Don't Moan About the PC's Demise, Figure Out What's Next

Some of you might recall a hastily put-together press conference at Comdex 1995, where Oracle CEO Larry Ellison and Bell South CEO Ray Smith announced the "Network PC."

With typical Ellison bluster, he pronounced the PC dead and predicted that in the future, all a person would need for their digital needs was a cheap network PC that connected to the Internet. This Network PC was about $500, which got consumers attention since most PCs at the time started at $1,500.

Of course, not long after that, PC prices started to come down and the Network PC failed since the era of ubiquitous connectivity was still many years away. Plus, the need for local apps played an important role then as it still does now.

However, the goal of a device that connects to the Internet was pretty visionary. Twenty-one years later, we have a glut of connected devices, with billions more expected to come online over the next four to five years.

I recently saw an ad here in our local paper for a dishwasher; anyone who purchased the appliance also got a free Android phone. Of course, the "buy one, get something free" idea is not new. When I was growing up, banks would often offer a toaster or fondue sets when you opened a new account. But the value proposition that a smartphone adds to the purchase of something as mundane as a dishwasher is relatively new.

This underscores the fact that when it comes to having a way to connect to the Internet, we have a glut of devices that are now just part of the scenery. That is bad news for the tech industry since people have so many ways to connect, while their interest in replacing or buying new PCs and portables is on the decline.

We recently did a study and found that in the US, the average home now has at least seven devices connected to the Internet; many homes have more than 10. They have everything from laptop and smartphones to TVs and appliances connected to the Web; to them, it would be strange not to have a Wi-Fi or Bluetooth hookup.

But our survey found that, on average, a home PC is now at least five to six years old and a laptop is four to five years old, a troubling narrative for the PC industry. An industry analyst told me recently that predictions of 280-300 million PC sales a year is probably too optimistic. He thinks it may be more like 225-250 million within the next three to five years. A major ODM that makes PCs expressed a similar fear.

In a way, you can see the PC suppliers, ODMs, and OEMs preparing for this scenario. Intel's recent reorg has it focusing more on the cloud, servers, and Internet of Things (IoT). Most PC vendors are bulking up their enterprise businesses, knowing that a PC is part of an IT solution and still has legs. But all of them are fighting a price battle in the consumer space, where margins have shrunk. How long they stay there is a question many will soon be asking themselves.

Even 2-in-1s have seen less-than-stellar uptake, especially with consumers. Intel and PC vendors hoped that 2-in-1s would get serious attention, but as consumers became more price sensitive, the additional $100-$200 added to the price of a 2-in-1 kept them from jumping on board. The good news is that 2-in-1s are doing relatively well with business users, but these new designs have not been enough to keep year to year PC sales from declining.

One of our newest analysts at Creative Strategies, Carolina Milanesi, recently wrote a piece that demanded "something new" for PC owners. She writes:

"This is why I feel strongly that vendors should move away from positioning devices as a PC replacement. Consumers have proven they are willing to buy things that do not directly replace anything. Smartphones are the best examples. When we started to buy those, and mobile phones before them, we did not buy them to replace our home phone. Initially, it was about taking the 'phone experience' out of the home. Later, it was about doing much more by adding the Internet and new apps and taking the mobile computer experience out of the home. Some of what we were doing was something we used to do on our PCs but consumers were not thinking about it that way. We have also witnessed that, while familiarity might help in some cases, if something is compelling and easy enough to use, it will take off. The iPhone did not really look like something we had before nor was it positioned as the replacement for something."

This "something new" might be a hands-free connection to the Internet or new pocketable PC that goes well beyond what a smartphone can do today. But I believe that when we start thinking less about PC replacements and more about giving people new ways to connect to the Internet, we will have a better chance of getting people's attention and their hard-earned cash.