The iPad-Sized Nail in the PC’s Coffin

There's no question about it: the perils are deep and wide for companies whose primary business is making PCs.

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There’s no question about it: the perils are deep and wide for companies whose primary business is making PCs. There are many layers to the problem and unfortunately, the perfect storm hit the PC sector and there will be collateral damage.

The PC Is Only Mostly Dead

It would be silly to argue that the PC is dead. Desktops and portable desktops (a.k.a. notebooks) will remain in the marketplace. The PC is not going away. However, something which has been critical for PC manufacturers to thrive is going away: value. The bottom line is that PCs have lost their value to the mass market. Even if the iPad had not been invented, I still believe the PC market would be in the same position it’s in today. Granted, the decline may not have been as steep, but I am convinced that growth would still be flat to slightly negative.

In the minds of consumers, PCs have become like cars. People hold on to their PCs as long as possible and resist upgrading because they feel no pressing need. This doesn’t necessarily mean that they will never upgrade, just that they will wait as long as possible. This is the key point I want to get across because the lagging refresh cycles, which are now the norm, demonstrate that value has left the traditional PC segment.

Is It Windows 8’s Fault?

Many are blaming Windows 8, but I do not believe Microsoft‘s latest operating system is the problem. However, it’s also not the solution. I believe in the premise of Windows 8 and its concept of merging mobility and touch-based user interfaces with powerful desktop computing. That being said, Windows 8 is a transition OS for Microsoft as the company truly looks to unify platforms. My guess is that unity will come with Windows 9; we will have to wait and see whether Microsoft has the answer that it and its partners desperately need.

iPad Is the Culprit

Realistically, the netbook is the real culprit. The netbook showed many consumers that a simple, cheap notebook would suffice. Then the iPad came along and is the primary culprit for sucking value out of the PC industry. If we are all honest with ourselves, when we say tablets are to blame for the PC decline, we really mean the iPad. Tim Bajarin wrote a great column last week called the Revenge of Steve Jobs, where he lays out similar thinking. Steve Jobs‘ creation brought the industry he could never dominate to its knees. The iPad has changed the conversation and brought Apple’s competitors onto a playing field where it has an unfair advantage. This new battleground will be crucial to the success of many who are entrenched in legacy markets.

Focus On the Future, Not the Past

The key to going forward is to focus on where the value lies. Right now value has shifted from clamshell and desktop form factors to truly mobile devices like smartphones and tablets. This is where consumer value lies and this is where profit opportunities exist.

The notebook will remain valuable to a smaller segment of the market. The segment that relies on performance, screen size, and workstation-like tasks will still pay premiums for those devices. The masses, however, will not. I expect the steep declines from the first half of the year to be less steep by the end of the year. This will be driven by sub-$500 notebooks called ultramobiles, which will be on the market by this holiday season. The lower cost will help volumes normalize to a degree but at those price points, and with retail commission, making money will be tough.

Any company making personal computing hardware needs to set its sights on the future, plotting a strategic course to keep itself relevant in it.

MORE: Windows Blue and the Rise of Ultramobiles

Bajarin is a principal at Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to the Big Picture opinion column that appears here every week.