The Digital Home

The PC business is in trouble, but that's OK!

(Credit: HP)

2009 is shaping up to be a tough year for the PC industry. According to a forecast update to IDC's Worldwide Quarterly PC Tracker, PC shipments are expected to decline sharply over the first two quarters this year.

I consider this period, one marked with declining profit margins and plummeting sales, which would be a death knell for some industries, an opportunity for this one. It is just what PC manufacturers need to get them to jump-start their research and development divisions, to find new ways to sell computers.

Perhaps this isn't the end, but rather the beginning of a new era in the PC business, where manufacturers pay more attention to consumer desire and provide them with more of the things they actually want. I hope so, anyway. And if it comes to pass, here's what I'm looking for:

eWeek has an interesting article up today detailing the difference in price currently being witnessed in the computing space, according to NPD. Based on the research firm's analysis, it estimates that the average Windows desktop is selling for about $550, compared to Apple's average desktop selling price of $1,543. The average Windows laptop in June was selling for $700, while Apple's laptops were going for a hefty $1,515.

After comparing comparably-equipped HP laptops with Mac notebooks, it became abundantly clear to me that Apple, although working hard to reduce prices on its computers, still has considerable work to do.

Right now, you can head over to HP's website and buy yourself a Pavilion dv7t sporting Windows Vista Home Premium, a 2.26Ghz Intel Core 2 Duo Processor, a 250GB hard drive, 2GB of RAM, and 256MB NVIDIA GeForce 9200M GS to display video on your 17-inch screen for just $1,217.99.

But if you chose the Mac, you'd be paying $2,799 for a MacBook Pro sporting a 2.5Ghz Intel Core 2 Duo processor, a 512MB NVIDIA GeForce 8600M GT graphics card, and a 250GB hard drive.

The list goes on. Mac Pros are substantially more expensive than comparably-equipped Dell machines, and aside from iMacs, which are far more competitively priced, you're not getting a bargain on any Apple product.

As a person who owns a custom-built desktop, Mac Mini and a few laptops, I once found it hard to believe that anyone would actually believe that the death of the desktop computer would be coming around the corner. I've heard the argument set forth in other arenas and scoffed at the possibility of such a popular product being thrown away in favor or a more versatile machine. I was wrong.

The desktop is a dying breed -- it's as simple as that. I had this epiphany recently when I had to run down to my local CompUSA store. Upon perusing the available notebooks, it dawned on me: "where are all of the desktops?" After some searching, I found them tucked away in a few aisles with very little fanfare and (more importantly) very little sales representative interaction. You can always tell when a product doesn't sell well or it's on the way out in these stores -- the sales reps will make believe you don't even exist while you're looking at it. But once you walk over to the notebook display, they start taking bids on who should get to you first.

But that's not the only reason I think desktops will be meeting an untimely demise in the next five to ten years. First and foremost, desktops are a dime a dozen these days. Years ago, it made sense to have a desktop -- notebooks couldn't stand up to its power and the lack of WiFi meant notebooks were just as useless as desktops when you left the house.

Today, with the flood of WiFi wherever you go and this country's constant push for mobility, desktops are being left at home running idly just wishing for someone to play with it.

Take the whole design issue with desktops. If we've learned anything, we now know that design matters to the consumer. The days of ugly beige designs have given way to snazzy laptops that offer equal (if not better) performance than the ugly desktop sitting at home. Computers have become a fashion statement. If you still own a homely old Dell computer, does anyone ask you about it? I doubt it. But if you walk into a room with a custom-designed machine or a Mac, chances are, the people in the room will take notice. Simply put, desktops are just too ugly. If you can find me a good looking desktop PC that will actually appeal to enough customers to make them buy it, I'll show you ten more better looking notebooks that people would rather buy. It's nothing personal; desktops are just old and unattractive.

For the first time in the history of computing, notebook computers outsold desktop PCs in the summer of 2005. That didn't happen because companies made some errors in shipments or notebooks just got lucky. That happened because people (and more importantly, businesses) realized that notebooks have become more practical.

And let's not lose sight of businesses in this entire argument. As more businesses bring notebooks into the work force, employees will begin using them and realize that notebooks have finally become powerful enough to replace that dusty old desktop at home. Businesses play a major role in the world of consumer computing. In the late nineties, Dell understood that if it sold its computers to businesses, employees would use and buy them for the home because they were comfortable with them. It still works today, but this time, it's not necessarily company-specific. This time around, people just want to use the same machine everywhere. Period.

And if you don't believe me, consider this: Between the same periods of 2005 and 2006, the aggregate drop in consumer desktop purchases across all companies was a staggering 10.2 percent.

Dell, HP and Apple are three of the biggest computing vendors in the world. With a combined market share that can not be rivaled, these companies should be the first to say that desktop sales have a place in the future of computing. So far, each of those companies hasn't echoed that sentiment for one simple reason: desktop sales are plummeting.

According to the 2006 HP Annual Report, the company's weighted average net revenue growth attributed to desktops was just 0.8 percent. Amazingly, notebooks made up 8.4 percent of the stated net revenue, compared to 1.5 and 5.4 percent from just last year. Besides that, the company's revenue from notebooks and desktops is a sign of bad things to come for desktops. According to the report, desktops still brought in more revenue for HP, but its gain over last year was just over $200 million compared to the notebook's division gain of over $2 billion.

But it doesn't end there. Dell has also faced similar desktop woes. In 2004, desktops represented 45 percent of the companies revenue. In 2006 (the company's last Annual Report filing), desktops accounted for just 38 percent of the entire revenue while notebooks represented 25 percent. It's not equal to desktops yet, but rest assured, notebooks will be taking over in the next few years as Dell's desktop sales will continue to plummet.

Lastly, your friends over in Cupertino have also felt the effects of sluggish desktop sales. According to Apple's latest quarterly report, notebook sales almost doubled desktop sales in the same quarter.

The proof, as they say, is in the pudding. Whether you're a fan of desktops or not, the devices that have almost single-handedly made computing what it is today are on the way out. The desktop business has become a commodity with the same components making up the same (ugly) designs offering the same cost to consumers yielding the same small margins and very little net income for companies. And while it may sound awfully glum for the average consumer, there's no end in sight. Short of building your own desktop, the machine you buy today will be the same machine you buy a few years from now with a few updated components.

I don't make this argument in a vacuum. I know that the best desktop can still run circles around the best notebook and I understand that the components you can currently throw into a desktop can be superior to those in a notebook, but you can't possibly believe this will last forever. At one time, people actually believed that there was nothing else left to invent. They were wrong. Today, some people believe that desktops will always hold an advantage over notebooks because that's always been true in the past. They are wrong.

If you take a look back at the last five years in computing, I think you would be hard-pressed to claim that notebooks haven't made much bigger strides in advancement than desktops. The notebook has successfully solidified itself as a comparable alternative to desktops in this performance war and I simply don't believe there's any chance desktops will be able to maintain the lead -- it's just not profitable enough for companies to do so.

Perhaps the easiest way to understand where I'm coming from is to take a look at the competitive environment in computing. Years ago, companies were cropping up from all over the world offering something unique in desktops. Years ago, small companies could actually make a splash in this business. Today, it's practically impossible. With the size of Dell, HP and others, there is little opportunity for a small PC manufacturer to develop into a major player in this business. Dell buys components that cost a fraction of the price Jane Doe's Computer Company can buy them for, so Jane is forced to charge a higher price. And if a consumer can have the same exact machine (because most desktops basically are the same) at a fraction of the price from a reputable source, guess which option they'll choose. It's a no-brainer: the death of innovation in desktop computing has officially ushered in its demise. It's as simple as that.

There's no exact timeline to trace the official death of desktop computers, but if I had to guess, I think you'll find it hard to use desktops in about five years. In ten years, desktops will be a thing of the past.

Every Thursday, Don picks a current-events topic and discusses how it will impact us in the future. Check out more from Don's Future Implications series.