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On the second day Steve jobs was back at Apple I had a chance to sit down with him and ask him about how he planned to rescue Apple. At the time, Apple was $1 billion in the red and we now know they were only a month or two away from even greater financial disaster. The company had been mismanaged and multiple CEOs had tried to make Macs more like traditional PCs to stay competitive but this was a strategy that almost buried Apple.
So when Jobs came back to Apple, he faced a company thats morale was low and prospects were even lower. When I asked him about what he was going to do, the first thing he told me was he wanted to go back and take care of the needs of their core customers. He defined these customers as the graphics, advertising and engineering professionals that used Apple’s products for all types of photo editing, imaging and video projects. He felt the past CEOs had abandoned them while they tried to make Apple more relevant to a broader audience.
He was aware the Mac had led the desktop publishing revolution and it was deemed the best personal computer for what was a narrow audience of graphics and engineering professionals but a lucrative one if done right. So, as he told me then, the first order of business was to create more powerful Macs and go back to these professional audiences and give them the tools that would make their business projects easier and more profitable for them.
With the new 5K Retina Mac, Apple is fulfilling Jobs’ vision that started back in 1997 and delivering to these pro users what appears to be the best personal computer ever designed for creative professional audiences. While we have had 4K displays on the market for some time now, most of these are just displays. While they have come down in price, they are still just stand-alone 4K displays. What Apple is bringing to market is a 5K Retina Display that is a full Mac starting at $2499, a price even the small-medium sized business (SMB) graphics professionals can afford. More importantly, by moving the display to 5K, it is upping the ante for its competitors and will probably become the de facto standard for graphic based desktop PCs. It will be a game changer.
However, I see this price point as being interesting for a number of reasons. Any graphics or engineering professional would probably buy an upgraded model that has a faster processor and faster graphics co-processor that would push the price closer to $3,000+. But at $2499, this price is SMB and consumer friendly for some families looking at an all-in-one desktop PCs to become multipurpose home computers the whole family shares. In this case, it could even double as a TV that could run OTA 4K TV shows already available on Netflix and will be coming from OTA versions of HBO, CBS and other major networks in the future.
Although laptops dominate the market for personal computers, desktop demand has also been steady as all-in-ones have garnered real interest in many homes because of their utilitarian nature and shared capabilities. Many are set up on kitchen counters or desks in the den or family room where various members of a family can use them to check email, search the Web, do light productivity tasks and even watch videos fromYoutube and streamed over the web. But the option of a 5K all-in-one that could also handle streaming 4K programs is quite interesting and could make it a hit with upscale consumers as a PC and 4K streaming TV capable device rolled up into one.
One of the more interesting questions I was asked by a couple of media folks at the Apple event was whether I thought this 5K Retina Mac could be the precursor of an Apple branded TV. There has been a lot of speculation as to whether Apple’s new TV strategies would include an actual TV or just a souped up Apple TV with new UI and new ways to interact with TV content. My son Ben and I go round and round about this subject and personally I don’t think an Apple branded TV makes sense given the cutthroat competition in the TV market (neither does he).
However, Apple did something very interesting with the design of the 5K Retina Mac. They created a special processor of their own known as the timing controller or T-CON designed just to manage and manipulate each pixel with levels of precision we have not seen so far in TV or PC displays. I have no clue if this could be put into a dedicated Apple TV but, at the technical level, this processor could give them a decided edge in TV designs should they want to go in that direction.
I see the iMac with 5K Retina Display as an important product for Apple and their professional audiences and perhaps a hit with upscale consumers who want a high res monitor that could be used for multiple purposes included watching 4K based streamed TV content. But I suspect the technology designed into this could be used in other products over time and this makes this new iMac a product to watch closely over time.
At Today’s Apple’s Event, I got a question over and over again. I thought I would share my thoughts on it. First off, the question, “Did Apple do enough?” is the wrong question. The correct question is, “Did Apple release a better product than they did last year?” Of course the answer is yes. A smart fellow once told me, “If it is worth doing, it is worth improving.”
We can view product enhancements and demand the revolutionary without realizing that revolutionary requires evolutionary improvements. Leaps in innovation don’t happen without the evolutionary cycles that come before them. But what matters is that each year’s product is better, in a fundamental way, to meet the needs of current and new customers.
I have a core thesis that Apple does not really have any competitors. I know many disagree and we can debate this from a business, strategy, and market standpoint, but from a product standpoint I believe this is true. In fact, I believe Apple’s primary competitive product benchmark is last year’s model. This is why the correct question is whether or not Apple released a better product compared to last year’s version.
Is the new iPad Air better? Yes. Is the new iMac better? Yes.
Getting that out of the way, let’s look at why it matters to today’s announcements.
iPad. In my mind Apple did several important things for the iPad product family. The first is Touch ID. While it may seem like an obvious upgrade, it is also significant for two reasons. In enterprise accounts, where the iPad is nearly universally deployed in some way at Fortune 500 companies, Touch ID is an extremely important improvement. We can debate whether the iPad has peaked in consumer markets but one area I am absolutely certain it has not is in enterprise. What is key to understand about the iPad in enterprise accounts is it is not being deployed to replace notebooks or desktops in most cases. Rather, what it is doing is bringing a computer to a field worker who used a simple handheld device or no computer at all.
The iPad is being deployed to many mobile field workers who are generally on their feet all day. Public safety, construction, employees doing truck rolls or installs, compliance officers running routine safety checks on oil rigs, power plants, etc. These mobile field workers usually use a clipboard and have may never have used a computer regularly in their day job. Desktops and notebooks are designed to be used while sitting down, not walking around in the field. This is the enterprise use case for which the tablet form factor is best designed. But because these workers are mobile, they are also the more likely to lose or have their work tool stolen. This is where Touch ID is critical. Enterprise has been clamoring for Touch ID on iPads for the security elements they enable. The upside for the iPad in enterprise is still large and Apple’s partnership with IBM will greatly enhance this.
Enterprise sales alone won’t continue to drive annual iPad growth. So what is the current story for consumers?
Apple has shared a statistic over the past few quarters. 50% of iPad buyers are new to the iPad. This is a key metric. Rather than look at Apple’s lineup and wonder if it will drive upgrades, look at it and wonder if the current lineup is inviting to first time iPad buyers. Here is the full lineup.
From beginning to end, Apple has an iPad for nearly every price point. By keeping the original iPad mini in the mix at $249, Apple has an attractive price across the board. This is a key story when we think about first time buyers. Not everyone needs the current generation iPads. Last year’s models serve a purpose in helping fill price gaps and giving consumers more options.
The challenge of thinking about upgrades is we still have literally no idea what the consumer upgrade cycle is. We have estimates about how many Gen 1 and iPad 2s are still in use and it is a significant number. But we have no read on if those consumers will upgrade at this point. Because of that, predicting the consumer upgrade cycle is near impossible. It could happen one random quarter and catch everyone off guard or we may get early signs. But right now, we don’t know. So in my analysis, I’m focusing on the story for first time buyers. And that story is strong with the full iPad lineup.
Retina iMac. Lots of interesting things about this computer. The first is I joked Apple made a 27″ 5K TV for $2499 (less than a 4K HDTC) that just happens to include a computer. The display is something to behold when you see it. With this product, Apple continues to cater to their bread and butter customers – the creative professionals. This is a product a creative professional will see and say it is NEEDED not it is just wanted.
Whether you make movies, TV shows, create graphic arts, edit photos, etc., there is literally no better option than this 5K Retina iMac. I expect significant demand for this iMac and let’s hope Apple can keep up with it.
Tying it All Together
Again Apple has emphasized the story of their ecosystem. During the event I tweeted:
Key point from Cook – Apple’s products are designed to work together seamlessly. Very different reality than other ecosystems.
— Ben Bajarin (@BenBajarin) October 16, 2014
The hardware story, iOS 8 and OS X Yosemite with features like Handoff and Continuity strengthen the ecosystem. No other company is addressing the full lineup from desktop, notebook, tablet, smartphone, and soon a smartwatch, to work together this harmoniously from a user experience standpoint. If you are going to own any combination of computers from PCs, tablets, smartphones, and eventually a smartwatch, Apple’s seamless ecosystem is presenting itself with the strongest offering across categories. This is the heart of the “only Apple” narrative.
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Recently, after spending a lot of time with many of Microsoft’s OEM partners and looking at their overall strategic view of the PC and tablet markets of the future, it has become clear to me there really is a huge difference between how Microsoft and their partners view the computing market compared to the way Apple designs and markets their Macs and tablets to these same users. This divide in strategy is very pronounced.
In a sense Microsoft approaches the market from the top down, while Apple goes after the market from the bottom up.
Microsoft centralizes their strategy around their belief that everyone needs tools for a wide range of productivity tasks, regardless of who they are. Microsoft and their partners, including Intel, are designing all of their products around this focus. Of course, productivity is Microsoft’s sweet spot and a strong push to create products with an eye on productivity first makes sense. This is why they keep pushing the 2 in 1 concept. Is it a tablet or is it a laptop? As far as they are concerned, it doesn’t matter to the customer. The tagline for 2 in 1’s is “It is a PC when you need it and a tablet when you want one”. They believe that, in this product, they can push the customer to cover all of their bases and hope in the process these 2 in 1’s revive the lagging PC market and get it back on track. The problem is, since the focus of these designs really emphasize the productivity aspect of the experience, 2 in 1’s turn out to be OK laptops and, in many cases, mediocre tablets.
On the other hand, Apple approaches the market from the bottom up. When Steve Jobs introduced the iPad in 2010, he put a huge emphasis on the fact it was a “consumption” device first. In fact, he downplayed any possible productivity features although he did hedge his bet by creating a version of Pages, Numbers and Keynote apps for those who “might” want them. But when Apple created ads for the iPad they were all focused on consumption. Only in the last 18 months have they even added the focus on the iPad as a serious “creation” tool. Notice the distinct difference even in terminology. For Microsoft, the term “productivity” is key to their marketing while Apple uses “creativity” instead. Microsoft shows ads of people mostly working while Apple shows ads of people doing cool things with their iPhones and iPads. Microsoft’s ads invoke work while Apple’s ads show you how to use their products to create and play.
In a good article on TUAW written by Yoni Heisler entitled “Microsoft still doesn’t get why the iPhone succeeded,” Heisler says:
As Microsoft continues its push to remain relevant in the mobile space, it still doesn’t appreciate the factors that allowed Apple to enter a market it had no previous experience in, and turn that market on its head with the iPhone. Arguably blinded by the profits brought in by its Windows monopoly and its suite of productivity software, Microsoft still doesn’t seem to fully comprehend how the iPhone was able to push established players like RIM to the brink of irrelevancy in just a few years.
As an illustration, here is Nadella’s response to a question from Joshua Topolsky regarding Microsoft’s strategy to sell more devices to consumers.
You’re defining the market as “It’s already done, Apple and Google have won, because they won the consumer side.” And I’m going to question that. I’m going to say “No, any thinking consumer should consider Microsoft because guess what, you’re not just a consumer. You’re also going to go to work, you’re also going to be productive and we can do a better job for you in there.” And that’s what I want to appeal to.
And therein lies the problem. Consumers primarily buy mobile devices that make their lives easier and more fun, work be damned. Microsoft Office wasn’t available on the iPhone until June of 2013. An iPad version wasn’t released until four months ago! And guess what, hundreds of millions of consumers bought iPhones and iPads anyhow.
Heisler captures the essence of the difference between Microsoft and Apple well. Microsoft is all about productivity while Apple wants to give people a break from work and let technology do cool things for their customers. While this may seem like semantics, it actually drives a very different mental picture to consumers about how they view their devices. As Apple has proven, this approach is highly successful and brings into real question whether Microsoft’s productivity push will help them get customers outside of the enterprise to buy their products in the future.
In fact, Apple drives a solid line between productivity and content creation vs creativity and content consumption. Tim Cook and team are adamant that, when it comes to productivity, they believe that Macs are at the center of this activity. They have created innovative laptops, especially the MacBook Air and these products continue to defy the downward market trend in PCs and every quarter Apple sells at least 4 million Macs worldwide. They then focus iPads and iPhones on the more fun activities one can use technology for and again, have sold massive amounts of these products to very satisfied customers.
Of course, there is an actual dichotomy in the ultimate use of iPads in many people’s lives. Although Apple designs their iPads as pure tablets, people and companies have found their own ways to use them for actual work and productivity. But ironically, it was never at the center of Steve Jobs’ design and its role as a productivity tool has come mostly from third party products like external keyboards and companies and individuals creating apps and tools that allow them to adapt iPads and even iPhones for work when needed.
Satya Natella’s heavy focus on productivity is an interesting one and using 2 in 1’s to bridge the gap between a laptop and tablet will be driving their strategy forward. With the goal of creating a single OS that runs on laptops, tablets and smartphones, Microsoft is at least creating an OS environment less confusing than in the past. However, Apple has shown there is success in making great laptops, tablets and smartphones each with different goals in mind. However, if Microsoft continues down this heavy productivity road I suspect they will be challenged in their quest to gain any serious ground against Apple and even Google, who at the moment have the lion’s share of the mobile market. Apple with the Mac and Google with the Chromebooks are seriously eating into the Windows market share and have changed the dynamics of the personal computing marketplace forever.
This post originally appeared at MattRichman.net and was re-posted at Tech.pinions with Matt’s permission.
When Steve Jobs announced the transition from PowerPC to Intel processors in 2005, he revealed something that, in hindsight, seemed obvious to everyone who didn’t anticipate the switch:
There are two major challenges in this transition. The first one is making Mac OS X sing on Intel processors. Now, I have something to tell you today: Mac OS X has been leading a secret double life for the past five years.
We’ve had teams doing the “just in case” scenario. And our rules have been that our designs for OS X must be processor independent, and that every project must be built for both the PowerPC and Intel processors. And so today, for the first time, I can confirm the rumors that every release of Mac OS X has been compiled for both PowerPC and Intel. This has been going on for the last five years.
There’s not a doubt in my mind that if you substitute Intel for PowerPC and ARM for Intel, what Steve Jobs said then holds 100 percent true today, word for word. Mac OS X designs must be processor independent, every project must be built for both Intel and ARM processors, and each Mac OS X release in the last five years has been compiled for both Intel and ARM.
Somewhere on Apple’s campus, ARM-based Macs are already running OS X.
User Experience Would Improve
In his iPhone 5S review, Anand Shimpi compared the Apple-designed A7 processor with Intel’s fastest tablet chip at the time. He wrote:
In September of 2013, the world’s preeminent independent processor expert compared Apple’s latest iPhone chip with Intel’s fastest tablet chip and concluded that the two perform similarly — even though the Intel chip draws more power, contains four cores versus the A7’s two, and is produced with a more advanced manufacturing technique. If Apple’s chip design team can create a phone processor that performs on par with Intel’s fastest tablet chip, the company’s “highest priority”, then there’s no reason to believe that the same team at Apple can’t design chips powerful enough for any Mac in the company’s lineup.
Apple has already released a line of A-series chips tailored specifically for iOS devices, and the company is most definitely working on a line of B-series chips tailored specifically for Macs. When that B-series chip — or set of B-series chips that runs in parallel — is ready, Apple will be able to switch to ARM-based Macs without sacrificing user experience. On the contrary, because the company is no doubt designing its line of B-series chips in tandem with Mac OS X, there would be iPhone-like hardware-software optimization, improving user experience.
Apple Would Make More Money Per Mac And Sell More Macs
Going from chip concept to manufactured product can be broken down into two separate and distinct steps. The first is chip design — figuring out what features the processor will have and how it will work. The second is manufacturing — turning a file that exists on a screen into a physical product you can hold in your hand.
Today, Intel designs the chips in Macs and manufactures them, profiting on both of those steps. But if Apple swapped out Intel’s chips for its own ARM-based designs, an external company would profit on only one step of the chip creation process, not both, leading to a decrease in the cost of building a Mac. By my conservative estimate, Apple would be able to drop the price of the base model 11- and 13″ MacBook Airs by $50 and still make more profit per unit on each than it currently does.
This cost savings would apply to the entire Mac lineup. Apple would be able to drop prices across the board and make more money per Mac than it does today — and with lower prices, the company would sell more of them, too.
Apple Would Be Able To Create Better Macs
When Apple announced the iPhone 5S, it explained that all of the fingerprint data associated with Touch ID “is encrypted and stored inside the secure enclave in our new A7 chip” where it’s “locked away from everything else”.
Apple wouldn’t have been able to create Touch ID if the iPhone were powered by an Intel chip instead of an Apple-designed one. There wouldn’t have been a “secure enclave” on the iPhone’s processor to store the fingerprint data, nor would there have been perfect hardware-software integration. Apple was able to implement Touch ID because it designed the A7 chip in tandem with the iPhone 5S’s software and the rest of its hardware.
I’d bet that there are features Apple envisions for the Mac that simply can’t be built while Intel designs the chips inside of them. To implement those ideas, Apple would need to switch the Mac to ARM-based processors, because only then would the company have the ability to design chips customized for specific features. If Apple moved the Mac to ARM-based chips, the company would literally be able to create better products than it can today.
This brings me to something else Steve Jobs said when he announced the transition from PowerPC to Intel. Ultimately, he explained, Apple switched for one simple reason: “We can envision some amazing products we want to build for you, and we don’t know how to build them with the future PowerPC roadmap.”
The same logic applies today. It’s not a stretch to imagine Tim Cook walking out on stage and saying, “We can envision some amazing products we want to build for you, and we don’t know how to build them with Intel’s chips.”
As I first said more than three years ago: ARM-based Macs are definitely coming.
I’ve spent the past week with a Surface Pro 3. I’ve used every previous version of Surface and given what the promise of a 2-in-1 PC was supposed to be, the Surface Pro 3 is the closest yet to fulfilling that promise. I was very harsh on the original Surface and, while my overall thesis (which we will get to) on the 2-in-1 PC form factor has not changed, my stance on the Surface itself has softened. Don’t consider this a review of the Surface Pro 3. There are many good reviews of the Surface Pro 3 and serious buyers should read those as well. I’d like to do a more analytical take on the form factor.
Comparing to a Tablet or a Laptop?
The first point we need to address is which computing form factor, laptop or tablet, must we use to create a comparison for the Surface Pro 3. Which type of buyer is the Surface attempting to appeal to? The potential laptop buyer or the potential tablet buyer? Microsoft’s own marketing gives us a clue. They are clearly targeting a customer looking to buy a laptop in the near future.
On that basis how does it compare to a laptop? Overall, it is a decent notebook. Many features are exceptional, like the extremely high screen resolution of 2160 x 1440. This should literally be the standard resolution on all medium to premium priced Windows PCs. While I appreciated the screen compared to other Windows PCs I tested, I am spoiled by the 15″ Retina MacBook Pro, my primary notebook, with a resolution of 2880 x 1800. As I used the Surface Pro 3, I had to leave my Mac experience behind and just think of the Surface as a competitor to other similarly priced premium Windows PCs. Two of my favorite premium Windows PCs are the Lenovo Carbon X1 and the Dell XPS 13. Despite what many may believe about the Surface Pro 3, I would consider it to be in a class of premium Windows PC products. Given that a traditional clamshell notebook is the Surface’s competition, we have to again evaluate it as a viable notebook competitor.
Overall, I was pleased and impressed with the Surface Pro 3 as a notebook. The size and weight certainly put it into the class of ultra-portables. The Touch Cover keyboard case has been dramatically improved. But there was one area that was a rub for me. What I call “time to on.” Time to on is the time it takes to open my laptop and start working. Every busy person who walks from meeting to meeting knows how valuable it is to sit down, open your notebook, and quickly be ready to start a meeting. Since Microsoft wants to compare the Surface Pro 3 to a MacBook Air, I compared the “time to on” of both machines. For this test, I only looked at the time it took for me to open my notebook and get to a point where my computer was on and usable. For both tests, the MacBook Air and Surface Pro 3 were placed in the exact same position on the desk in front of me. I simply tested how long it took for each machine to be usable from a “sleep state”.
The average “time to on” in five tests with a MacBook Air was 1.63 seconds. That’s the time it took to flip the lid up, wake up, and let me move the mouse and start using the notebook. The average “time to on” of the Surface Pro 3 in five tests was 6.68 seconds. That was the time it took to tilt it up off the desk, set it back down, flip the keyboard down, flip out the kickstand, swipe the log-in screen (no passcode set), and actively be using the mouse and the notebook. Now, a 5.05 second difference may not seem like a lot, but when you compare the difference in “experience” to having a near instant on notebook to a somewhat clunky process to get the Surface up and running, the two seem like worlds apart.
The Surface as a Tablet
I’m not going to spend a ton of time on this part, since consensus seems to be that comparing the Surface to a tablet (iPad) is a losing battle. I actually think Windows 8 is becoming a better large screen tablet platform than Android, but that is because Microsoft is getting some decent larger screen dedicated tablet apps where Android is not. However, very few are buying an Android tablet as a PC replacement, and even fewer are buying Android tablets with screen sizes above 9″. One other positive improvement was Microsoft’s adding of a better portrait mode experience with Windows 8.1. Previously Windows 8, running on tablet form factors, was terrible in portrait mode. Some discount this mode but our observational research shows extremely high amounts of use in portrait mode for many tablet use cases. I’ve argued portrait mode is an important experience with any product attempting to be a tablet. Microsoft finally got portrait mode usable.
Another plus for the Surface was the stylus. Not a feature I see being attractive in pure consumer markets but in vertical enterprise environments like in medical, construction, legal, etc., where notes and pen/paper are still heavily used, I can see the appeal. The stylus was not perfect, but still worked better than any stylus solution I’ve used to date.
The Surface Pro 3 is a bit too large for me in pure slate mode. Most of the time I use my iPad I am laying down in bed, or reclining on the couch or a chair. Most often, I’m also holding the iPad up and not resting it on my body or chest. While the Surface Pro 3 is the thinnest and lightest Surface yet, it still caused discomfort while holding it for long periods of time. In all honesty, the Surface Pro 3 would be an outstanding tablet, if the iPad and iOS tablet ecosystem was not in existence.
Who is the Surface Pro 3 for?
This is the main question. I have no doubt there is a market for the Surface. As I point out, the Surface Pro 3, while competitive, will be bested experientially by the pure notebook clamshell form factor. However, as I pointed out earlier, in the Microsoft ecosystem, given the touch landscape for devices and Windows 8 in general, the Surface Pro 3 is a competitive product with other premium Windows notebooks.
While, I struggle to see the opportunity for the Surface in pure consumer markets, I do feel Microsoft has improved the hardware so that, for key vertical segments, the Surface Pro 3 is a viable solution that will suffice as a laptop but can add perks of tablet mode for those in specific fields where those features are useful.
In this week’s Tech.pinions Podcast we discussed the 2-in-1 PC at length. I still believe the demand or market pull for this product is limited. That being said, there are plenty of things Microsoft, Intel, and partners can do to extend this category. Given the trends in tablets we are seeing, where new quarterly data is showing up signaling usage declining in key areas by tablet users, I fear the tablet was not the potentially disruptive force Microsoft and Intel believed it to be. Which means it is reasonable the entire touch based desktop/notebook/2-1 solutions were built out of a reaction to a concern that didn’t really exist.
Each product has its role, its context, and its value. For some, a pure slate will be a form of entertainment. For some, a laptop/notebook replacement. Still, for others, it is a luxury. And in some enterprise markets it will be a necessity. Intel and Microsoft would love to believe the 2-in-1 form factor is the future of the notebook. This may be the case, and those two companies can certainly force their will on the ecosystem. Intel hopes that this form factor will make up over 70% of the notebook shipments in 2018. But my contention is if that happens, it won’t be because the market demands it.
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Last week before the news broke, I warned Microsoft employees, all of them, to “get to work on your resume.” Change was coming, major change, and that always always always begins with a bloodletting.
Indeed, as others were decrying the word count of Satya Nadella’s “bold ambition” manifesto — signifying nothing, given it took Steve Jobs 1700 words to tell us he wasn’t going to use Flash on the iPhone — I read each word, every sentence. Nadella’s near-term intentions were obvious.
What was not clear, however, not until now, is how deeply divisive the Nokia purchase remains within the corridors of Microsoft’s ruling elite.
This Deal Is Getting Worse All The Time
Despite the corporate-speak, despite the strategic shift toward “productivity and platforms,” Nadella’s manifesto message last week was undeniable. Job cuts. Thus, I wrote:
“Big layoffs by Christmas.”
But Nadella kept hinting, so I followed that with…
“Big layoffs by Thanksgiving.”
But Nadella hinted further, so I followed that with…
“Big layoffs by Labor Day.”
In fact, the big cuts came only a few days later. Points for swift action, I suppose.
Nadella’s willingness to act fast, to re-make Microsoft, hack away at the extraneous and transform the company into “the productivity and platform company for the mobile-first and cloud-first world” appears to be exactly what the company needs.
But when you gut a $7.2 billion acquisition, which the company only closed on this past April, and fire 18,000 people, then you haven’t leapt from a burning platform, you’ve set the platform ablaze. There is no going back, no do-overs for Mr. Nadella. He is about to set the company on a ten year course, possibly longer, and though Microsoft possesses a rather stunning array of assets, what’s most stunning is the company still has virtually zero response to the iPhone, the iPad and Android. In 2014.
Competing in a mobile-first, cloud-first world — with no mobile device the world actually wants — seems less like corporate bumbling at this point and more like French royalty certain the barbarians will forever remain outside the gate.
Sadly, more than 18,000 will soon join those barbarians.
That Was Never A Condition Of Our Agreement
Nadella’s follow-up email to staff announcing major cuts is mercifully shorter than his bold ambition manifesto, though similarly riddled with the kind of corporate-speak analysts with expense accounts use on marketing managers with a too large budget.
My thoughts on Nadella’s latest message are below, in bold italic.
From: Satya Nadella
To: All Employees
Date: July 17, 2014 at 5:00 a.m. PT
5am! Leading is hard.
Subject: Starting to Evolve Our Organization and Culture
“Starting to Evolve.” Catch that? This is just the start.
Last week in my email to you I synthesized our strategic direction as a productivity and platform company.
And now I’m gonna need those TPS reports.
Having a clear focus is the start of the journey, not the end. The more difficult steps are creating the organization and culture to bring our ambitions to life. Today I’ll share more on how we’re moving forward. On July 22, during our public earnings call, I’ll share further specifics on where we are focusing our innovation investments.
This reads like a draft memo from the assistant to the regional manager. No excuses here.
The first step to building the right organization for our ambitions is to realign our workforce. With this in mind, we will begin to reduce the size of our overall workforce by up to 18,000 jobs in the next year.
Nokia is dead. Godspeed all you Nokians.
Of that total, our work toward synergies and strategic alignment on Nokia Devices and Services is expected to account for about 12,500 jobs, comprising both professional and factory workers.
In his “bold ambition” email to employees, only days before this, Nadella stated “first party hardware” would form part of the core Microsoft vision. He said this four times!
- Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems.
- Our Windows device OS and first-party hardware will set the bar for productivity experiences.
- Our first-party devices will light up digital work and life.
- We will build first-party hardware to stimulate more demand for the entire Windows ecosystem.
Now, days later, he guts Nokia, kills off the very popular Asha hybrid phone line and halts development of the AOSP-led Nokia X.
I suspect Mr. Nadella believes the smartphone wars are lost, despite whatever else the company may tell us. They are no longer worth fighting for.
Prediction: Microsoft will focus its mobile hardware efforts not on Windows Phone but on Surface, on new mobile gaming devices, and new mobile “productivity” devices; anything and everything that might help them uncover that next great mobile computing inflection point. Smartphones are lost to them.
We are moving now to start reducing the first 13,000 positions, and the vast majority of employees whose jobs will be eliminated will be notified over the next six months.
13,000 from the 18,000? 12,500 from Nokia plus 500 from elsewhere? Where does this number come from?
Nadella needs to be straightforward here. So far, he’s failed.
It’s important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas.
Nowhere near 18,000, however. Thus, it would be best if not said at all.
My promise to you is that we will go through this process in the most thoughtful and transparent way possible.
Your own email appears poorly thought out and lacking transparency!
We will offer severance to all employees impacted by these changes, as well as job transition help in many locations, and everyone can expect to be treated with the respect they deserve for their contributions to this company.
Forget them. Move forward.
Later today your Senior Leadership Team member will share more on what to expect in your organization.
How bureaucratic is this company?
Our workforce reductions are mainly driven by two outcomes: work simplification as well as Nokia Devices and Services integration synergies and strategic alignment.
That’s three, maybe four outcomes, not two. Can Nadella really not trust anyone to review and edit his emails?
Fact: Nearly every single Nokia device over the next several years will be replaced by an Android, perhaps a few by iPhones, not Windows Phone (in any form).
My prediction that the remaining “Nokia” employees will focus mostly on new mobile productivity devices and new mobile gaming devices, not smartphones, stands. Nadella just isn’t ready to tell us this, not yet. Perhaps, he’s not come to terms with it himself.
First, we will simplify the way we work to drive greater accountability, become more agile and move faster.
Perhaps given your size, strengths and history, being inflexible and moving slower, and with less accountability (e.g. investor input), would be the best strategy?
Yes, I am serious. Agility and speed are never the strengths of behemoths.
Perhaps You Think You Are Being Treated Unfairly
As part of modernizing our engineering processes the expectations we have from each of our disciplines will change. In addition, we plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers.
Sideways layers of management? Sideways layers!
In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft.
Question: How dysfunctional is this company?
These changes will affect both the Microsoft workforce and our vendor staff. Each organization is starting at different points and moving at different paces.
Answer: Appreciably dysfunctional.
Second, we are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft’s strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.
Integrate Nokia into Microsoft? Realize the synergies committed to last September? Align the first party phone portfolio to Microsoft’s strategic direction? To win the higher price tiers? Which builds on Microsoft’s success in the affordable smartphone space?
We can’t possibly divine what these words mean because Nadella does not know the way forward in mobile. That’s a problem.
Making these decisions to change are difficult, but necessary. I want to invite you to my monthly Q&A event tomorrow. I hope you can join, and I hope you will ask any question that’s on your mind. Thank you for your support as we start to take steps forward in evolving our organization and culture.
It Is Your Destiny
Last week, I praised Nadella for his bold, borderline revolutionary statements. A few days later he morphs into a parody of his predecessor.
I give him a pass. This time.
When it comes to massive corporate downsizing, we always say there’s a right way to do these things but there’s never a right way to do these things. That said, it seems clear Nadella hasn’t yet figured out exactly what Microsoft should do in mobile and that’s a problem for which no one will give him a pass.
There is an interesting shift happening in the hardware release cycle of the computing industry. When the PC was the only game in town bi-annual release schedules were the norm. Now with the increased growth in smartphone and tablets, it looks as though the industry may be shifting to a much more seasonal release schedule. In consumer markets seasonal purchasing has always been the norm. But in enterprise markets the bi-annual release schedules allowed flexibility to purchase new hardware to meet demands throughout the calendar year.
The entire industry appears to be shifting away from that bi-annual schedule and to a more consumer friendly seasonal emphasis. This is evidenced by the slowing growth of both smartphones and tablets on a quarter-over-quarter basis according to some of the latest device shipment data. My conviction is not that we are seeing saturation but seasonality. There are other factors at play which I will get into.
This does not necessarily mean that the tablet category is slowing. Rather, what it suggests is that the buying cycles for tablets are shifting to be more seasonal at large. This was always the case for smartphones at large, but it appears the end of the year is now also the hot cycle for tablets and traditional PCs.
What this means is that we are lining up to have a very loaded holiday quarter with new smartphones, tablets, and PCs competing for consumer dollars. This by itself brings with it ramifications for consumers and enterprises alike.
For the consumer market the challenge is going to be for OEMs to cut above the noise in what is going to be an extremely competitive holiday season. Retail placement, promotions, and online / offline marketing are going to be keys to success.
Earlier this week I wrote for my TIME column a piece titled “Why I’m Not Switching from the iPhone.” My overall point of the column was to paint the picture of a mature smartphone consumer. Someone who, through experience, has vetted the options and defined specifically needs, and wants.
This has always been at the base of our adoption cycle market methodology. When we research consumer markets and try to get the pulse of the consumer in our interview and observational research, much of our goal is in understanding how mature they are in understanding what they want and why. This was also why I wrote the article on our site here called “I need a PC and I know it.” Again emphasizing a self-awareness of technological needs.
We do not have this with tablets. Where I point out in my TIME column that most mass market consumers at a global level are only on their first or second smartphones, tablet owners are largely on their first tablet and the market for non-tablet owners, or tablet intenders is massive. [pullquote]When we are in a position to get our first car we will take it any way we can acquire it.[/pullquote]
We have gathered quite a bit of research suggesting a high level of buyers remorse for low-cost tablets. This backs up our points of where we are at with adoption cycles of these devices. I liken what is happening with low-cost devices for places like emerging markets or first time owners to our first cars. When we are in a position to get our first car we will take it any way we can acquire it. Then after time, generally speaking, more options will emerge and the choice and preference will become more refined.
For many first time tablet owners who just wanted to get in on the hype they wanted to see what the tablet buzz was all about. So they got one any way they could and for a portion of the market they went with cheaper devices. What our research is suggesting is that they learned their lesson, liked the form factor and the upside, weren’t happy with their choice and are looking to spend up on the next one. This data comes from all markets including emerging (like China) as well.
This point about buyers remorse feeds nicely into the data we see about why iPad usage remains so dominant compared to the competition.
So What Does it All Mean
It means that competing for the mind of the consumer is becoming harder and harder. Consumers are going to be faced with an overwhelming plethora of choices. For the masses who still may be defining and refining their needs and wants, as they look to spend up it will favor certain brands they trust or perceive as the market leader. This is why I have no doubt the iPad will sell marvelously this holiday season and why both the iPhone and Samsung phones are still the dominant global players.
Seasonality is going to change things in my opinion. Marketing for one is going to get much more tricky when we have the kind of loaded and confusing holiday quarter I think we are in for the next few years at least. How companies market and position their products to cut above the noise and gain consumer mindshare will be key.
One thing that our data and even the recent research we have compiled continually emphasizes is that as the adoption cycle moves from immature to mature, cheap goes off the table and the masses begin looking for value. This is why I’ll argue until I am blue in the face that a race to the bottom is not actually what consumers want. It may be necessary in some regions, but over time, even in emerging markets, I believe value is what we will be demanded.
This article is exclusively for subscribers to the Think.Tank.
Intel’s CEO Paul Otellini is retiring in May 2013. His 40-year career at Intel now ending, it’s a timely opportunity to look at his impact on Intel.
Intel As Otellini Took Over
In September 2004 when it was announced that Paul Otellini would take over as CEO, Intel was #46 on the Fortune 100 list, and had ramped production to 1 million Pentium 4’s a week (today over a million processors a day). The year ended with revenues of $34.2 billion. Otellini, who joined Intel with a new MBA in 1974, had 30 years of experience at Intel.
The immediate challenges the company faced fell into four areas: technology, growth, competition, and finance:
Technology: Intel processor architecture had pushed more transistors clocking faster, generating more heat. The solution was to use the benefits of Moore’s Law to put more cores on each chip and run them at controllable — and eventually much reduced — voltages.
Growth: The PC market was 80% desktops and 20% notebooks in 2004 with the North America and Europe markets already mature. Intel had chip-making plants (aka fabs) coming online that were scaled to a continuing 20%-plus volume growth rate. Intel needed new markets.
Competition: AMD was ascendant, and a growing menace. As Otellini was taking over, a market research firm reported AMD had over 52% market share at U.S. retail, and Intel had fallen to #2. Clearly, Intel needed to win with better products.
Finance: Revenue in 2004 recovered to beat 2000, the Internet bubble peak. Margins were in the low 50% range — good but inadequate to fund both robust growth and high returns to shareholders.
Where Intel Evolved Under Paul Otellini
Addressing these challenges, Otellini changed the Intel culture, setting higher expectations, and moving in many new directions to take the company and the industry forward. Let’s look at major changes at Intel in the past eight years in the four areas: technology, growth, competition, and finance:
Design for Manufacturing: Intel’s process technology in 2004 was at 90nm. To reliably achieve a new process node and architecture every two years, Intel introduced the Tick-Tock model, where odd years deliver a new architecture and even years deliver a new, smaller process node. The engineering and manufacturing fab teams work together to design microprocessors that can be manufactured in high volume with few defects. Other key accomplishments include High-K Metal Gate transistors at 45nm, 32nm products, 3D tri-gate transistors at 22nm, and a 50% reduction in wafer production time.
Multi-core technology: The multi-core Intel PC was born in 2006 in the Core 2 Duo. Now, Intel uses Intel Architecture (IA) as a technology lever for computing across small and tiny (Atom), average (Core and Xeon), and massive (Phi) workloads. There is a deliberate continuum across computing needs, all supported by a common IA and an industry of IA-compatible software tools and applications.
Performance per Watt: Otellini led Intel’s transformational technology initiative to deliver 10X more power-efficient processors. Lower processor power requirements allow innovative form factors in tablets and notebooks and are a home run in the data center. The power-efficiency initiative comes to maturity with the launch of the fourth generation of Core processors, codename Haswell, later this quarter. Power efficiency is critical to growth in mobile, discussed below.
When Otellini took over, the company focused on the chips it made, leaving the rest of the PC business to its ecosystem partners. Recent unit growth in these mature markets comes from greater focus on a broader range of customer’s computing needs, and in bringing leading technology to market rapidly and consistently. In so doing, the company gained market share in all the PC and data center product categories.
The company shifted marketing emphasis from the mature North America and Europe to emerging geographies, notably the BRIC countries — Brazil, Russia, India, and China. That formula accounted for a significant fraction of revenue growth over the past five years.
Intel’s future growth requires developing new opportunities for microprocessors:
Mobile: The early Atom processors introduced in late 2008 were designed for low-cost netbooks and nettops, not phones and tablets. Mobile was a market where the company had to reorganize, dig in, and catch up. The energy-efficiency that benefits Haswell, the communications silicon from the 2010 Infineon acquisition, and the forthcoming 14nm process in 2014 will finally allow the company to stand toe-to-toe with competitors Qualcomm, nVidia, and Samsung using the Atom brand. Mobile is a huge growth opportunity.
Software: The company acquired Wind River Systems, a specialist in real-time software in 2009, and McAfee in 2010. These added to Intel’s own developer tools business. Software services business accelerates customer time to market with new, Intel-based products. The company stepped up efforts in consumer device software, optimizing the operating systems for Google (Android), Microsoft (Windows), and Samsung (Tizen). Why? Consumer devices sell best when an integrated hardware/software/ecosystem like Apple’s iPhone exists.
Intelligent Systems: Specialized Atom systems on a chip (SoCs) with Wind River software and Infineon mobile communications radios are increasingly being designed into medical devices, factory machines, automobiles, and new product categories such as digital signage. While the global “embedded systems” market lacks the pizzazz of mobile, it is well north of $20 billion in size.
AMD today is a considerably reduced competitive threat, and Intel has gained back #1 market share in PCs, notebooks, and data center.
Growth into the mobile markets is opening a new set of competitors which all use the ARM chip architecture. Intel’s first hero products for mobile arrive later this year, and the battle will be on.
Intel has delivered solid, improved financial results to stakeholders under Otellini. With ever more efficient fabs, the company has improved gross margins. Free cash flow supports a dividend above 4%, a $5B stock buyback program, and a multi-year capital expense program targeted at building industry-leading fabs.
The changes in financial results are summarized in the table below, showing the year before Otellini took over as CEO through the end of 2012.
The Paul Otellini Legacy
There will be books written about Paul Otellini and his eight years at the helm of Intel. A leader should be measured by the institution he or she leaves behind. I conclude those books will describe Intel in 2013 as excelling in managed innovation, systematic growth, and shrewd risk-taking:
Managed Innovation: Intel and other tech companies always are innovative. But Intel manages innovation among the best, on a repeatable schedule and with very high quality. That’s uncommon and exceedingly difficult to do with consistency. For example, the Tick-Tock model is a business school case study: churning out ground-breaking transistor technology, processors, and high-quality leading-edge manufacturing at a predictable, steady pace of engineering to volume manufacturing. This repeatable process is Intel’s crown jewel, and is a national asset.
Systematic Growth: Under Otellini, Intel made multi-billion dollar investments in each of the mobile, software, and intelligent systems markets. Most of the payback growth will come in the future, and will be worth tens of billions in ROI.
The company looks at the Total Addressable Market (TAM) for digital processors, decides what segments are most profitable now and in the near future, and develops capacity and go-to-market plans to capture top-three market share. TAM models are very common in the tech industry. But Intel is the only company constantly looking at the entire global TAM for processors and related silicon. With an IA computing continuum of products in place, plans to achieve more growth in all segments are realistic.
Shrewd Risk-Taking: The company is investing $35 billion in capital expenses for new chip-making plants and equipment, creating manufacturing flexibility, foundry opportunities, and demonstrating a commitment to keep at the forefront of chip-making technology. By winning the battle for cheaper and faster transistors, Intel ensures itself a large share of a growing pie while keeping competitors playing catch-up.
History and not analysts will grade the legacy of Paul Otellini as CEO at Intel. I am comfortable in predicting he will be well regarded.
A few weeks back I was one of the first to write about Windows Blue and in this column I discussed how Windows Blue could be used on tablets in the 7” to 10” range as well as in clamshell’s up to 11.6 inches.
We are now hearing that this particular version of Windows Blue will be priced aggressively to OEMs and could go to them for about $30 compared to the $75-$125 OEMs pay for Windows 8 on mainstream PCs.
But to use this low cost version of Windows Blue, we understand there are some important caveats that go with it. For this pricing, it can only be used on Intel’s Atom or AMD’s low-voltage processors. These chips were designed especially for use in tablets and as I pointed out in the article I mentioned above, this would give Microsoft a real opportunity to get Windows 8 tablets into the market that could go head-to-head with Apple’s iPad Mini and most mid level 7”-8” Android tablets as well.
As for clamshells, they too need to use these processors from Intel and AMD to get this pricing for Windows 8 (Blue). What’s interesting about these clamshells is that we understand that they will be fully touched based laptops with very aggressive pricing. In some ways, these clamshells with these lower end processors could be looked at as Netbook 2.0, but for all intent and purposes, these will be full Windows 8 touch laptops only with processors that are not as powerful as the ones using Intel’s core i3, i5 or i7 chips or similar ones from AMD. They will also be thin and light and could easily be categorized as Ultrabooks as well.
Windows 8 Blue is one way to get Windows 8 into more products and make it the defacto Windows OS standard across all types of devices, especially the 7” to 8” tablet segment that we predict will be as much as 65% of all tablets sold by 2014. We also hear that Windows Blue RT version will also take aim at 7”-8” tablets, which means that the ARM camp will have a play in this market as well. However, its use in an x86 clamshell could have a dramatic impact on the laptop market and have unintended consequences for OEMs and chip companies as well.
The ramifications could come from a major trend in which tablets are becoming the primary digital tool for most users. The smaller tablets are used more for consumption but the 10” versions can handle both consumption and productivity in many cases. This translates into the fact that tablets are now handling about 80% of the tasks people use to do on a laptop or PC. That means that traditional laptops or PCs now only handle only 20% of the needs of these users, which are mostly used now for media management, handling personal finances, writing long documents or long emails.
New Price Segments
When we ask consumers that have tablets about their future laptop or PC purchases we are told that for many, if the laptop is only used for 20% of their digital needs, then they will either keep what they have longer or if they do buy a new laptop or PC, it will be a relatively cheap one. Consumers, who are not interested in Macs, tell us that the top amount they want to spend on these products is $599. This suggests two key things for the PC industry that could be quite disruptive. The first is that there would be a bifurcation of the laptop and PC market into distinct sectors. One focused on the consumer where all PC products have to be under $599. The other is what we call the premium market for laptops and PCs which are willing to pay $999-$1499 for their computing tools because of more advanced computing needs. This premium segment is mostly tied to enterprise and the upper end of the SMB market. In fact, the price for PC products in this upper premium price range has proven to be quite resilient.
The second key thing means that the mid level priced laptops and PCs could end up in a no mans’ land. PC products in the $699-$899 could take a pretty big hit while demand for products $599 and under could skyrocket. We believe that this trend would usher in an era we call “Good Enough” computing; a term we became intimately acquainted with during the first Netbook phase. To some degree, the robust sales of Chromebooks already suggest this era has already started. But it would pick up if users could get full touch-based clamshells that look like Ultrabooks and are priced well under $599. We are actually hearing that when these come out in time for back to school they will be priced from $499-$549 and the target price would be to get them around $399 by early next year.
At Creative Strategies we are in the early stages of analyzing the potential impact of these Windows Blue low-cost clamshells but our early take is that they could be huge hits and have a serious impact on demand for laptops or PCs in the mid range, which has been a very important segment for the OEMs and CPU companies in the past. If this happens, the OEMs would need to bulk up on their premium products since these have solid margins and actually bring them significant profit. It also means they need to be creative and innovative in products under $599 and find ways to squeeze profit out of these types of laptops as well.
This does not mean that OEMs will stop offering value notebooks that are bulkier and in some cases use processors more powerful then Atom or low-volt chip from AMD. However, if their Netbook 2.0 like clamshells are thin, light and touch enabled, it could even cause demand for these low end bulkier laptops to dry up too. It will be very important to watch the development of this market over the next 6 months. If our assessment is correct, we could see a rather significant bifurcation of the PC market this fall, something that could have a real impact on all the players in the PC world.
As I read other’s thoughts on personal computing, I am sometimes struck by the fact that we tend to view the world the way it was rather than the way it is. Not only are we not good at seeing the future of personal computing, we’re not even very good at seeing its present.
With that in mind, I thought I’d take a look at some of the new pieces of the personal computing puzzle – smartphones, tablets, hybrids and phablets – in order to speculate on how those pieces might be fitting together in new and changing configurations.
Hard as it may be for us to believe, most of the world – residents of third world countries, children, seniors and those who simply have no interest in computing – still don’t own even a single computing device. (Believe it or not, my thirty-something next-door neighbors do not own a computer.) But this is all rapidly changing.
The smartphone is allowing millions upon millions of former non-users to put the power of the computer in their pocket. The smartphone is small, relatively inexpensive and more powerful than the computers that were used to land men on the moon. Further, the introduction of the touch user interface has made computing more accessible to the young, the old, the computer illiterate and the computer phobic.
“In the fourth quarter of 2012, mobile PC shipments decreased 11 percent while desktop PC shipments declined 6 percent year-on-year,” said Isabelle Durand, principal research analyst at Gartner.
We are inundated with stories of how computer sales are declining. But those are desktop and laptop sales. Sales of personal computing devices – phones and tablets – are booming.
Takeaway #1: Personal computing is growing and growing rapidly.
Yesterday, if you only had one computer, that computer was likely to be a desktop. Or possibly a laptop.
Today, if you only have one computer, that computer is likely to be a smartphone. The power of the internet, email, texting, phoning, etc. – all in your pocket, all for a relatively reasonable price. People from the remotest portions of the globe are using smartphones to conduct business and enhance their personal lives.
Tomorrow, if you only have one computer, that computer may be a tablet. A tablet with a dumb phone (data free, no monthly payment) is a powerful combination. The tablet is less portable than the phone but its added battery life and screen size makes it a formidable stand-alone computer.
Takeaway #2: The first computer that most people will own is likely going to be a phone or a tablet, not a laptop or desktop.
In the past, many of us used to own both a desktop and a laptop computer. As laptops came down in price and increased in power and portability, most moved away from desktops and toward laptops as their one and only computing device.
Today, the laptop and smartphone combination is extremely popular – the laptop for our heavy duty computing and the smartphone for computing on the go.
In the future, the two-computer combination of choice will be the smartphone and the tablet. Both the phone and the tablet have the same touch operating system so the learning curve is almost nonexistent and data transfer is a breeze.
Hard as this may be for geeks like us to fathom, the tablet is all the high-end computer that most people need. Spreadsheets like Excel and heavy-duty word processing programs like Word might be de ri·gueur in the Enterprise, but they are anathema to the average computer user. Asking most computer users to buy a laptop or desktop is like asking a gardener to buy a backhoe in order to do their gardening. A backhoe is indispensable for professional construction workers – but most of us aren’t professional construction workers and most of us aren’t professional accountants, programmers or page layout designers either. We don’t need professional computers to do the work we most often do. We just need what works.
As an aside, I am intrigued by the idea of a computer watch and tablet combination. The watch would serve the purpose of making and taking calls, texts, short emails, etc, notifying us of incoming and upcoming events, allowing us to see small snippets of text, graphics and videos, allow us to use voice input when voice input is appropriate and allow us to rapidly reference programs that rely on geofencing and geolocation.
No one is even proposing such a device at this time. I only mention it because I can easily see how such a watch would take care of our low end, on-the-go, computing needs while our tablets would handle the rest of our computing tasks. Whatever the computer watch turns out to be, if anything, I’m sure that it will be as different from what I envision as the long-expected iPod phone differed from the iPhone that Apple finally provided us.
Takeaway #3: The phone and the tablet may be all the computing power that many will ever need.
Three Or More Computers
For those of us capable of purchasing three or more computing devices, the most obvious solution is some combination of smartphone, tablet and laptop or desktop.
If you had told me in 2005 that people would be buying three or more computing devices, each costing $500 and up, I would have argued against it. First, it would be cost prohibitive. Second, it would be counter-intuitive. People want convenience, not complexity. Why buy several devices when one will do?
Yet today we’re moving more and more toward a multi-screen world and – I would argue – more and more away from multi-purpose hybrids. We’re moving toward several computing tools that do specific things well rather than a single tool that tries to do everything well. How can this be?
As to cost, well, we pay for what we value. Smartphones and tablets do some tasks much, much better than laptops and desktops do. It’s not a question of paying for three computing devices. It’s a question of paying for three tools that excel at performing three very differing tasks.
A gardener buys both a shovel and a trowel because they perform very different tasks. He doesn’t regret the fact that he is buying two shovels — one large and one small. He focuses on what he is trying to accomplish, not on how he can use a shovel as a trowel or a trowel as a shovel.
As for convenience, well, it’s perfectly reasonable to think that we should have one computer perform all of our computing tasks. It’s perfectly reasonable – and perfectly inaccurate.
Notebooks and laptops, like shovels and trowels, do very different things. Trying to get one computer to perform both purposes provides us with a compromise, not an acceptable solution. Swiss Army knives are very useful on a camping trip. But when we’re not camping, we use spoons, forks, knives, corkscrews, etc., not a Swiss army knife. Similarly, a hybrid is useful if we’re in a situation where we’re forced to use only one device. Only most of us are never in that situation anymore.
“Tablets have dramatically changed the device landscape for PCs, not so much by ‘cannibalizing’ PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs,” said Mikako Kitagawa, principal analyst at Gartner. “Whereas as once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC. There will be some individuals who retain both, but we believe they will be exception and not the norm. Therefore, we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet.”
This is a fascinating observation. Today, most view laptops and desktops as the one and only possible computing solution. There are even vicious fights on the internet in which commentators passionately deny that tablets are even personal computers at all.
But what about tomorrow? Tomorrow we’ll live in a world where tablets are our 1-on-1 devices and laptops and desktops are shared because of their cost and limited uses.
Takeaway #4: Our computing devices are diverging, not converging. We’re not looking for one tool to do it all, we’re looking to use the tool that best fits the task at hand.
None of this may seem controversial to you…or ALL of this may seem controversial to you. To me, the things I’ve stated are so obvious as to border on the trite. Yet I recognize that many – and probably most – do not share my views. Today we have many new personal computing pieces. How these pieces fit together will determine the future of computing. It’ll be fun to see what this puzzle looks like when it’s finally put together.
[dc]W[/dc]hen Steve Jobs introduced the iPad in 2010, he went to great pains to emphasize that the iPad was mainly for content and media consumption. Interestingly, he never even suggested that it could also be used for any form of productivity. But in a subtle way, he did push its role in productivity. That came via a very short announcement handled by Apple’s Sr. VP of marketing, Phil Schiller when he stated that Apple would also create versions of Pages, Numbers and Keynote for the iPad when it launched.
From the iPad’s entry into the marketplace, consumers immediately determined that they would like to have productivity apps and business related programs, along with their music, videos and basic email. Within two months of its launch, companies like SAP, Oracle, Salesforce.com and many others started to buy iPads and began writing business related apps as a part of their pilot programs. Also, many IT managers anticipated quite correctly that the iPad would be added to the list of consumer devices they would need to support based on the BYOD trends that started with smartphones.
Of course, the key to supporting smartphones and tablets in IT is MDM (mobile device management) software. Apple was smart enough to put hooks available for most 3rd party MDM programs thus making it possible to adopt iPads within IT programs relatively quickly. Surprisingly, Google and its Android OS did not architect these hooks in early releases of this OS and consequently, it missed the early stages of IT integration of tablets into their programs. Only recently has Google addressed this issue and we should see more Android tablets being modestly accepted into IT deployments in the future.
Once the iPad got into business settings, the work-flow of a user changed. In the past, they would take a laptop to meetings and use it to access information they might need for that meeting. But once the iPad came out, the laptop stayed on the desk and instead they took the iPad with them. This is especially true for companies who wrote their own programs so all of the key data a person might need in a meeting was available now on their iPad too.
But there is one technology developed for the iPad that I don’t think Apple anticipated. Almost from the beginning, Bluetooth keyboards designed specifically for the iPad started showing up. Over time, companies like Logitech created keyboards that even look like a cover for the iPad in its design as they did with their Logitech Ultrathin keyboard cover. In fact, the addition of a keyboard to an iPad virtually assured that an iPad could now be a real productivity tool in its own right.
But there is an 80%-20% rule that is in play here that makes life for IT managers more difficult. This rule states that 80% of what you can do on a laptop can now be done on a tablet. However, that 20% is tied to what we call heavy lifting tasks, such as graphic design, large spreadsheets, data management, creating major reports or documents, etc. The bottom line is that business users still need a laptop or desktop even if they have a tablet to supplement more of their mobile computing needs during the day.
This means that they now have to support a laptop, tablet and/or smartphone, and with many of these coming in the back door via BYOD (bring your own device).
New Corporate Hardware
In our research discussions with some IT managers, they have told us that they would like to minimize the amount of products that they support and are seriously eyeing what we call hybrids or convertibles that can do heavy lifting, yet serve as a truly mobile tablet in a single device. We define convertibles as a tablet/laptop combo where the screen does not detach, such as Lenovo’s Yoga. Hybrids we define as tablet/keyboard solutions where the screen does detach and serves by itself as a pure slate tablet. At the moment the industry interchanges these definitions but that should sort it self out in the near future.
The Good News and the Bad News
The good news is that the PC OEMs also saw this demand and consumer/IT interest in these types of products and are all moving forward with innovative designs. Lenovo, HP, Dell, Acer and others all have solid offerings in place that give the IT directors an option to have a single device that works as a full PC as well as a stand alone tablet. Given IT managers desire to streamline the amount of products they have to support, we believe that hybrids and convertibles are a sleeper device that will be in great demand next year by business users of all types, including SMB. It would not surprise us if consumers who want to do more productivity on their laptops increase the demand for hybrids and convertibles as well.
The bad news for these OEMs is that this could impact demand for traditional laptops in the future. The PC market has declined this year and its growth going forward will be anemic at best. Tablets have been a major disruptor in many ways. For example, consumers tell us if they can do 80% of what they do on a laptop now on their tablet, they may just extend the life of their current PC or laptop since it mostly sits idle. Or, if they do buy a new laptop or PC, they will buy a cheap one with updated processors and memory knowing full well it will be used less and less as tablets meet most of their needs.
But for IT managers, merging the two into one has a lot of merit for them, especially if the hybrids and convertibles have enough power and battery life to handle the heavy lifting tasks that will continue to be important to a business user. The fact that these products will be serviced as a single device, instead of two, is a key reason that we believe hybrids and convertibles will become a major growth segment in IT sales. It would not surprise us if savvy consumers move in this direction too since a dual-purpose product in many ways can be attractive to them to for similar support and economic reasons.
One of the most exciting things happening in the industry right now is the diverse innovation coming from Windows PC OEMs, who are making every type of form factor imaginable. Looking specifically at the traditional PC industry and traditional PC OEMs, I have never seen such a wide array of innovative products flood the market place and more are coming.
All of this is being driven by Windows 8 and Microsoft’s bold approach to build an OS that can support such a diverse range of hardware. I have been using many of these devices and I have some observations.
The first thing that strikes me is how different of an experience one can have with the same Windows 8 OS but with different hardware. Back in the old days, you could select a Windows laptop and expect basically the same experience across the board. Those days are gone, for now at least.
Some form factors perform better as a traditional notebook. Others perform better as a tablet. The touch and trackpad experience varies from device to device. The performance of certain devices is drastically different. Some have drastically better battery life than others. The key point I am making, and the observation that really struck me, is that the device landscape for Windows 8 has become one of trade-offs. To maintain the level of form factor innovation we are seeing around Windows 8, OEM and ODMs will be making key decisions of which trade-offs to make in order to bring certain devices to market with certain features at certain price points.
There has never been an environment like this before and my fear is that it is extremely confusing for interested buyers. Just as the OEMs and ODMs will need to make specific trade-offs, so will certain consumers need to be aware and comfortable with those trade-offs. Although trade-offs and compromises have always been apart of the PC shopping experience, it is severely exasperated to an entirely new level.
Consumers shopping for PCs will be forced to examine the features and functions they value (and at what price) more than ever before. I am intrigued by the kind of impact this internal reflection could cause in the marketplace. The reality is that there are a massive amount of PCs in the market that are 4 years old or older. I’ve come across a range of data on this and from all what I have seen, it appears a conservative number is in the 100 to 120 million range. If we are starting with that number as a base then we would initially think that many consumers are in the market for an upgrade, and in fact they are. However, the hardware diversity and bold transition of Windows 8 may have adverse effects as consumers truly begin shopping with a more refined set of needs, wants, and desires, than ever before.
Interestingly, I came across a story at USA Today which highlighted a survey from a Windows security software company called Avast. In this survey Avast gauged the awareness and likelihood of those in the market to upgrade to Windows 8. Of the 135,329 Windows users who responded to the survey, 33% indicated that they were probably not going to upgrade to Windows 8 in the immediate future and 41% said they were definitely not going to upgrade to Windows 8 in the immediate future. Now the nugget of data that came out of this quantitative survey that got a lot of press yesterday was this: Of those 135,329 Windows users who indicated they were in the market for a new PC, 42% said they were going to switch to an Apple product.
Now many may say, that is one survey and often we have to take data like this with a grain of salt as Ed Bott did in his breakdown of that poll. But I have seen data from a number of other research companies and vendors that all back up this concern and relative uncertainty. However, a key point remains. A large section of the market is hesitant, and a large section of the market is looking at all their options, even if it means switching platforms. Doesn’t necessarily mean they will switch, but they are considering all their options–that is a key point.
The personal computing landscape has changed drastically in the last 3-4 years in that those who bought PCs in that time frame, who are now in the market for a new one, have a much more complex landscape than ever before. The competition for those in the market for upgrades will be fierce and more importantly consumers will be more savvy to their own personal preferences with these devices.
There are a number of scenarios I can see playing out from optimistic to catastrophic for the PC industry and I will look at each briefly.
Tablets and Premium PCs
If you read my column where I shared some high level thoughts on the Surface then you understand my view that the product is not the best tablet nor is it the best notebook. Because I feel the pure tablet form factor perfectly serves the mass market needs, my gut is that consumers will shop for a no compromise tablet. However, we know that the traditional PC still plays a role. So I can see a scenario where consumers buy the best tablet and the best notebook, thus truly giving them the best of both worlds. This doesn’t necessarily mean they buy them in the same year but the point remains that I see a scenario where it could play out this way.
If this happens, and consumers take this road in large numbers, it is very good for many players in the PC ecosystem. An interesting thought on this scenario, is that generally speaking a well made premium PC will have a longer life cycle, thus extending the refresh rate perhaps even longer than it is today for traditional PCs.
Tablets and Low Cost PCs
The other scenario I can see happening and one that may be a bit more troubling for certain companies, is one where consumers buy a no compromise tablet and a very low cost PC. If you buy my logic that the traditional PC form factor over serves the needs for a large section of the mass market, then a key question remains. If consumers, as they reflect and become in line with their true PC usage, realize that the tablet can do upwards of 80% of what they primarily do on a daily basis, then why would they spend lots of money on a product that will not get used every day, week, etc. If the tablet becomes the personal computer and the traditional PC just sits in the other room and is only used for some tasks, then in my opinion the traditional PC loses its perceived value in the eyes of consumers.
In either scenario, the life cycle of the PC is extended and the refresh rate the industry used to enjoy with PCs will most likely shift to tablets. Lower cost PCs may need to be refreshed more often but in this scenario the profit opportunities are not in PCs they are in tablets.
This scenario is one that not every OEM today is poised to compete in and could be challenging for some. The reality is the industry has changed dramatically. Consumers have become way more in tune with what they want and why they want it. That shift will have profound impacts on the types of products we see and who the winners and losers in the market may be in the future.
The PCs gone wild trend of form factor innovation is not just necessary it is a necessity if companies are going to stay in the game, compete, and have sustainable business going forward. I’m excited about the innovation in PC hardware we are seeing today and I am even more excited for what is around the corner.
I’m a big fan of tablets, especially the iPad. Altrhough I find myself spending more and more time with a tablet and less and less with a traditional computer, I can’t imagine getting by without a Windows PC or a Mac. And that is why, though the market for traditional computers will shrink, they aren’t going away.
The tablet is the only computer a lot of people will ever need. If the iPad or an Android tablet isn’t quite up to the job, the new, more PC-like Microsoft Surface might well be (See Patrick Moorhead’s post on Surface’s advantages.) But a lot of people falls well short of all people.
When he introduced the iPad in2010, Steve Jobs famously observed that that PC was like a truck and the iPad was a car, and most people don’t need trucks. He was right, but seriously underestimated the importance of trucks. Nearly half of all vehicles sold in the United States are light trucks. Even if you eliminate the more car-like crossover SUVs (maybe those are the Surfaces), trucks still account for about a quarter of the sales.
I’m writing this on a Windows desktop PC (for a change; I usually work at my iMac when I’m at home.) Because I can. I’ve done WordPress posts entirely on the iPad (with a Zagg keyboard) and while it is quite possible, it isn’t much fun. I regularly work with multiple windows open and often cut and paste material from one app to another. You cannot easily do that on a tablet.
There are three activities that keep me on the traditional PC. I do a lot of technical writing and editing, which generally involves large (100-pages plus), highly formatted Word documents. There is no alternative to Word, and often Excel and PowerPoint for collateral material. A lot of tech pundits who keep predicting the imminent demise of PCs and heavyweight Microsoft Office applications underestimate how deeply these are ingrained into enterprise workflows.At the recent Apple product announcement, the thing I found myself lusting for was not the featured iPad mini but the new 27-in. iMac with a Fusion drive.
I also do some video editing. Not a large amount but enough to know that I want the fastest, most capable system I can lay my hands on. Even simple editing is taxing on a system and transcoding and rendering video can get really time consuming. Also the process of capturing an hour of live video and editing it down to a five- or ten-minute cut can generate many gigabytes of files.
Finally, there’s photo editing. I love the hands-on aspect of photo editing on a tablet and iPhoto for iOS is a fun tool. But for serious work, whether it is preparing graphics for Tech.pinions posts or processing my own photos, I turn to Photoshop.
While we are talking about threes, there are three things that PCs have and tablets lack. First is processing power. Today’s tablets have plenty of power for the tasks they are intended to do, including rendering HD video. But to achieve 10 hours of battery life in a very thin, light tablet, thingsa have to go, and one of those things is raw computational power. There’s no way an ARM chip or even an Intel Clover Trail Atom is going to match the performance of an Intel Core i5 or i7 with Intel’s latest integrated graphics, let alone with a discrete graphics system.
Second is a big display. Some tasks, especially those involving multiple windows, want all the display real estate you can throw at them. I generally work with 27-in. displays and am thinking of going to dual monitors if I can figure out how to make them fit. A tablet limits you to one smallish window (one and a half, sort of, on the Surface.)
Finally there’s storage. I haven’t taken an inventory lately of how much storage I have connected to my local area network, but it’s more than five terabytes, with a terabyte of local storage on my two main desktops. A tablet offers 64 GB, max. Yes, there is all but unlimited storage in the cloud, and I keep a lot of stuff in the cloud. But I want local copies of my important content, and that includes lots of music and photos, as well as thousands of documents.
For all these reasons, my PCs aren’t going to disappear. And neither, I suspect, are an awful lot of others. (On the other hand, I do find that I am using my Mac and Windows laptops less and less, as tablets take over the mobile chores.) Many business users are going to continue to need full-bore PCs as well, although there too we may see fewer laptops and a return to desktops.
At the recent Apple product announcement, the thing I found myself lusting for was not the featured iPad mini but the new 27-in. iMac with a Fusion drive. I love the super-portability of the tablet, but I still need the heavy iron too.
Most tech pundits are confused about the Tablet computer. They compare the abilities of the PC (traditional notebook and desktop computers) to those of the Tablet and find the Tablet wanting. They can’t understand how the Tablet can be so dog gone popular when it makes for such a terrible PC.
What they don’t understand is that the tablet isn’t trying to be a PC (unless it’s the Microsoft Surface). Tablet sales are exploding because the Tablet is competing against…nothing. The Tablet is going where the PC is weak and where the PC is absent. There’s virtually nothing standing in the tablet’s way.
Comparing the PC to the tablet is like comparing the Titanic to the iceberg that sank it. It wasn’t the one-ninth of the iceberg protruding above the waterline that sank the Titanic. It was the eight-ninths of the iceberg that lurked beneath the surface of the waters. Similarly, it isn’t the few overlapping tasks that the PC and the Tablet can both do well that matters most. It is the tasks that the Tablet excels at – and which the PC does poorly or not at all – that will ultimately reduce the PC to niche status and turn the Tablet into the preeminent computing device of our time.
ABOVE THE WATERLINE
The PC and the Tablet – like the Titanic and the tip of that fateful iceberg – do compete on rare occasions. Companies like SAP and IBM have ordered tens of thousands of Tablets and some of those Tablets have replaced traditional PCs, especially in those instance where the PC was overkill for the task it was originally assigned to do.
But let’s be real. The PC is a better PC than the tablet is, or ever will be. The number of Tablets that will directly replace PCs will never amount to great numbers. Accordingly, we should no more fear the Tablet replacing the PC than the lookouts on the Titantic should have feared the the damage that could have been caused by protruding tip of the Iceberg. They knew, and we should know, that that’s not where the real danger lies.
AT THE WATERLINE
There are millions upon millions of Tablets that are supplementing, rather than replacing, the PC. These Tablets are being used by Lawyers and Financiers, by CEOs and Presenters, by Presidents and Prime Ministers, by Queens and by Parliaments. The Tablet frees the owner from the constraints of their PCs. They can use the PC when they are at their desks and use the tablet to take their data with them wherever they may go.
These tablets will not sink the PC because they complement the PC. However, they may well extend the life of the PC, thus slowing the PC’s upgrade – and sales – cycles.
BELOW THE WATERLINE
The bulk of the iceberg that destroyed the Titanic lay beneath the surface of the waters, beneath the vision of the lookouts, beneath the ship’s waterline. Similarly, the bulk of the tasks that the Tablet excels at, lies beneath the PC’s level of awareness, beneath the PC’s contemptuous gaze, beneath the PC’s areas of expertise and far, far below it’s area of competence. The PC will not lose in a fair fight, anymore than the Titanic lost in a fair fight. Instead, the Tablet will hit the PC where the PC is weakest – below it’s metaphorical “waterline”.
Tablets excel at working while you are standing. Tasks done by matre d’s, inventory takers, tour guides, concierges, face-to-face service providers and order takers of every kind, benefit from the use of the tablet.
Can the PC adequately compete with the tablet as a stand-while-you-work device? No, it cannot.
- ROOM TO ROOM, DOOR TO DOOR AND REMOTE LOCATIONS:
Tablets excel at working when one has to move and stop and move yet again. Car Dealerships, like Mercedes Benz, are giving tablets to their salespeople. European doctors are rapidly taking to the tablet. Service Technicians at Siemens Energy are using tablets while servicing power installations. Scientists are using tablets during field research. Nurses, Realtors, Journalists, Park Rangers, Medical Technicians…the list of users and uses is nearly endless.
Can the PC adequately compete with the tablet as a work-and-move, and work-and-move-aagin, device? No, it cannot.
If you’re in Sales, you’re into Tablets. Whether you’re traveling or standing or presenting or taking an order and acquiring a signature – Tablets are a salesperson’s best friend.
Salesforce purchased 1,300 tablets and Boston Scientific purchased 4,500 tablet for their respective sales forces. And just this week, NBA Star, Deron Williams, signed a $98 million dollar contract…on a tablet.
Can the PC adequately compete with the tablet as a sales computing assistant? No, it cannot.
While the PC makes for a terrible Kiosk, the tablet is almost ideally suited to the task. Tablets as Kiosks are making their presence known in places as diverse as malls, taxi cabs, hospitals, the Louisiana Department of Motor Vehicles, and the FastPass lanes at Disney World.
In the coming years there will be millions of Kiosks converted to Tablets and millions more in new Kiosks created from Tablets.
Can the PC adequately compete with the Tablet as a Kiosk? No, it cannot.
- POINT OF SALE:
Today there are millions upon millions of antiquated PCs being used as some form of cash register or point of sale device. Let me put this as diplomatically as I can – they suck.
They’re going to be replaced by Tablets, almost overnight. And tens of millions of new Tablets are going to be used as cash registers and point of sale devices in all sorts of new and unexpected places.
Can the PC adequately compete with the tablet as a Cash Register? No it cannot.
- PAPER REPLACERS:
I’ve been hearing about the “paperless office” since the 1970’s. Yet every year, the PC generates ever more, not less, paper. But that was yesterday. Today the Tablet may finally be able to fulfill the promise that the PC so carelessly made – and broke – those many years ago.
Airlines such as United and Alaska are replacing their in-flight maps with Tablets. The United States Air Force is replacing their manuals with Tablets.
Construction companies are replacing their on-site blueprints with Tablets.
Governmental bodies of every shape and size are reducing paperwork through the use of Tablets. City councils and municipalities have jumped on the bandwagon. The Polish Parliament and the Dutch Senate have substituted Tablets for paper printouts of the documents read by their members. The British Parliament just replaced 650 of their computers with Tablets. And the President of the United States and the Queen and Prime Minister of England have all used Tablets in their briefings.
Twelve NFL teams, including the Denver Broncos, Miami Dolphins and Baltimore Ravens have replaced their paper playbooks with tablets. In Major League Baseball, the Cincinatti Reds have done the same. And at Ohio State, all the athletic programs are replacing their playbooks with tablets. Can there be any doubt that this trend will extend ever outward and ever downward to every professional team, every college team, every high school team and even, eventually, perhaps to amateur sports teams?
Can the PC adequately compete with the tablet as a paper replacement? No it cannot.
Tablets are starting to show up as “loaners” that are lent out as entertainment devices. They’re being purchased by libraries. Airplanes run by Singapore Airlines and Qantas use them as in-flight entertainment devices. Airports like New York’s LaGuardia, Minneapolis-St. Paul International and Toronto Pearson International, lend them out to waiting passengers. The Tablet is ideally suited for the task. It is light, it is portable, it is versatile, it displays content beautifully and it is sublimely easy to use.
Can the PC adequately compete with the tablet as a Loaner? No, it cannot.
PCs in schools are mostly relegated to teachers and computer labs. Tablets live in the classroom and they reside in the hands of the students. No one wants to learn HOW to use computers anymore. Students simply want to use computers to help them learn.
The Tablet is starting to take educational institutions by storm. It acts as an electronic blackboard, as a digital textbook and as an interactive textbook.
It’s at the K-12 level (the San Diego School district just ordered 26,000) and at the Universities (Adams Center for Teaching and Learning at Abilene Christian University, George Fox University, North Carolina State University in Raleigh). Tablets are even finding their way into the top-tier high schools in China.
Some schools have even reported a 10% improvement in the exam scores of students who use Tablets in lieu or paper books.
Can the PC adequately compete with the tablet in education? No, it cannot.
- NEW USERS:
The tablet excels at creating new computer users. This might seem a bit controversial, but it shouldn’t be. Just think of anyone who says that they hate computers – they’re a candidate for a Tablet. Just think of anyone who is too young or too old or too infirm or too disabled to use a PC – someone like a 3 year old or a 93 year old or a recovering cancer patient or an autistic child or someone with learning disabilities. They’re all perfect candidates for the Tablet. The tablet will create a whole new class of computer users – people who have never used a computer before.
Can the PC adequately compete with the tablet as no-fuss, no-muss computing device? No it cannot.
- NEW USES:
What makes the Tablet so very exciting is that we haven’t even begun to touch on it’s full potential yet. With desktops, we were desk bound. With notebooks, we were surface bound. The Tablet allows us to do new tasks in new places and in new ways.
And it’s virtually impossible to say what these tasks will be. We’re limited by our experience and the scope of our imaginations. Tablets are going to be used in ways that we haven’t even begun to think of yet.
Can the PC compete with the Tablet while standing, while moving, in sales, as Kiosks, as Point of Sale devices, as paper replacers, as loaners, in education, with wholly new users in wholly new uses? No, it cannot.
It is in these areas – the areas that are below the PC’s level of competence, below the PC’s level of contempt – that the Tablet will establish its empire. And there is simply nothing that the PC can do to stop it.
Like Captain Edward Smith of the Titanic, the Captains of Dell, HP, Google, Microsoft and many other computing companies, have failed to adequately grasp the true significance of the danger they are facing. They looked at the Tablet and thought: “What the hey, I can avoid that dinky little tablet floating there on top of the waters. It’s no bigger than an ice cube! It’s no threat to me and my business at all!” But what they forgot, is that most of the tablet’s strength lies hidden beneath the optimal level of the PC, i.e., beneath the PC’s “water line”. THAT is where the real danger to the PC lies.
LESSONS LEARNED AND LESSONS YET TO BE LEARNED
So, what should all of this be telling us?
Is the PC really the Titanic?
Sure, why not. The PC may sink beneath the waves like the Titanic did…but it will leave hundreds of very large “life boats” in it wake. Anywhere that the PC is weak and the Tablet is strong, the PC will cease to exist. And that’s a LOT of places. But the PC will continue to exist – just in a much diminished state.
It is not so much that the PC market will grow smaller (which it will) that matters. It’s much more a matter of the Tablet market growing larger. Much, much larger. Soon the ships that are the PC will be floating atop a sea of Tablets. And what was once a “Titanic” PC industry, will merely be just one component of a much larger, and much more diversified, personal computing industry.
Is the Tablet Really an Iceberg?
Sure, let’s go with that. The important thing to note is that the portion of the Tablet market that everyone is focused on – the portion directly challenging the PC – that portion is, by far, the smallest and the least dangerous portion of the Tablet market.
Tablets will not so much reduce the number of PCs we use as they will simply outgrow the total number of PCs in use. Tablets are additive. They will replace a few PCs but mostly they will replace millions upon millions of tasks that never before were done with the assistance of computers. While everyone is bemoaning the fact that PC sales are flat or diminishing, the reality is that the actual sales of personal computers are currently exploding. True, the PC market is shrinking. But mostly, the Tablet market is growing, and it is growing so fast that it will soon overtake the PC market.
Like the iceberg, it is the rest of the Tablet market – the part that has not yet been fully discovered – that will overwhelm the PC. There will be far more Tablets than PCs simply because there are far more tasks that the Tablet can do, and do well, than tasks that the PC can do, and do well.
This is a novel concept for most. We tend to think of computing only in terms of the tasks that the PC is capable of doing today. We define those tasks that computers are currently doing as the only tasks that could possibly require a computer.
But the number of tasks being done WITHOUT the assistance of a computer dwarfs those that are currently being done WITH the assistance of a computer. And while the PC has pretty much maxed out the number of tasks that it can do, the limits to the number of tasks that the Tablet can do are undefined – and nearly endless.
There are looming PC wars coming and it isn’t between Macs and Windows based notebooks. If you follow this industry you know that Intel is seeking to rejuvenate the notebook market. They are doing this by putting quite a bit of marketing weight behind the term UltraBook. To spur development in this category, Intel is putting some very specific hardware specifications around the term that OEMs like Dell, HP, Acer, etc., must conform to if they want their notebook to be called an UltraBook and take advantage of Intel’s marketing dollars for UltraBooks. Obviously every OEM is making UltraBooks.
The challenge as I see it for UltraBooks is that many of the first ones at launch and perhaps those that follow will be priced more in the premium price range rather than value. Many of the early UltraBooks we will see will be $699 and above although a few may get lower and many will skew higher as well. What our consumer data from our own research and consumer interviews is telling us is that Apple has about a $250 grace price point. Consumers know Apple’s Macbook Pro and MacBook Air lines are not the cheapest products on the market. For MacBook intenders, any comparable product must be at least $250 less than a comparable MacBook product to fully sway a consumer when price comes into play. But as I have pointed out before price is becoming less and less of an issue in mature markets.
Although we expect UltraBooks to continue to drop in price there is a sub-category of notebooks emerging which may be even more interesting.
If It Looks Like an UltraBook…
Intel wants to own the UltraBook category. They are investing a lot of money around the term. However, there is a strict set of requirements notebook OEMs must abide by if they want to use the term. If there is one thing I have learned in my 12 years of being an industry analyst it is that OEMs don’t generally like being told what they can and can’t do with their hardware designs. Every OEM wants to take advantage of the thin and light designs driving UltraBooks but they may want to vary the CPU capabilities, and what if they want to use an non-Intel chip for a design that looks exactly like an UltraBook? The answer is they can’t call it an UltraBook.
Earlier in the week AMD launched a very impressive 2nd-Generation A-Series APU, codenamed “Trinity.” Many OEMs have strong relationships with AMD and will most likely use these chips in their lineup of notebooks. So how do OEMs cover their bases by making non-Intel UltraBooks? Well, HP recently launched a new term called SleekBooks. We call this category Ultrathins and we expect many Ultrathins to enter the market well below the price of UltraBooks. And that is what makes this so interesting.
While Intel is going out and spending millions of dollars marketing the UltraBook term, it will indirectly benefit a range of competing platforms. Ultrathins will look nearly identical to UltraBooks with the only minor configurations or specifications, that many consumers may not even notice. The bottom line is that consumers will walk into retail and see UltraBooks, SleekBooks, and perhaps more terms on the way, and with all of these options consumers may very well go with price and walk with with something other than an UltraBook. Perhaps even not knowing they didn’t purchase an UltraBook.
Now, on the surface it may seem as though Intel may not like this scenario. But realistically Intel simply wanted to rejuvenate the notebook category. I believe their marketing of UltraBooks is going to do just that. Even though it may very well help their competitors chipsets and even to a degree help Apple.
I have a feeling there is a large chunk of consumers who are due for a notebook upgrade. The iPad has, for some, served as a sufficient supplement to their existing notebook making it easier to delay the purchase of a new notebook. Whether it is UltraBooks or these new thin and lights that will look and smell like UltraBooks but be priced quite a bit lower, we expect at least a short term positive jump the overall notebook category over the next few years.
This is one of the more interesting things to watch. Mac sales are growing at incredible rates. It seems each quarter Apple is selling more Macs than ever before. I was recently in an Apple store with a newly renovated training center. When I walked into the store I assumed the training tables would be filled with people learning how to use their iPads. Instead every table and every consumer at that table was learning how to use the new Mac they just purchased.
If Ultrathins that are very thin, light, and powerful hit the market below the $599 price like we think may happen, it could provide a serious jump start to the notebook category. And at $599 or lower the prices of quality notebooks will be significantly less than an entry level MacBook Air, which may be a key in slowing down Apple’s momentum with Macs.
The Notebook form factor is facing important times as consumers are faced with new questions about computing and their own computing preferences due to the iPad. Consumers are asking new questions about their own computing needs and looking more intently for specific solutions–especially those shopping for new notebooks.
This is exciting and challenging for many in the notebook ecosystem.
When netbooks were first launched in late 2008, they were billed as clamshell devices meant to access the internet. About a decade earlier, these devices were also referred to as internet appliances. These netbooks were much less expensive than notebooks at the time, partly because of their limited functionality and partly because of their sleek size (eliminating components such as optical drives). The concept of these devices quickly devolved as consumers focused on price. Brands seized the growing demand opportunity and slapped together miniature notebooks using what they had at the time: notebook components.
What the industry was left with was inexpensive small notebooks, not internet access devices, but “net” books. Many research firms, including DisplaySearch, took to calling netbooks “mini-notes” because they were recognized as miniature notebooks. Research firms took a lot of heat from PC brands, component makers, and others who were worried that if these inexpensive mini-notes were thought of as notebooks, they would lead to lower average selling prices of notebooks. That is what ended up happening. Now the mini-note category is shrinking as brands move away from the modest margins of mini-notes to tablet PCs, while the need and opportunity for devices specialized for internet access remains.
Enter the Chromebook, a clamshell device whose main objective is to access the internet, with some versions coming in at mini-note prices; a case in point is the Acer AC700-1099, selling for $349. Some have said that Chromebooks will be doomed from the start because of the impression that they need a mobile broadband connection to be of any use. I’d say that’s a marketing error that needs to be corrected: Chromebooks can use WiFi to connect to the internet and can be useful anywhere there is a hot spot. The goal is convenience, not productivity. For consumers looking for an instant-on device with a long battery life and sleek design, just for connecting to the web for email and accessing digital media, Chromebooks will be of interest.
Chromebooks have recently started selling, so it’s too early to judge the market’s reaction. However, informal indications seem to point to some traction. As of this writing, the Acer Chromebook was ranked sixth on Amazon.com’s bestsellers list for laptops, and the more expensive Samsung Series 5 in silver with WiFi and 3G versions in white were also in the top 20.
Click here to read more analysis from Richard on the DisplaySearch blog.
I have had the privilege of traveling to about 55 countries as part of my job over the last 30 years. And while I really enjoy Italy, France, Hong Kong, and Singapore, the one country that fascinates me the most is China. I first went to China in the early 1990’s, just when they were starting to establish their special trade zones. At that time the government was still leery of outsiders and we could not travel anywhere without a personal guide of some sort.
Fast forward 20 years and the China I visited in 1990 is not the same place it is today. China has emerged as an industrial powerhouse and a major manufacturer of all types of goods, especially electronics and computers. I became aware of China’s real interest in computer manufacturing during a dinner I had in Taipei with ACER founder, Stan Shih in 1991. At the time, it was illegal for any Taiwanese company to do business with mainland China. But Mr Shih told me that he was working through private channels and was planning to put one of his computer manufacturing facilities in China shortly.
Indeed, within a few years, China had opened its doors to various partners throughout the world and started down a path to become one of the major manufacturers of personal computers and tech related products. But China has gone down another path that has enhanced its role in the world of technology. They have made hardware, semiconductor and software engineering a keystone of their educational system and in fact, they produce the most doctorates in these fields then any other country in the world. And all of their engineers and most of their college educated youth take English as a second major, thus making it possible for them to communicate well within the international business community.
Last fall I want to China to speak to a couple of thousand software developers who had gathered to learn more about developing specifically for smart phones. They came from all over China and represented top students from the universities as well as individual developers who were specifically interested in developing for the Android platform. Although the iPhone is a hot item in China and there are a lot of people developing for the iPhone, most of the major Chinese handset makers are backing Android (a completely customized version) and this will clearly be the OS of choice for smart phones in this country.
To put this into perspective, China will sell about 500 million cell phones in 2011 and at least half of them will be smart phones, with Android phones taking the lion’s share of this market. I spoke to a professor at one of the universities after my speech and he told me that two years ago he had about 30 students signed up for his smart phone developer class. This year he had over 3000 sign up for it.
What is perhaps most striking about modern day China is that a middle class is developing and even in the outer provinces, people have cell phones and TV’s. And the traffic jams in Beijing are amazing. One of my hosts told me that there are at least 100 million cars in and around Beijing now, which unfortunately makes it the most polluted place I have been to in years, next to Mexico City.
Thirst For Education
But the thing that both impresses me and concerns me the most about China is the incredible drive and interest in education that makes these students tick. After years of incredible oppression, the ability to learn more freely and to think for themselves is surely a welcome change from the past. Their emphasis on math and sciences at all levels of education puts them so ahead of the US that it is frightening. I don’t want to get on a high horse here but to not emphasize math and science in the US educational system will only put the US at a disadvantage for future competition, especially in the world of technology.
While China clearly has made major strides in education and commerce and has become a powerhouse in manufacturing, banking and world trade, I was reminded that it still is a society that has a lot of controls over its information and people. During my visit I could not get access to Facebook or Twitter at all. It was blocked, at least through the server of my Hilton Hotel Internet connection. And various types of searches through Google were also blocked, although on this trip I had less trouble using Google then in the past.
And it is still clear that China favors home grown properties over outside sites like Google, Yahoo, etc. Baidu is their top search engine and China created apps drive most of the smart phone market. But what a lot of people don’t know is that a great deal of the apps created for the rest of the world is actually coded in China. I deal with many US based software firms who use Chinese software shops to help create, fine tune and support their overall software development projects. China’s influence on hardware and software is much more far reaching then people understand.
But it is the drive of the young people I met on this last trip that really struck a chord with me. I spoke to dozens of kids who just want to be normal, hard working folks who can contribute to the world of technology development. Some were true entrepreneurs and dreamed of having their own companies and in some way making it big. They know of the many tech millionaires and billionaires that have risen within the Chinese tech community and some aspire to that type of fortune.
But for most, they just want to have a better life for themselves and their families. They want a simple apartment and the big prize for them is to own their very own car. To them that is the symbol of success. More importantly, they are serious students of technology. The kids I met are not techies in the sense that they just love technology. Instead they represent millions of engineering students who want to invent new technology products, not just play with them.
Although I still have great faith in Silicon Valley and its role in the world of technology development and the other key tech centers around the US dedicated to technological inventions, China’s emphasis on math and science and its focus on technology innovation cannot be ignored. This is the real role they are playing in advancing the world of technology. In financial circles, we clearly know that China is a country to be reckoned with, especially since they hold most of our debt. But its rise as a tech powerhouse and one that has millions of engineers dedicated to finding new tech solutions and products means that its competitive position in tech will only rise. It should be admired and feared at the same time. The US really is in danger of losing its edge in tech if it does not reverse its course and make math and science more important to our educational system.