In the wake of yet another quarter of flat-to-falling desktop sales and missed revenue estimates, PC manufacturers are pulling out the excuses once again and promising that a magical panacea lies just around the corner. “Blame the Thailand floods!” they cry. (No, wait; that was last year.) “Blame tablets! Ultrabooks will save us!” Actually, the NPD Group’s numbers say that Ultrabooks only account for around 2 percent of the total notebook market. Try again.
Here’s one: “Windows 8 will save us!“
No it won’t. There is no cavalry coming to rescue “struggling” desktop sales. Rather than being a savior, Windows 8 is more like a gateway drug, offering no hope for PC salvation. Let me explain.
Lackluster PC Sales: Blame tablets? Naaah
Nine out of ten industry analysts agree: Tablet sales are cannibalizing PC sales. Me? I’m the tenth guy.
I don’t believe that tablet sales actually eat into PC sales at any sort of noticeable scale. Some enterprise applications aside, I truly believe Microsoft’s “PC-Plus” concept has it right: People buy slates to supplement PCs, not replace them. In fact, I don’t know of a single actual person who has completely eschewed PCs for a tablet-only solution, despite hype that suggests that very scenario is playing out left and right.
So why are PCs faltering while tablets are booming? Market maturity, plain and simple.
The tablet market is not even three years old, and full of growth potential. Consumer PCs, on the other hand, are a very, very mature market, full cut-throat margins and products that don’t need to be upgraded very often to be functional. Simply put, most people who want a computer already have one, and a six-year-old Intel Core 2 Duo system can still handle everyday tasks capably enough for the Average Joe. If it ain’t broke, a lot of people ain’t gonna fix it, or more importantly, pay hard-earned money to buy a new one — especially in a recessed economy.
Those flat-lining PC sales will never hit dramatic new highs again. At this point, more sales will go to buying replacement PCs than buying new ones. The PC market is sustaining, not growing. (At least in the U.S.)
If you ask me, Microsoft knows that. The proof lies in Windows 8’s dual nature… and its dirt-cheap upgrade pricing plans.
Windows 8: Blame tablets!
As much as people have been panning Modern UI (formally Metro), the touch-tastic interface is a key component of Microsoft’s strategy. In fact, Microsoft’s future in the consumer PC-Plus world depends on it. The more familiar Average Joe is with Modern UI, the more likely he’ll be to pick up a familiar-feeling Windows 8 or RT tablet when he go shopping for his first slate, giving Microsoft a major leg up in the young and booming tablet market.
Since Microsoft makes a big chunk of change from licensing its operating system to manufacturers, it can succeed in the tablet space even if OEMs are generally left to squabble over cut-throat margins; no matter what price an OEM sells its Windows tablet for, Microsoft gets its flat-rate share. It’s a no-brainer revenue strategy that has worked like gangbusters for the company in the PC realm, but now that the PC market is so mature, Microsoft needs to transfer the model to mobile to continue increasing its profits and share price. The company rakes in dough hand-over-fist from licensing Windows on laptops and desktops, but investors hate stale revenues, even if said revenues are astronomical.
It’ll be interesting to see how Microsoft prices its own Surface tablet. If Microsoft can sell the Surface relatively cheap, it could move a lot of units and bring heavy consumer awareness to Microsoft’s mobile efforts, giving the company a chance to potentially pull back out of hardware, pass the torch to its OEM partners, and return to simply licensing operating systems and counting cash. Even if it’s priced at iPad-plus levels, Surface serves as an ambassador for Windows 8 slates and a design inspiration for Microsoft’s manufacturing product. Either way, Microsoft wins.
Of course, the idea hinges on consumers getting used to Metro and actually demanding Windows tablets. That’s where the upgrade pricing comes in.
Windows 8 upgrade deals: Bypassing the flat PC market
Once Windows 8 hits in October, it will be installed on virtually every new PC sold. That alone will bring Windows 8 tremendous mainstream face time; as flat as the market is, over 86 million PCs still shipped worldwide last quarter. Only 16 million-ish of those were in the U.S., however, where the market is at its most mature and people are simply hanging on to their older, still perfectly functional computers. Microsoft can’t afford to wait for people to buy a new PC; it needs to stimulate Windows 8 adoption now to start luring people onto the Metro bandwagon.
Enter Windows 8’s aggressive upgrade pricing. Some pundits have said it reeks of desperation. I think it’s a stroke of genius.
Microsoft plans to sell Windows 8 at greatly reduced prices through the holiday season. Boxed copies of the step-up Windows 8 Pro will sell for just $69.99 through January 31. In the same time frame, anybody running a computer with Windows 7, XP or Vista can digitally download Windows 8 Pro for only $40, while people who buy Windows 7 PCs from June onward can make the leap to W8P for $15 — roughly the same price as a large specialty pizza.
It’s win-win; Microsoft generates revenue from direct sales that wouldn’t be made otherwise while simultaneously introducing new legions to Metro. The low upgrade price stimulates conversion to Windows 8, and once a person is used to Metro, the familiar interface stimulates conversion to Windows tablets rather than iOS or Android alternatives.
Apple and Microsoft: the same, but different
If everything shakes down correctly, Microsoft should be able to have its cake — flat, but still sizeable PC license sales — and eat it too, with a Metro-led toehold in the rapidly expanding tablet market. Once you’re used to Modern UI, the Live Tile interface found on Windows Phones is a whole lot less intimidating, as well.
Interestingly, Apple is attempting a similar coup, but in the opposite direction; now that everybody and their neighbor has played around with an iPhone or iPad, the Cupertino company is starting to introduce iOS-like features to Mac OS X.
For the scheme to work, however, people have to adopt — and more importantly, like — Windows 8 and the new interface. Will they? How many mainstream users would actually pay to update their operating system? Those are the billion dollar questions. As Geoff Duncan said earlier this month, if customers hesitate and Windows 8 goes the route of Vista “it may take another two years before the company is positioned to make a real move into the mobile and tablet market—and it might not be able to wait that long.”
How do you think Windows 8 will pan out? Will Microsoft successfully stimulate demand for its mobile devices or will Metro spur on Mac adoption, instead?