The PC industries doldrums continue yet many seem to be scratching their head as to why. The common answer is to blame tablets. While there is truth to that statement, some important context is still missing from this puzzle. What many don’t initially observe is since about 2007, the PC market, specifically the notebook segment, began to over-index to the consumer segment. Meaning gradually since then, more annual worldwide notebooks sold were to the consumer segment rather than corporate. Note this chart from Benedict Evan’s slide deck Mobile is Eating the World.
During the PCs run when more PCs were shipped to corporate segments than consumer ones, the corporate buying cycle was like clockwork — every two to three years. Refresh cycles were predictable. As the PC and notebooks became more saturated in enterprise environments, the PC run continued as it bled over to the consumer segment. Consumers, who either used a desktop PC at work or had no PC at home started to bring PCs into the home. The observation that gets lost is the consumers who caused the PC to over-index to that segment were not early adopters. If you are familiar with the diffusion of innovations, you know the late adopter parts of the market are much larger in terms of volume than the early adopter parts of the market. As the late part of the early majority and the following segments started buying PCs, we saw growth but more consumer PCs were sold than corporate PCs as a part of the overall mix. The trouble with this, which the past few years of PC decline has evidenced, is the later part of these consumer markets behave much differently with electronics. Many in the early majority, late majority, and laggards, buy tech based more on needs not wants. More to the point, once a product is acquired they generally don’t replace it until it’s “beyond repair”. Technology products’ life cycles are extended when this very large part of the consumer segment gets into the market.
By this time, the market is to the point where it is fully mature and reaching “post maturity”. Around this time as well, costs for components also come down, become mature, and generally can and will last longer. The perfect storm hit the PC industry where a significant part of the install base bought their PCs, and the maturity of the hardware allowed them to last for quite some time, dramatically extending the life cycle of the product for customers who won’t replace it until it breaks. This is where we are today. The PC segment has reached a fully mature replacement market and growth is declining. So what observations from the fully mature PC segment can we glean for mobile?
While the PC is not a “one per person on the planet” product the smartphone, for the most part, is. The total addressable market is significantly larger. The PC install base will settle around 1-1.2 billion while the smartphone install base will settle around 4-4.5 billion. ((due to economies of emerging countries, growth beyond that point will simply be slow. More on this at another time.)) However, we have an install base of around 1.5-1.6 billion smartphones now with the bulk, 70% approximately, in full replacement markets. Because of this, I divide the smartphone market into two segments. There is a mature segment, rapidly going to post maturity, and there is an immature segment which is the quarter to half a billion first time smartphone owners coming on each year for the next few years. The two largest markets from an install base standpoint of smartphones are China (approx 525m currently) and the US (approx 225m currently. Per my PC observations I’ll focus on these two markets.
This market has been a defining one for mobile in many of the same ways it has for the PC. With smartphone penetration nearing 70% in the US, we are well into a mature replacement cycle market. But to get to where we are now, we have a huge install base of the late state early majority, late majority, and laggards who are in the market and will increasingly become so during 2014 as we drive saturation to 80-85%. As in the PC space, we are already seeing the “I’ll replace it when it dies” mentality impact smartphones. This is stalling YoY growth, and making it harder for the likes of Apple and Samsung to drive the masses to their latest devices. While the refresh rate of smartphones will remain approximately 24 months for a percentage of the market, I sense there is a growing percent who will wait a bit longer. Perhaps 2.5 years will be more common rather than two or less as it will be for some segments. The issue? Are there more people who will need to be persuaded to upgrade than there are those who will do it routinely because of their love of technology? This last bit is tricky but there is hope. For example, it is for the reasoning I just laid out that the time is right for Apple to release a larger screen iPhone. That, plus perhaps longer battery life, enhanced security thanks to 64-bit, and a few other simple features, could significantly move the needle for Apple in the US. Note this ChangeWave survey indicating nearly half of all smartphone buyers who are intending to purchase a smartphone plan want to buy one with a screen size around 5″.
The US is an iPhone dominated market with Samsung gaining ground, little bits at a time, with each new Galaxy release. Both need to start moving the needle or we will continue to see refresh rates extend. Every PC OEM we speak to regular beats to the mantra of “give them a reason to upgrade”. This is a key theme for consumer markets and applies to PCs, smartphones, and tablets, once they reach maturity.
China is crazy. It is unlike any market I study in depth. The swings of market share as a percentage of quarterly sales by different vendors is staggering. Xiaomi, in less than two years, is shipping more smartphones than Samsung each month. China is saturated with half a dozen and growing key Android OEMs all going after each other with new device releases every quarter or so. Could you imagine in the US having six to eight smartphone manufacturers releasing new devices every quarter or even twice year? It would seem like overkill but in China? It isn’t. Selling a few million each quarter is being fueled by rapidly releasing hardware. The average smartphone lifecycle in some parts of China is 11 months and in upscale areas it is seven months. ((My data)) While the smartphone market in China looks and feels mature, and in some cases even post mature, it really isn’t. While Xiaomi is all the rage, we have no solid data what Xiaomi’s loyalty rates are. Are consumers jumping to different brands just to try the hot thing every year? What are fads vs. what are sustainable trends is much harder to predict in China.
While I sense many of the same PC market observations apply to mobile in the US, they are not applying to China. Significantly, China has more smartphones than PCs and is largely now a mobile first (and for a growing percentage, mobile only) market. All of this is to say mobile can learn nothing from the PC segment for China, which is a point in itself. Perhaps the strategic dynamics of a mature market, and eventually smartphone saturated one like China will behave fundamentally different than the US. If this is true of China will it also be true of India (where PC penetration is less than 10%), Indonesia, and Brazil? I suspect this is the case but we are in such early days it is hard to tell. Which makes it fascinating.
18 thoughts on “What Mobile Can Learn from the PC Industry”
“the corporate buying cycle was like clockwork — every two to three years.”
Am i right to think that corporate replacement cycles are slowing down of late as well? So that the pc industry is being hit from both sides – consumers continuing to use their old clunkers as long as possible, and businesses no longer replacing their computers nearly as swiftly?
As far as mobile goes, i’m wondering what the real replacement rate for phones will be among the “use it till it dies” segment. Obviously it’s going to vary from one manufacturer to another, but if we look only at companies that build quality, sturdy devices (apple, HTC, noikia), do they really tend to break after only 2-3 years?
Yes corporate is slowing down as well. Part of this has to do with BYOD. Where we still see corporate buying cycles is with tablets, but tablets are mostly being purchased for field workers not desk workers.
Certainly, smart phones could last longer than 3 years. But my guess is that carriers will have to start getting much more aggressive with promos, trade ins, etc., to try to entice this group while they are in their second to third year.
Perhaps a bit off topic but it seems that at some point the smartphone will become the desktop, a kind of ‘dockable’ computing engine which drives a display/keyboard desktop set up. Or perhaps not, but a gorilla can dream.
There are so many visions circulating around this concept. Some say the comms device will get really small, or even embedded in many screens so it doesn’t matter what you use you will have comms. So say the modem gets unbundled, which if it happens makes docking the smartphone useless since the modem won’t be in the smartphone screen any longer.
Really hard to say which way it goes, but as a wise CEO once told me “the market is the final arbiter.”
Yes, at some point we’re going to have various displays in our lives, some we carry, some will be sitting on desks or stands, some will be mounted in vehicles, all allowing some level of access to our data. Where the processing power comes from, who knows, but the screen is the intersection, the screen is the computer in that sense.
I find it interesting that in this kind of world personal identity becomes incredibly important. iBracelet + fingerprint?
My personal theory is that processing will be distributed. Meaning cores can reside in many different places but from heterogeneous system architectures we can leverage those cores wherever they lie to perform tasks small and large.
Identity is the next frontier. I think I have said publicly that one of the only value points of a wearable I see currently is around identity / authentication, etc.
Yes, I’d pay $99 for an iBracelet just for the identity and authentication jobs-to-be-done. The distributed cores makes me think of an Apple Network of Things. That whole concept fits nicely with the iPhone/iBracelet as a mobile hub.
It’s a seductive vision, but I think it probably will never happen. Sure, you could have a phone that automatically detects when it has been paired with a keyboard/mouse/monitor and if and only if that has happened, it delivers a desktop version of your apps to the monitor. Unpair it from the KVM and it goes back to delivering the phone version of your apps to the phone screen. The kind of thing Windows 8 might have been if MS had been half competent.
But, this vision breaks down the minute you want to do something CPU intensive. Not matter how many cycles of Moore’s law we go through, there will always be apps (and games) that demand all that a 100+ watt CPU can deliver. For the people who run those apps, this vision of one pocket size device that delivers computing to whatever screen you happen to be using is just an extra burden as they will have to remember “oh right, I can’t do that on my phone, I have to switch this screen to be running off my desktop”
The alternative vision, of course, is one where we finally get sync that works seamlessly. No matter what computer you sit down at, whether it’s your desktop, your laptop, your phone, or your tablet, all of your data is always already automatically there, up to date, waiting for you. That seems to be Apple’s vision, and one that so far they have only partially delivered on with Icloud. But I think they’ll get Icloud right long before Microsoft manages to get “one OS for all devices” right.
I think it’ll be a combination of the two visions you describe (I don’t see them as separate), and I suspect Ben is probably right in saying it will be distributed as far as computing power. Consider that we can already use the iPhone as a computing engine/mobile hub, in a limited fashion of course, but we are already moving down that path. Same goes for data, which is also only getting started (as you point out). I see an Apple Network of Things on the horizon, one identity and many screens.
I disagree that Samsung is making progress against Apple in the US market. Android as a whole is losing ground against iPhone in the US, and Samsung is making a small but decreasing amount of progress against the other Android vendors.
Through my firms research, I have very hard data on this point. Samsung, while starting from a much smaller sales base, grew more than Apple in the premium >$400 wholesale segment in 2013. So while both vendors increased US sales YoY. Samsung increased more than Apple in premium as a percent YoY.
Come a bigger iPhone, I expect Apple to drive iOS market share past Android in the US.
My assertion is just that there’s no evidence Samsung is taking US share away from Apple. According to comScore mobiLens data the %shares of the US smartphone market have been
January 2013 Android 52.3 Apple 37.8
January 2014 Android 51.7 Apple 41.6
Android as a whole has decreased, and Samsung can only take share from the Android market. If Samsung is making progress, it’s not against Apple.
Agree. Samsung isn’t really effecting Apple but as I point out our hard data shows Samsung grew more as a percentage of sales YoY in the premium segment than Apple. There are a range of theories for this but the data doesn’t lie.
This will all change this year when Apple releases a larger iPhone and drives iOS US market share to be higher than Androids.
I like how you selectively (confidential data?) say Samsung grew in the premium market more y/y over Apple.
It make sense.
Samsung can eat more of high end Moto and HTC, hence more “growth” in the high end market.
It’s how we can all play with numbers?
Do you consider even old, currently on sale iPhones premium phones?
Yes, the specifics of our private data are confidential. And I point out premium selectively since we track different price bands even in the US, although its subsidy.
Yes, because even older iPhones are sold wholesale at what is considered a premium cost. Sometimes this cost is to the carrier and sometimes it is to the end user. The other reason is because the consumer will view even older iPhones has a premium device. Same is true with last years HTC One and GS4. The wholesale cost still hits a premium price tier.
“Give them a reason to upgrade” mentality can lead to devices that overwhelm people with features that they don’t use. I wonder if tablet and PC makers need to prepare for inevitably becoming appliance makers, like microwave or refrigerator manufacturers. There is some irony there as people used to tease Samsung about making refrigerators.
Changes can be made rapidly on the mobile devices than in PCs or laptops. The cycle time for new products is much shorter for mobile devices. As a result they can advance quite fast, making the people chase newer generations more. The mobile device now is a camera, video camera, micro-recorder, sports companion, social media gadget, gamer, book reader, web browser, a GPS and so on. All these are compactly housed in a small portable device. As a result, mobile technology will continue to grow by leaps and bounds. PC and laptops will still be there, but will become like print newspapers – not very profitable.
I think we should credit both Apple and Microsoft for “giving them a reason to upgrade” up till now. The PC was pronounced dead in 2000 but the Digital Hub strategy carried it on for another 10 years.
Both Apple and Microsoft were really serious on “giving them a reason to upgrade”. Microsoft eventually stalled on the OS-side and PC sales suffered. In the meantime, Apple has done a lot on both software and hardware, most obviously in the area of battery-life and SSD.
I doubt that Apple has lost any of that focus. 64-bit CPUs and fingerprint sensors, great cameras are all pretty good reasons to upgrade. In fact, the sales of the 5s relative to the 5c suggests that the premium features were more than compelling enough to justify the $100 difference, even for non-tech users.
I think the larger issue is that Google isn’t at all keen on “giving them a reason to upgrade”. Their focus seems to be on getting low-end devices to perform adequately, and not on putting compelling features on flagship devices. That is a sure recipe for letting the market stagnate.