The Bull Case For the PC
Late last year, I decided to debate myself to come up with an alternate scenario to my bear case for the PC. Consider it a bull case for the PC desktop or notebook form factor. It is easy to observe the saturation of the PC today in many markets along with the static nature of its growth line and create a scenario where the PC category is not and will not return to signficant growth. However, for the sake of argument, I’ll state the point that PCs can return to a growth category again and find new customers. Basically, if I drew the stick to debate the flip side of the PC is dead narrative, this is how I would do it.
The examination of the upside for the PC category hinges on one central question. Is there a market for first time notebook or desktop owners? I’ll share evidence that not only is the answer yes, but the smartphone is, in fact, the gateway for future first time desktop or notebook owners.
Undoubtedly, hundreds of millions of people are getting their first computer every year. This computer comes in the shape of a smartphone and fits in your pocket. Today, generally speaking, a very small percentage of people each year are getting their first computer that sits on your lap or desk. The reality is the vast majority of the roughly 300m annual PCs sold are being purchased by existing PC owners. But this is the world today, not necessarily the world five years from now.
As we look at the current installed base of PCs compared to smartphones, some interesting observations can be made. The first is approximately 75% of smartphone owners globally also own, or have regular access to, a PC of some kind. Keeping that in mind, we observe that, while PC usage is going down, ownership is not, or at least doesn’t seem to be. For the vast majority of existing smartphone owners, the PC remains a key computing endpoint for certain tasks for which it is the best suited. The PC may be used less, but it is still used.
Another key data point for this argument is PC penetration in developed parts of emerging markets. We refer to these as tiers. Where tier 1 and 2 is the most developed part of a developing region, like Beijing or Shenzen in China, or Mubai and Delhi in India, and tier 4, 5, or 6 are the more underdeveloped parts of a region. Among the higher tiers of emerging markets, PC penetration is quite high and often in the 60%-70% range depending on the city. This has everything to do with the economic status of these consumers and also the nature of the capabilities of PCs being implemented in a growing number of jobs in the region. To a degree, we can draw many parallels to these more developed tiers of China, India, Brazil, etc., to the developed West when it comes to the PC usage and penetration.
Now, turning our eyes to non-PC owning, first time smartphone customers. Over the next five to six years, billions of people will fit this description. If there are new or first time customers of a desktop or notebook it will have to come from this customer base. Therefore, it is my premise that the smartphone will serve as training wheels for first time computer owners, helping a percentage of these new customers eventually migrate up to a PC as a part of their personal computing solution.
When we look at the evolution of computing, we can observe how it has always been a journey of helping people do more. Moore’s law has ensured the capabilities of a computer does not stand still and will continue to increase. If we believe the PC is the single most capable computing form factor on the market then, as consumers get their first pocket computers, start to learn and embrace computing, understand its personal, educational, and economic upside, it is reasonable that many will graduate up to a full personal computer when they are ready to do more. The PC may over-serve many of the most common computing tasks for mass market consumers today, but we all recognize there are still use cases where the smartphone under-serves many use cases as well, as evidenced by ownership not declining. As first time smartphone customers mature, there will be a desire for the increased capabilities a PC offers.
Here is a scenario that could happen. A farmer in Africa gets his first smartphone. Realizes the power and potential of the internet. Starts using his smartphone to sell his sheep, understand fluctuating pricing in his region, and search for ways to increase demand for sheep. He uses the internet to learn how to better sell and raise healthy sheep. He collaborates with other farmers in the area on sheep trends. He grows in economic status, starts to want to learn more, do more, manage his business. His needs have increased. Is the smartphone the only computer he will ever need?
In many markets, young, ambitious, and increasingly tech savvy consumers are getting their first PCs in the shape of a smartphone. As young people in those markets become more tech savvy and look to start entering the work force, or go to school, will their smartphone be their only tool? Will the smartphone suffice as the only educational tool for a developing region? Will future businesses or work forces in developing markets all run solely off smartphones?
As the internet comes to the masses in developing countries via a pocket computer, it will be a catalyst for developing regions and fundamentally help them mature. When they are developed, are we to make the assumption that all they will ever use is a smartphone? In fact, in many emerging markets we see desktop and notebook penetration high in parts of the market which are more developed both with infrastructure, education levels, and higher disposable income. So the evidence suggests that, as developed markets ripen and infrastructure and economic status increases, the PC could become desired tool.
The smartphone will be a critical part of advancing personal computing as the training wheels for the developing markets and teaching them the basics of technology literacy. Which means, gradually, we will see a market evolve and actually grow again, something that has not existed for quite some time via this market for first time PC buyers. We can’t ignore that the smartphone will be the computer used most often. But we can challenge the assumption it is the only computer they will ever need. Instead of mobile only, we should realize the future is more likely to be mobile mostly.
Other potential catalysts:
- PC user interfaces evolve to eliminate complexity thus eliminating the computer literacy barrier. *May not even be Windows
- Smartphone adoption increases the ubiquity of power outlets as emerging markets develop.
- Tablets act as catalysts as well as training wheels for more capable computing form factors like notebooks and desktops. In some cases, the tablet may also evolve to be the more capable device as a first time computer for this group.
- Business models for PCs shift, taking advantage of similar hardware as a service model thus dramatically lowering the entry level price of a PC.