Why the PC crashed: our love affair with tablets

STEPHEN Bernasconi walked into his local shopping centre on Nov 25 intending to buy a laptop. His three-year-old Dell Inspiron had broken down and he wanted something to keep up with gaming.

Instead, the 23-year-old walked out of PC World with an iPad Air. “I decided that this would be a more effective purchase as it allows me to do everything I require — Netflix, Spotify, Twitter, good games. It’s light and can run loads of apps at once and doesn’t slow down.” He’d considered buying a Google Nexus 10 tablet, but having recently switched to an iPhone, he decided to stick with Apple.

Emma Gilliam, meanwhile, hasn’t replaced the Toshiba laptop she used at home since it died in Jun 2012; she also bought an iPad. A university lecturer, she has a PC for work, but said, “I don’t need more than a tablet for domestic or social use.” She said a big benefit is that because the iPad doesn’t run Microsoft programs, she can keep work and home separate.

“I don’t bring PC-crucial work home now, so I’m far more disciplined about finishing tasks rather than letting them spill over.” She’s using the iPad to learn Greek — “using a Greek keyboard has been great” — and watch shows on demand. She has discussed this with a fellow traveller opposite her on the train: “His wife — probably around 50 — is also tablet-only. As is his mother.”

It’s people like Bernasconi and Gilliam, the man on the train’s family, and millions like them, who are causing a tectonic shift in the world of computing — one which has seen Steve Ballmer pushed out as Microsoft’s chief executive after 13 years, and the chairman of Taiwanese PC maker Acer replaced, and thousands of jobs and euros lost at computer manufacturers.

The traditional PC business has a problem: it’s in decline. The research company IDC reckons PC shipments will drop by 10.1% this year compared with 2012 — from 349.2m units to 314m — and continue to dwindle from there, down to 305m by 2017, with no expectation of growth. Sales peaked in 2011, at 361.5m, and they’re never coming back.

People have discovered that tablets can do pretty much all the computing jobs they want done. They didn’t really need a PC in the first place; answering (or just deleting) email, browsing websites, writing something, calling someone, or playing games. For tasks like that, a fully fledged Windows PC is overkill, as well as unwieldy and short on battery life. A tablet is neat, focused, and its battery lasts longer than a laptop.

Tablet sales are booming. In the three months up to and including Christmas, tablets outsold PCs worldwide — and by 2016, they’ll be seriously outselling them for the whole year.

The PC business, meanwhile, has turned into a replacement market. There are about 1.5bn PCs in use worldwide; the majority are used by businesses. For years, consumers have been buying about half the PCs sold; now they’re turning to tablets, and only replacing their PC if they absolutely must. Businesses, too, are discovering that tablets have some advantages over PCs.

For instance, the 2012 Greek bailout — the biggest in history, requiring the renegotiation of €146bn of bonds among 135 principal bond owners in just 30 days — was completed using iPads. A specialised visualisation app written by a British company, Bondholder Communications Group ran on the encrypted, 3G-connected tablets that banks were happy to allow on their premises, something they’d never have agreed to for Windows laptops, because of security fears about viruses. Because the iPads could be updated in real time, used while on the move, didn’t constantly need charging and the progress could be shown visually, the deal was done.

More prosaically, when a loss adjuster came to assess a water leak at my house recently, he documented the damage on a tablet, and took pictures with it as he went. All were included in the report which he compiled and sent off as he stood on our sodden carpet. Try doing that with a desktop or laptop computer.

This change has happened at amazing speed. In Jan 2010, when talk of an Apple tablet was just a well-sourced rumour, I wrote that nobody was quite sure what the new “iPad/iSlate” (the name wasn’t yet known) would actually do for us, nor why we might like it.

Then, I noted: ‘Everyone reckons that tablets just aren’t that workable, because they are neither fish nor fowl in computing terms. Yet still they believe Apple can create the device that will be on everyone’s menu’.

“There’s no really clear series of applications which define what a tablet is for,” says analyst Ian Fogg. “It is more defined by its form factor — its shape and appearance — than its use.”

Then the iPad arrived, to sneers from many bloggers. It’s great fun to go back and re-read the opinions of those who hadn’t tried it, but were sure it would be a flop: no physical keyboard, no slot for USB sticks or SD cards, couldn’t show Flash video, no camera, no HDMI port for TV-out. (Apple did later add front and back cameras, and adaptors for SD cards.)

But none of those omissions mattered, because it was what the iPad, and the tablets that followed it, brought which did count.

They were mobile and really handy: you could pick one up and do a task (search for something, buy something with an app, send a tweet or email) in a moment and then put it down and get on with something else. Tablets brought us what you could call three-second computing. (At least one of the pundits who called the original iPad “a dog… absolutely, completely ridiculous”, can now be seen touting his use of the latest iPad on his blog.)

And this huge shift has also created upheaval in the boardrooms of the businesses that the PC made rich.

At Microsoft, where Bill Gates’s mantra was “a PC on every desk, running Microsoft software”, Steve Ballmer is on the way out, following pressure from other board members because his strategy to recreate the Windows desktop monopoly has been a failure in smartphones and tablets. Three years after its launch, Windows Phone has around 5% of world sales (by comparison, the iPhone had 16% of sales after the same period; Android, 35%), while Windows-based tablets have sold so poorly that in July, Microsoft took a bigger write-off — $900m — on unsold models of its Surface tablet than it collected in revenues from their sales.

This moment, where tablets outsell PCs, also marks another watershed: the end of the Windows monopoly on computing.

It used to be that if you wanted to get something done, you would end up using Windows to do it. But as smartphone sales have exploded (they passed those of PCs three years ago), followed by tablets, the need to press the “Start” button has stopped.

Ask yourself — what was the last consumer app whose popularity depended on being available for Windows? Quick research turns up the file backup service Dropbox, which arrived in Sept 2008, and the music service Spotify, which landed on desktops in Oct 2008 with no mobile equivalent.

At the same time Google launched the Android App Store, while Apple’s App Store was already four months old. Smartphone sales began taking off, followed soon after by tablets. “You’d have to have been insane to launch a desktop-only app after the launch of the App Store,” said Alex Guest, a London-based media and technology entrepreneur.

Now, developers focused on the consumer market aim for a mobile app first: Instagram (founded Oct 2010, now at 150m users) and Snapchat (founded Sept 2011, estimated 30m users every month) have never bothered with desktop. If you only have a Windows PC, you can’t do anything with either. For those who have grown up on PCs, such an attitude is puzzling; for the digital natives who use those apps, it’s natural.

For most people not working in specialist industries, the only everyday desktop essential is Office, Microsoft’s other monopoly. But that is challenged too by Google’s online Drive, which offers cheap online collaboration, and to a lesser extent by Apple’s iWork apps, now free with the latest iPads, which also run in any browser. But if people don’t need or want PCs to do things, and buy fewer of them, that means Microsoft gets less and less revenue first from Windows, and then from Office.

For the incoming Microsoft chief executive, that means a landscape very different from the one Ballmer faced when he took over in Jan 2000. Rather than the slowly changing world Ballmer dealt with, the newcomer will face battles on multiple fronts, while facing a loss of revenue.

Horace Dediu, who runs his own Asymco consultancy, likes to describe how we buy technology as “hiring [things] for a job to be done”. In the past, a PC’s “jobs” have included education, book-keeping, business workflows (where Office especially dominates), media creation and consumption, internet-based communication (text, audio or visual) and social media.

A PC doesn’t do just one of those jobs, it can do them all. Yet paradoxically, that makes it vulnerable to having particular jobs — such as email or educational uses, insurance reports or streaming Netflix — “peeled away”, suggested Dediu.

“The PC is a strange beast in that it seems to be a complicated, multi-dimensional product that was hired for different jobs throughout its life.

“It seems to depend on new jobs to keep going and these jobs are peeled off by other devices over time. Once it runs out of new jobs it will inevitably decline. At least that’s my hypothesis.”

Looking at IBM data about how people shopped online this year is revealing, he said. There has been a 40% drop in the use of PCs for online shopping over the past two years.

That, he said, could suggest that PCs just won’t be used for that kind of transaction in eight or nine years. “What’s worse is that it looks like PCs will never reach saturation. The penetration of US households, for example, peaked well below 80%. Also, the replacement of PCs will be swifter than the rate of their penetration.”

We think that our love affair with PCs was intense but, said Dediu, PC adoption rates lagged behind other technologies including radio, colour TV, microwave, VCR, HDTV, DVD, mobile phone, smartphone and tablets.

For PC companies, making PCs has never been a particularly profitable business; even five years ago, on average they made a profit of around $25 (€18) per PC on machines that they sold for an average of $640. Wholesaler and retail mark-ups pushed the price higher to the end user. That’s about a 4% margin. By September this year, that had dropped to just $14.90, on machines that on average cost $545. That’s a 2.7% margin, vulnerable to rises in component pricing as volumes fall. If making PCs isn’t profitable, why do it at all?

In short, it’s the end of an era. It’s not that we will abruptly stop using PCs — specific applications such as professional video editing or machinery control, and uses of Office inside big organisations, won’t change for ages. But the PC’s position as the only place to do tasks we thought of as “computing” is in danger of vanishing for ever.

* Copyright(c)Guardian News and Media Limited

WHY MICROSOFT HAS A HUGE HEADACHE

Steve Ballmer announced in August he was to step down as its chief executive. A successor is expected to be unveiled early this year but Ballmer has already set in train a corporate reorganisation, as well as a focus on selling “devices and services”.

By going for “devices and services” Microsoft is making itself a bit more like both Apple and Google. The problem, as described by technology analyst Sameer Singh, is: what does it want to make money from? Apple makes it from the devices, and uses services (such as iTunes and Maps and iCloud) to keep users tied to its platform. Google gives its services away to run on all sorts of devices, and makes money from users through adverts.

If it prices its devices to make money, it will be undercut. It has a better chance with its services but rivals such as Amazon and Google are chasing its nascent “cloud” business. “Devices and services” might have to mutate into “devices OR services”.