The Sky is Falling!

on February 7, 2014

If you read too much of the tech media you sometimes get the impression that the tech world is ending. The PC industry is in decline and many are quick to declare it dead. Now, our love affair with tablets are over according to many recent articles. Smartphones growth is slowing. We are in a tech bubble. I could keep going with apparent bad news. The media has to do what it needs to do to survive. Bad news sells. But the end of the technology industries growth period and innovation is hardly over.

Mature, Maturing, and Green Fields

Something I think gets largely missed by most who observe this industry relates to its maturity. Is the technology mature or is it not? If it is not mature it will act one way. If it is mature it will act another. What makes the answer to this question fascinating is that it is both mature and maturing at the same time. In developed markets the technology industry is mature. This is why we see competitive dynamics like differentiation, segmentation (in both product mix and price tiers), and more savvy consumers to their needs, wants, and desires for the products they shop for. Some may look to segmentation as the biggest indicator of a mature market but I choose to look at consumers themselves. Once consumers start becoming self aware to the point that they are specifically selecting this product over that one for reasons only they have worked out that are important to them, then we know we have a mature market.

Mature markets, and in this case industries, are what lead to new technologies to be adopted very quickly. In the case of the tablet, its success and rapid adoption was a direct result of consumers being familiar with PCs and smartphones. When the iPad came out it was easier for consumers in mature markets to grasp its value. This is why the tablet has been the fastest adopted consumer electronics device to reach 500m install base which it achieved in 2013. This point, of a mature market, was one of the underlying points we used in our logic to forecast the aggressive tablet volumes we did in 2010.

The mature market dynamics also explain why the segment is slowing as well as its now fully established seasonality. Note the peaks at each Q4 for tablet shipments since 2010.

Screen Shot 2014-02-06 at 9.34.44 PM

Now Let’s take a look at a few other charts showing certain products in a mature market with full swings in seasonality. Note the shape and the peaks.


What you notice about the two charts above is the ramp up and then a peak. We have reached peak desktop notebook form factor. This market is no longer growing and in fact it is contracting. The PC as we knew it–a desktop or a notebook–has passed its peak. This market will remain since a good many people still need a device they can sit at a desk to do long form deep work like spreadsheets, create CAD documents, write software, make a motion picture, edit professional photographs, etc.

Unlike the PC market, the iPod is fading into irrelevance. The capabilities of the iPod have been integrated into the smartphone. Now while I believe there is a market–just a rather small one–for the desktop and notebook form factor, it is interesting to think about what core features that were unique to the PC are now integrated into the tablet? ((This was the core of my article from yesterday) In many of the same ways the iPod was the only device for music, the PC has been the only device for other use cases which have now started to be taken over by the tablet. Web browsing, watching videos, using social media, and many other things were once desktop use cases and have now been integrated into the tablet.

The other key thing to point out with regard to the PC chart is that not only did we pass peak PC, the device itself shifted to longer life cycles. During the highest growth period of the PC the refresh rate was every 2 years. Now, the average is 5 years and growing. All the above is useful to understand what is happening with the PC market. It is not dying, the market is simply correcting itself. The PC over served the needs of many consumers and once they got a netbook or tablet they realized it. The PC still exists in their home but they don’t use it as much. Stock markets correct themselves as investors settle at a valuation that seems to be accepted. So the PC market is correcting itself and it too will settle into a degree of steadiness in annual shipments.

The tablet is undergoing a continued growth period but is also experiencing much more seasonal swings than the PC did. The lifecycle of the tablet is still also unknown. When we look back in 2-3 years at these updated charts for tablets, I believe we will see patterns that have shades of both the quarterly data points of the PC and the iPod. Yet, we are no where near peak tablet.

As interesting as mature market dynamics are to observe, the real question is where do we go from here. If you follow my analysis you know that I have thrown the stat out from our research that 90% of current tablet owners also own a PC. That leaves about 5.5 billion people who don’t have a PC or a tablet. The install base of smartphones either has passed that of PCs or will pass any day now. Bringing computing to the next 5 billion plus is going to happen and it will likely be a 20 year journey, or longer. However, the key thing to remember about being on a journey is the scenery changes.