Three companies make almost all the profits in todays PC industry: Intel, Microsoft and Dell. Intel supplies the processors (Pentiums and Xeons), Microsoft creates the operating system (Windows) and productivity applications software (Office) and Dell puts it all together super-efficiently and distributes it to the enterprise or the individual. The PC industry has consolidated around these three companies. Not that there arent others. But few have the influence, clout and pricing power of Intel, Microsoft and Dell.
The PC industry of recent times has been in a hiatus. There have been few new developments to drive adoption and upgrades among their current base of users this is changing to a small extent with WiFi driving a shift from desktops to notebooks. On the software front, Windows Longhorn (the next operating system from Microsoft) is still a couple years ago. About the most exciting thing with PCs now are the sleek-looking LCD displays. So, look at any ad for a new PC, and most of the description will be about the hardware specs which barely make a difference to the end-users. The market among existing users has saturated. One is starting to see ads from the likes of Intel on why users should upgrade their PCs after 3-4 years of usage.
The PC industry is at a stage where it has reached saturation among users in its existing markets (the developed markets). The next set of users in the worlds emerging markets are being targeted, but only just. China is buying more than 10 million PCs a year, while India is buying about 2.5 million a year. These include upgrades as well as new users. The problem with the next set of users is that they need a different price point at which they will be willing to make the purchase.
For the most part, PCs have been priced at their dollar equivalents across the world both on the hardware and software fronts. The lower incomes of the next set of buyers makes the PC a very expensive proposition. Because there are few buyers, it is harder to get the next buyers the viral impact and network effect is limited. While the solution to perceived high software pricing has been piracy, there is no alternative for the hardware. Creating special price points and solutions for the worlds emerging markets threatens the core business and profits from the existing markets for the computer industrys leading players, and is therefore not a priority.
Also, consider the architecture of the PC of today. Packing everything on a thick desktop was a good idea in the 1980s (PCs would therefore need to be self-contained units). This made software developers create software for the thick client leading to the client-server computing era of the early 1990s, which served to self-propagate the need for thick desktops. So, even as networks being faster and are now becoming ubiquitous, PCs are still set-up to be the monoliths that they have always been. This contributes to the cost and maintenance hassles. The time has come for a new architecture that cuts cost of ownership and simplifies administration.
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TECH TALK The Next Billion+T
