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Adapt or move on

PC vendors face difficult choices warns Gartner

PC vendors face a stark choice between overhauling their business and getting out of the ‘overpenetrated’ PC market altogether, warns Gartner in a new report, Market Trends: PC Business Leaders Need to Overhaul Their Business or Exit the Market by 2020.

Tracy Tsai, Research Vice President, Gartner
Tracy Tsai, Research Vice President, Gartner

The research organisation predicts that a continuing decline in the installed base of PCs (desktops, notebooks, ultramobiles), from 1,485 million devices worldwide in 2015 to 1,333 million devices by 2019, will reduce profits and force vendors to act.

Tracy Tsai, research vice president at Gartner, said: “The PC business model as we have traditionally known it is broken. The top five mobile PC vendors have gained 11% market share over the past five years — from 65% in 2011 to 76% in the first half of 2016; but this has come at the expense of profitable revenue. While this does not mean that the PC market is finished, the installed base of PCs will continue to decline over the next five years, with a continuing erosion of PC vendors’ revenue and profit.”

She argues that the traditional way of gaining shipment market share by competing on price to stimulate demand won’t work due to changing market dynamics: users are replacing PCs less frequently; business applications and storage are moving into the cloud and are less reliant on PC performance; and price and specification are no longer enough to make a user upgrade their PC.

In the report Gartner identifies four strategies that PC vendors could adopt in light of these developments:

1 Current Products and Current Business Model

The most conservative approach is to continue with the current business model and PC technology. This would require high volumes to generate enough cash flow to cover the cost of business, and, in a declining market, vendor consolidation would be inevitable.

Ms Tsai says that to succeed with this approach vendors would still need to make significant changes. “PC vendors would need to streamline operations, shift their focus away from gaining share and increase the sales proportion of mid-tier and high-end products to improve operating profits for long-term business sustainability.”

She adds: “Another key factor that would need to change is the sales compensation scheme. PC vendors need incentives to drive their internal sales teams and channel partners to move away from a focus on volume and market share to margins and profitability. PC vendors will also need to shift focus away from the wants of distributor and reseller customers to the needs of users.”

2 Current Products and New Business Model

The next option is to form a new team to experiment with new business and revenue models, such as PC-as-a-service. For example, a vendor could partner with a digital education content publisher, bundling its two-in-one devices with digital content on a subscription basis – the PC is free to users and is subsidised by the publisher. This approach would involve greater business agility, risk taking and acceptance of failure.

3 New Products With Current Business Model

The third alternative is to develop new product offerings and new market opportunities in a more conservative way using the existing model, for example by making PCs smarter in terms of sensing, speech, emotion and touch; developing new products for the connected home; or creating products for specific vertical markets.

4 New Products With New Business Model

The most radical strategy mooted by Gartner is to establish a new business unit to run operations in a completely different way, with different resources, a different revenue model and a new product line based on new technology. An example might be personal assistant robots where a PC serves as an ‘information butler’ – a combination of chatbot and voice-activated virtual personal assistant – with revenue coming from developers and third-party content and service providers in retail, healthcare, education, video or music.

Adapt or move on

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2018