Thinking About the PC Market (Premium)

Yes, the PC market grew—if barely—in the most recent quarter. But what about calendar year 2018 and beyond? What are the broader trends?

As you may recall, we marked a dubious milestone in January 2018 when it was found that the PC market had just suffered through its sixth straight year of falling sales: PC sales in 2017 were down 1.5 percent overall from the year before. And with 261 million units sold, it was the worst year for PC sales since 2006.

Looking at the unit sales data from a long-term perspective, we see two trends. PC sales have consistently fallen, year-over-year from their peak in 2011, with 365 million unit sold. And, conversely, the sales shortfall seems to be plateauing a bit in recent years, giving onlookers hope that we might arrive at a more stable, if smaller, PC market.

Between that 2011 peak and last year, the PC market has fallen in size by over 100 million units per year. Today’s PC market is just two-thirds the size it was at the time of its peak.

The culprit, of course, is the worldwide embrace of mobile devices, especially smartphones. And while the smartphone market is likewise maturing, with sales actually falling year-over-year for the first time in 2017, this market is dramatically bigger than that for PCs. Hardware makers sold over 1.5 billion smartphones in 2017. That’s almost six times as many smartphones sold for each PC sold in the same time frame.

Factor in tablets and the gap gets even bigger: Hardware makers sold about 163 million units in 2017. So it’s fair to say that the global market for portable computing devices overall is over 6 times the size of the PC market.

But that’s where things stand today. Each of the major platform makers in these markets is also improving its products to be more competitive. And the overreaching goal, from what I can see, is to slowly eliminate the traditional PC market and replace it with hybrid devices that can do it all.

Consider how each of these platform makers is pushing towards this future.

Apple has, of course, made major strides with iOS and the iPad Pro, and it is now bringing iPad apps to the Mac.

Google has brought Android app compatibility to Chrome OS and has expanded Chromebooks to include new form factors like tablets and 2-in-1s.

And Microsoft has a long-term vision to minimize and then eliminate the legacy desktop interface from Windows and transition into a more modern computing infrastructure I’ll call S mode for simplicity’s sake.

These changes will not happen overnight. And there are questions about how the addition of mobile app support to desktop platforms will impact those platforms. My take on this is that the net effect will be beneficial to users. But it will also help cement the notion that PCs (and Macs) play an ancillary role, and this will ultimately undermine them further. Increasingly, users are turning to PCs only when they have to, and not regularly.

There are exceptions, of course: One of the bright spots for the PC industry over the past few years is the emergence of profitable sub-markets, especially those for premium PCs and gaming PCs. But those markets are relatively small, and that’s true whether you compare them to just the PC market or to the overall market for personal computing devices.

There’s also cyclical growth to consider, especially in the short term. In their reports for the second quarter of 2018, both Gartner and IDC cited business PC demand as being “the key driver” (as IDC put it) of this past quarter’s growth.

As part of its recent Office 365 and Teams announcements, Microsoft also noted that there are now over 200 million enterprise users of Windows 10. Put in the context of about 700 million Windows 10 users overall, this tells us that Windows 10 growth so far has mostly been on the consumer side. And that, given the size of the business PC market—which is bigger than the consumer PC market—there is much more growth to come.

And the transition to Windows 10 is already underway, according to both Gartner and IDC. But with support for Windows 7 ending in just 18 short months, on January 14, 2020, many more businesses are now actively working on future Windows 10 migrations. And many of those will include new PC purchases that will greatly benefit both hardware makers and the PC market, and not just Microsoft.

Today, no one really knows whether the PC market will truly plateau at some level, perhaps the current level, or if it will simply continue to decline over time at some small rate. But I believe that the PC market will remain flat or see some small growth each year through 2020 thanks, in large part, to the Windows 10 upgrade cycle in business.

Which is an interesting reminder that things rarely happen very quickly. When Microsoft announced in 2015 that it was abandoning the smartphone market, for example, it took a few years for device sales to fall off the face of the earth. But Microsoft is not ceding the PC market. Instead, it is improving Windows 10 according to its customers’ needs. And it is doing what it can to advance the platform so that it continues to be viable in the future.

At some point, Apple’s ludicrous “What’s a computer?” marketing for iPad Pro will start to make sense, too, as hybrids further blur the line between PC and device. I’ve been wondering about this “post-PC” world for years, and we’re finally starting to see the impact of these kinds of devices, especially in the Chromebook space.

If you listen to Windows Weekly, you’ve also heard me mention over several years now this notion that it’s easier to improve a simple mobile platform than it is to make a legacy desktop platform simpler. And yet, we’ve seen platform makers try both approaches, and I feel like all of these platforms—Mac/iOS, Chrome/Android, and Windows—will eventually meet in some as-yet-undefined middle ground. Whichever platform maker can best balance the complex and the simple will likely win out.

I’m starting to believe that Google’s Chrome OS platform is the most logical winner in this future. Chrome OS is not as sophisticated or powerful as Windows, of course. But I think that assessment sort of misses the point: Chrome OS will never be as sophisticated or powerful as Windows. And that’s by design.

Chrome benefits from two related trends: Like premium and gaming PCs and the business PC market, Chromebook usage is growing. And with its curious Android defeat in tablets, Google has a great incentive to put a lot of effort into improving Chrome OS for tablets and hybrids. And that work is starting to pay off.

Yes, I know that many Thurrott.com readers have a hard time imagining dropping Windows for Chrome—I certainly won’t be doing so anytime soon—but it’s important to look at what’s really happening in the world. And to understand the needs of mainstream users.

This conversation is a bit like the one we might have around Microsoft Office, and how certain users will never be able to let go of key desktop apps like Excel or Outlook. What’s missing from this conversation is somewhat obvious, but important, and it needs to be stated plainly: Far more users—many, many more—have no need for these apps and can get by just fine with simpler solutions like Google Sheets and Gmail.

In the wider market for personal computing devices, smartphones today represent almost 80 percent of all devices sold (as of the end of 2017). PCs are just 13.5 percent. This puts the PC firmly in the “ancillary” category, albeit it only for sales: In terms of usage, which is harder to categorize, there are, of course, 1-2 billion PCs out in the world. But most are rarely used, let alone loved, and many will never be upgraded to another PC.

Given that most users can get most of their daily work done on a smartphone, the PC is transitioning into the device you fire up when you occasionally do need to sit in front of a larger display and use a full-sized keyboard to type some document of length. (Or perform some other, And since that activity is infrequent for many, if not most, it’s not clear how the complexity of a Windows-based PC is justified in the long term.

Microsoft, as noted, is working on its S mode simplification plan. And it is working on new mobile form factors and use cases that it hopes will keep Windows relevant to a new generation of users. These initiatives are quite interesting to me, but we’ll see how this all pans out. For the next few years at least, I basically see a holding pattern for the PC. Beyond that, your guess is as good as any.