC, or tablet. The online population in India is still very small in contrast to India’s population (somewhere over 200m people are actively online). So people who are answering these questions from every region are already online in some way, shape or form. Google’s head of India estimated 5 million new Indian consumers are coming online every month. Most of those are coming from mobile devices. For the unconnected, the mobile phone is the highest purchase priority since it is most people’s first computer. Looking at the data, we are focusing a bit more on what the purchase intent of the already connected is for the next few months.

Where that reality stands out is when we look at what tech was purchased over the past six months. This is a question I like because it brings a bit more clarity to the picture since consumers are stating what they have actually purchased rather than what they intend to purchase. Similar to the above chart, I weighted the percentages numerically. The most purchased product over the past six months is a 12 while the least purchased product is a one.

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Here we see the clarity of the mobile priority. As expected the mobile phone has dominated purchases over the past six months. We also see the strength of the notebook and desktop rebound we are seeing as it shows up in this data. The desktop in particular was a frequently purchased product globally over the past six months. We had a hunch early last year the PC would do well this year and we were right. Partly based on similar intent to purchase data we got this time last year. In fact, the above chart showing who purchased what was very similar to the same intent to purchase data from a Q3 2013 survey.

We know about the centrality of mobile, but what intrigues me about this data is the continued interplay between tablets and PCs. As a part of my overall industry analysis of both categories, this remains a story line and one that does not have as crystal clear of an ending as other categories. I get this data every few quarters so we will check back early in 2015 and see how the story is playing out. My guess is that Mobile is still high, but where PCs and tablets fall is the key question.

The Microsoft Surface Is A Yachting Cap, Not A Yacht

Following Microsoft’s Earnings, a lot of people started talking about how “successful” the Surface 2-in-1 computer was becoming. That reminded me of the following anecdote:

    Tristan Bernard (1866–1947), was a French dramatist and novelist.

    A friend saw Tristan Bernard on the promenade at Deauville wearing a jaunty new yachting cap. When he remarked on it, Bernard replied that he had just bought it with his winnings from the previous night’s play at the casino. The friend congratulated him.

    “Ah,” said Bernard, “but what I lost would have bought me the yacht.” ((Excerpt From: Andre Bernard. “Bartlett’s Book of Anecdotes.” iBooks.

When we find ourselves tempted to congratulate Microsoft on the success of its Surface 2-in-1, let us remember that it is but a yachting cap, not a yacht.

Does Windows Stand a Chance With Enterprise Mobile Apps?

The buzz that’s built around enterprise mobility has reached nearly deafening levels with seemingly everybody and their brother working on solutions to mobilize enterprise applications. Not surprisingly, the vast majority of the attention has been focused on bringing business apps to iOS and Android, given their dominant roles on smartphones and tablets.

In the process, many organizations have glossed over Windows, assuming that there wasn’t really any interest or value in creating mobile apps for the platform. The assumption seems to be primarily based on the tiny market share that Windows has garnered in the smartphone and tablet markets. While that’s an understandable and legitimate concern, it turns out it doesn’t really reflect what many companies are doing about custom mobile applications.

According to a survey my firm, TECHnalysis Research, fielded earlier this year with over 300 US-based IT professionals split evenly across small, medium and large businesses, custom Windows applications are actually being built by a very respectable 41% of companies surveyed. As the chart below shows, the number reaches 58% for large enterprise with 1,000 or more employees.

Tablet App Development Platforms

©2014, TECHnalysis Research

While those figures may seem puzzling to some, I believe there are some very logical reasons why they are where they are. First, most organizations that have in-house programming teams have a strong bias towards Windows because that’s what they know. Custom Windows desktop applications have been the lifeblood of many companies for over two decades, so it should be no surprise to anyone that the majority of a company’s in-house programming teams are going to know Windows and want to leverage that expertise.

In a related way, most of the custom applications that a company already has in use are likely to be Windows-based. Given that many mobile applications are being written to build onto the existing custom applications and data files that an organization has, the choice of Windows for mobile applications makes sense.

In addition, Microsoft has been offering a broad range of programming tools for custom enterprise applications for a very long time. The company is widely known for the general quality and scope of their tools, so again, it makes sense to use the tools companies have available. While custom programming tools for the other mobile platforms are certainly growing at a rapid pace, it will be a while before they have the same range of choices designed specifically for in-house business application programmers that Microsoft does.

Finally, another point to consider is that given the growth of touch-based Windows notebooks and Microsoft’s move to a common set of APIs across various flavors of Windows, companies can build applications that will run both on Windows-based tablets, as well as touch-based Windows PCs or 2-in-1 devices. While Windows 8 and 2-in-1 deployments in enterprise have been modest to date, many organizations like to plan and build for the future. With the promising prospects for the new Windows 10 and the ongoing evolution of the notebook that 2-in-1s represent, again, you can make a solid argument for why the interest in building enterprise mobile applications for Windows is already as high as it is, and likely to go higher.

Windows 10 and the PC’s Tablet Complex

Yesterday, Microsoft showed the world the first glimpse of the new version of Windows. Oddly, Microsoft skipped a version number in the naming scheme. Rather than name it Windows 9, they choose the name Windows 10. While it is hard to form a fully fleshed out analysis of Windows 10 from the minor details given, there are still some key observations that can be made.

Firstly, from what I saw from Windows 10, it appears Microsoft recognizes some of the many issues that faced Windows 8. On Microsoft’s official blog post they made the following points about Windows 10:

Windows 10 will:

  1. Build on our commitment to provide a common Windows platform and give you one consistent API layer with consistent UX design surfaces and flexible tools.
  2. Enable Windows Store apps to run in a windowed environment on the desktop so that they perform better on a wider range of hardware.
  3. Deliver one Store for all devices, making it easier for you to reach customers in consistent and compelling ways no matter what type of device they’re using. We’re also planning to make the Store more useful for corporations with volume app purchasing, more flexible distribution mechanisms, and the ability to create a custom or curated Store experience (note that the Windows 10 Preview contains the existing Windows 8.1 Store).

The first point may be the most important, although all three are related. Windows 8 had a two part problem. The first was developers were not taking advantage of creating new modern applications that embraced and extended computing to touch the same way developers were on the iPad. This led to the second issue — a schizophrenic user experience between legacy desktop mode and more touch/tablet friendly use cases. Microsoft converged a PC and tablet experience when they should have separated them. What should have been converged were the tools to create Windows apps for all screens in one environment, not the PC and tablet use cases. Microsoft is looking to fix this with their consistent API layer.

This developer point is why Microsoft threw the statistic out that there are 1.5 billion people using Windows every day. That is a little generous of a statistic given it includes IT workstations, Internet cafe’s, point of service workstations, and likely even server-based solutions. There may be 1.5 billion PCs in use but there are not 1.5 billion unique PC users. That number is somewhere in the 1.3 billion range and SHRINKING. This is what Microsoft, Intel, and the entire PC ecosystem is hoping to change. To do this, Microsoft hoped bringing tablet like functionality would spur growth to the PC industry. This, however, was a failure to understand why the tablet was successful and the role it played in the advancement of computing.

The Tablet Complex

From a platform standpoint, I still maintain Microsoft needs a phone/tablet OS and a desktop/notebook OS. Perhaps there are ways Windows 10 can be a dedicated OS for all these platforms. Time will tell. However, it is my conviction Microsoft, and Intel for that matter, suffered from a premature tablet complex. Meaning, they saw the iPad and its rapid success and created a number of flawed assumptions about the product that led them to create the schizophrenic Windows 8 and 2-in-1 PC category.

The tablet was never poised to be a replacement for someone who sits at a desk, needs a big screen, and does deep work. My belief was always there are simply a smaller number of people in the world for whom a large portion of their work use cases necessitate a desktop or notebook PC. What we saw the tablet (the iPad) do is enable more rich computing for those who were either intimated by computers and were less “computer literate” than others AND it brought computing to new customers who were not computer users before either in work or play. A good example of this was what I learned by being on a panel with the CTO of Chevron. He explained Chevron deploys over 30,000 iOS devices to field workers, and 20% of those were tablets. The primary use for these tablets people who used a clipboard to do security checks and other field work documentation. They replaced those paper tasks with iPads and deployed custom software which gave these field workers better tools to do their job. These field workers were not using computers in their jobs when in the field and would only use them for small portions of the day when they go to their desk to input data. Now all of it is done in the field in real time. I hear countless stories like this from field workers in construction, public safety, etc. The point is, tablets have enabled people who did not use computers before, for a wide variety of reasons, to use a computer regularly in a meaningful way.

This same philosophy is characterized again in this incredibly well written piece thanking Mr. Jobs for the iPad that brought the writer’s 83 yr old father meaningfully into the computer age. I particularly liked this part of the article.

His big, thick fingers found just the right touch. They found a groove and slid intuitively across the screen; soaring and gliding up and down and across. It was as if someone from the other side had taken over and was guiding his old mans’ fingers.

Then he discovered Facetime. He immediately dialed his oldest daughter, my sister. And that’s when he really came to life. He entered a new generation.

‘I can’t believe this is happening.’ He exclaimed.

The desktop and notebook form factor took computing as far as it could go with those designs. Those dedicated form factors, and the software they run, have a purpose and are not going away. The tablet, however, is extending computing to places it could not go before because of its unique form factor and software. As in the story above, the elderly who are connecting with their kids and grandkids in new ways are empowered. Kids can pick a tablet up and learn and play the instant they use it with no prior education or computer literacy training. Workers around the world who spend their day on their feet now have a tool practically custom designed for them as the ideal digital tool. This understanding is what companies with a PC bias missed. This is what Microsoft must solve for them to be a relevant platform player in the future of computing. However, as I will dive into in the near future, Microsoft’s upside does not depend on them being a relevant platform player, but rather resides in them becoming a platform agnostic software and services company.

Profitable Niches

As of late, I have been speaking with management of many different companies. Oftentimes I’m asked for my recommendations in these engagements and I have noticed a certain theme that remains constant in my answer. That theme is to focus on profitable niches.

Way too many companies, in their internal strategic planning, make the mistake of doing zero sum game analysis. Having done a review of these analysis for Fortune 500 companies, it becomes clear that many bring an old world view to the competitive landscape. What I mean by “old world” is the thinking that, for someone to win, others have to lose. This may have been true at a time when the industry was small and the total addressable market of computing products was less than 500 million. It was in this environment Microsoft ruled computing and Apple was nearly bankrupt. Not long after that narrative, another emerged, also including Microsoft, with Internet Explorer vs Netscape. The online population was also only in the hundred millions and the narrative was only one of these browsers could win. Eventually, Internet Explorer did. The same was true when Palm entered the scene. Against Microsoft’s Pocket PC platform, most analysis looked at this as a zero sum game in a winner-take-all market. That world is gone and has been for some time. In a world being drive by computing’s S-Curve (pictured below), there is market share to go around.

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Market Share vs. Market Shares

“Enough market share to go around” seems to be lost on many companies. Which is why I hammer home the theme of profitable niches as a sustainable business in such a large market. Perhaps the best modern day example is Nvidia. A company thriving by continuing to advance high end gaming graphics cards with incredible margins. They sell these to an enthusiast market which, while small, spends a tremendous amount of money. Gamers are a profitable niche. In fact, you could probably argue any enthusiast market is a profitable niche. Every market has these. In the automobile world, there are cars designed specifically for car enthusiasts. In the consumer packaged goods space, health enthusiasts enable premium prices for more quality food and goods. Fashion, jewelry, and more all have their commodity products but these markets also have profitable niches.

In essence, this is what Blackberry is hoping to accomplish with their Passport. They hope there is a business “enthusiast” who values the hardware, software, and services they create and are willing to pay more for them. If successful, Blackberry will have found a profitable niche.

While it is hard to predict which niches will be profitable, I do believe the computing markets globally will continue to splinter. As the broader commodity smartphone, tablet, and PC categories grow, there will be some splintering off to these profitable niches. Nvidia again has a great example with their Shield gaming tablet. Nvidia knows the makeup of core PC gamers and built them a tablet to compliment and extent their PC gaming experience. Kids’ tablets are another great example. Nabi is moving millions of these products at decent margins by focusing on parents but delivering a kid-friendly tablet solution. Ruggedized PCs, tablets, and smartphones are profitable niches. GoPro is another great example of a profitable niche. There are already many examples and more will come.

The key is to be looking out for them or being an innovator and creating them. As computing grows, so will a large base of those underserved by commodity computing products and looking for things more reflective of their unique needs, wants, and desires. This will be true of everything around hardware, software, and services. Some profitable niches will be bigger than others in terms of their slice of the pie. However, these profitable niches are in essence zero sum games. These are the areas where first mover advantage is real and apparent. So the key to is see them early or create them.

Know your customers, and look to fill an underserved need in the market and the profitable niche will emerge.

Windows 9 “Threshold” Could Pose a Real Problem for Microsoft’s Partners

For the last 30 or so years, Microsoft has created new versions of their OS, usually in four or five year increments and each new major iteration has driven strong growth in PC sales. Their hardware partners count on this to help them deliver more PCs to customers since demand for PCs rise when a new version of Windows comes to market and a company or individual may finally upgrade or refresh their PCs.

The last major upgrade that drove PC growth was Windows 7. Microsoft and their partners had expected Windows 8 to move the refresh needle again when it came out. Unfortunately, Windows 8 was a disaster and clearly did not help any PC OEM grow their PC business. Even Windows 8.1 has not helped drive new PC sales even though its iteration is clearly better than Windows 8.0.

What is important to any upgrade cycle in the past is, as with all new versions of an OS, Microsoft charges both the OEMs a licensing fee as well as charges new users a fee for upgrading. The OEMs in most cases add a fee for the new OS and, for them, it is a source of revenue. But the big thing is a new full version of an OS historically has driven PC sales as well as helped deliver new profits to the OEM partners who sell these PCs.

But for the first time in Microsoft’s history, we are hearing Windows 9, code named Threshold, will actually be a free upgrade to OEMs and any Windows PC machines that can run it. While Windows 9 does emphasize touch, like Windows 8.0 and Windows 8.1, it is designed to be backward compatible with most existing PCs. From a big picture viewpoint, this is good news for consumers as well as software developers. Indeed, the reason Microsoft would be making this upgrade free is to try and populate as many PCs still in use with a new OS and UI and show developers the amount of PCs that could use this new OS will be huge. By expanding the market for this new OS, Microsoft believes it will finally entice software vendors to write new and innovative apps for the Metro UI and Windows 9.

But there is a downside to giving this new OS away for free. The ODMs and OEMs are concerned this move could actually keep people from upgrading their PCs. Indeed, their fear is a new, free OS would actually encourage people to keep their present PC longer and, unless it was very old, they would not see a reason to upgrade. I don’t think this is a misguided fear. People are already keeping PCs longer than in years past and while Windows 9 is a major upgrade, there is a real possibility it would not cause any real growth in PCs for the next two years at the very least.

To be clear, demands for PCs have been down for the last two years, thanks to tablets taking some of the workload for business and consumer users. But surprisingly so far in 2014, we have actually seen an uptick in PC demand and, while we were off about -10% in 2013, researchers say we may be only off -3 to -4% in 2014 and could see even better demand in 2015 — since people now know where tablets fit in their lives and more and more are turning back to desktops and laptops to meet computing needs that are starting to expand.

But a free version of a major new OS could actually harm any new growth potential and, in the end, might help Microsoft but keep demand for new PCs from growing. If this plays out as I suspect it might, I expect the demand for PCs to contract in the new year and perhaps be stalled of any possible new growth for at least the next two years.

The Myth of BYOD

I’ve caught wind of an interesting trend, or perhaps I should say a counter trend. Recently, I have had a number of discussions with many Fortune 500 CIOs and CTOs about the topic of BYOD. What came out of these conversations was very intriguing. Nearly all of them who have deployed some type of BYOD initiative remarked it hadn’t taken off as well as they thought. Meaning it was still a small overall percentage of their hardware deployments, particularly PCs. They stated for many of their mobile workers, they were still perfectly happy having their IT department equip them with their work PC.

What this is not suggesting is that BYOD is irrelevant. It is still and will be an important program. But as we chatted about these observations, some of the insight as to why BYOD PC programs were slow to take off became clear. It appears as though employees are getting savvy to the work tech vs. home tech ecosystem. The multi-device era has matured the market in a way where more and more employees are happy with a work PC given to them and fully managed by their IT department, and keeping that device separate from their home technology ecosystem. Part of this I feel has to do with security. Having a work PC is already hassle enough when you have an overly aggressive IT department. What I believe many employees are realizing is there is a security risk to both parties. Using the same work PC for work tasks and personal tasks, and the hassle involved with keeping both separate and managed on the same device securely may be turning out to be more struggle than it is worth. It seems as though more and more employees are happy to simply let their IT departments provide them with hardware and manage it as they see fit and use their own hardware at home for personal life. It is still too early to make too many conclusions regarding the BYOD programs to date, but the early insight being gained from these programs is very interesting.

While this initial insight is related to enterprise PC deployments, where BYOD is critical is with mobile. It is my belief, and has been for some time, that employees will be more particular when it comes to their mobile device than their work PC. Employees are bringing whatever smartphones they choose to work and IT is ready to support it. PCs may stay largely provided by IT but smartphones will not. BYOD appears to be more of a myth, for now, with PCs but more employees will bring their own smartphones and want to have access to corporate network apps, email, and other needed functions for their job. This is an area that makes the Apple/IBM partnership interesting.

Apple and IBM are emphasizing mobile first. When it comes to a soup to nuts hardware, software, and services targeting the enterprise, Microsoft and their ecosystem has a compelling story. Now with Apple’s hardware, IBM can layer their software and services on top and offer their own competitive full solution. The difference is Microsoft is still PC first in their philosophy. From our research and discussions with many IT groups, it is becoming clear there is a difference in philosophies in how mobile devices and PCs are managed and deployed.

Understanding the role of hardware in the enterprise is essential. The initial premise of BYOD does not seem to be playing out the way many thought, especially with regards to PCs. The multi-device era has complicated the landscape but also given us much deeper insight into the best way people use computing hardware as a part of their work and personal life.

Insider Report: The State of The PC

The PC has gone through a rough transition. What we are witnessing is a rebalancing of the PC market. As I reflect on the the turmoil of the PC over the past few years, a single important point stands out. It is highlighted in this chart:

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Around 2008-2009, the PC market became heavily weighted towards the consumer market. The implications of this were clear. Consumers operated on different refresh cycles than corporate PC buyers. As we neared 2011, we hit a milestone where roughly half of the PC installed base consisted of consumer PCs. With such a large base of consumer PCs, who operate on different upgrade/refresh cycles, it is no wonder we saw a bit of a collapse in 2012-2013. See the below chart:

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Of course the tablet contributed to this as well, as consumers who already don’t upgrade on predictable cycles got their hands on a device that let them hold onto their PCs even longer. What has been interesting is to watch the PC stabilize a bit. While still off, on average about 5% per quarter, we are seeing some stabilization driven mostly by corporate customers starting to engage in a refresh cycle. While the PC industry will likely not return to a growth industry it will remain a stable industry. That is not in question. What is in question is where the rebalancing of the market will stabilize with regard to annual shipments. Understanding where the bottom of the PC rebalance will end up is the key to resetting expectations of this industry. It is safe to assume we will land somewhere in the 200-300m range, probably closer to 200m annually when all is said and done.

While the PC market’s annual sales will remain steady and driven by corporate PC users, there is still a question of what will happen with consumer PCs? As of today, I estimate there are between 400-500m consumer PCs in active use approximately four years old or older. Do consumers still need or want a PC? This data point suggests they do.

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This chart shows the type of devices most used to connect to the Internet by the online population. As you can see, the PC remains an important tool by the majority of the online population. Many like to focus on the centrality of the mobile device. However, I am continually surprised by the high usage of PCs even in emerging markets like China and other large “mobile primary” regions. What all the data points I see tell me is the PC’s role remains an important one, even if for many it is more in a companion role than a primary one.

Which leads us back to the question of what will consumers do when it is time to upgrade their PCs? One hypothesis is they will look to desktops over notebooks. In this scenario, consumers are content with a smartphone and/or a tablet for the bulk of their mobile/lean back use cases, and look to get a desktop all-in-one that is used as the shared/family PC. Therefore, we could see spikes in desktop sales for a brief period as consumers upgrade their aging PCs with desktop computers.

Another scenario is more consumers gravitate toward tablets as PC replacements. The tablet will certainly increase in its capabilities through the years which can make this scenario increase its probability.

The commercial and consumer divide is the biggest issue the PC industry must work with. For the stability of the PC industry, vendors must focus on meeting the needs of customers for whom the PC is an essential work tool.

For consumers, PC vendors must embrace the multi-screen reality of the consumer market. Where a corporate customer may spend many hours a day on their PC, a consumer will spread those computing hours over many devices. This is where Apple’s strategy around continuity becomes interesting. Windows vendors should look to apply similar solution-based thinking through software and cloud services to meet the multi-device computing flow of the consumer market.

There is also an opportunity for PC OEMs to look at emerging markets and begin to insert more value for the PC into the ecosystem. Markets like China, which are developing extremely quickly, have young generations growing up middle class who will go to school and the workplace and likely need something other than their phone or tablet for work. Even though this area won’t make up growth volumes, these first time PC customers in emerging markets can at least add to the stability of the market.

Overall, the fact that stability is returning is a good sign for the PC industry. Vendors who can manage the lean years will reap rewards as the stability continues.