Minutes after the Wall Street Journal reported that HP plans to spin off its PC business, I'm already getting press inquiries. There's still a lot we don't know, and I hope we'll learn more on the earnings call tonight. Based on what we know now, here's my take on what product strategists at HP are thinking:
HP's PC product strategy is squeezed by two macro-trends: The commodification of the PC market, led by Asian manufacturers like Asus, and the transition to a post-PC era, led by Apple, Inc. (formerly Apple Computer). HP is the biggest PC manufacturer in the world, but its position will rapidly decline if it can't adjust its product strategy to combat both trends.
It makes sense that HP shareholders don’t want its low-margin PC business dragging down its high-margin enterprise services business. As for HP’s chances as a standalone PC manufacturer, it’s tough to be a PC maker in a post-PC world. HP’s competition is Apple on the high end, which has justified higher margins based on non-hardware offerings: service (Genius Bar, Apple Store reps), channel (Apple Store), and software (iTunes/App Store). On the other end, all of HP’s competitors, other than Dell, are based in Asia and have very different manufacturing and labor economics. HP has been caught up in a race to the bottom as the PC market has commodified. Now it needs either to become comfortable with commodification or to build out the elements of an ecosystem to enable true competition with Apple.
In a coordinated, trans-continental series of presentations at Computex in Taipei and All Things D:9 in Palos Verdes, California, Microsoft revealed key details about the next version of its Windows operating system, code-named “Windows 8.” Windows 8 is a “reimagining” of Windows from top to bottom: new chipsets, new hardware, a new user interface, and a new application model. Microsoft has not yet announced a release date (or year) for Windows 8, but intends for Windows 8 to power everything from tablets to clamshells to desktops and larger surfaces. The next version of Windows will:
Run natively on system-on-a-chip (SoC) designs, including ARM-based processors.The importance of this development is hard to overstate. Windows on ARM means that Windows devices will get online faster and stay online longer. They can take on new form factors, including tablets and hardware that has yet to be invented.
Deliver touch-first experiences, while supporting legacy peripherals and devices. Windows 7 “supported” touch but was not “touch-first,” a distinction apparent to anyone observing the use of a Windows 7 tablet or an HP TouchSmart PC. Windows 8 works with keyboards and mice but is truly touch-first, with a redesigned start screen (no more “start” menu!) and a tile-based UI similar to Windows Phone 7.
Computing is changing. The news last week showed that loud and clear, as Microsoft bet big on Skype’s voice and video technology and Google announced partnerships with Samsung and Acer to build laptops running its Chrome operating system. These developments point to a future where computing form factors, interfaces, and operating systems diversify beyond even what we have today. The “Post-PC Era” is underway, but its definition is not self-evident.
First, some history. “Post-PC” has been a buzzword in the past few months, since Steve Jobs announced at the iPad 2 launch event that Apple now gets a majority of its revenue from “post-PC devices,” including the iPod, iPhone, and iPad—a major milestone for a company that was originally named “Apple Computer.” The phrase was also part of the public discourse in 2004, when IBM sold its PC unit and former Sun Microsystems CEO Jonathan Schwartz told The New York Timesthat “We've been in the post-PC era for four years now,” noting that wireless mobile handset sales had already far surpassed PC sales around the world. In fact, the “post-PC” concept is more than a decade old: In 1999, MIT research scientist David Clark gave a talk called “The Post PC Internet,” describing a future point at which objects like wristwatches and eyeglasses would be Internet-connected computing devices.
The iPad has been a huge hit with consumers: Only a couple of months after the launch, Forrester’s Technographics data shows that 1.3%, or 2.5 million, US online consumers report that they already own an Apple iPad, and an additional 3.8% (7.4 million) say they intend to buy one. The success of the Apple iPad has created a halo around tablets in general: About 14%, or 27 million, US online consumers say they intend to buy some kind of tablet in the next 12 months — more than any other type of device we’ve asked about.
A recent Forrester report “US Tablet Buyers Are Multi-PC Consumers” shows that it’s not all good news for PC manufacturers. Because, although consumers are getting excited about tablets in general, they're confused about what they actually are. This confusion probably means that not everybody that shows an interest will actually buy a tablet, but we do think it shows that there's interest in the category that goes beyond the iPad. PC manufacturers like Dell, HP, Samsung, Sony, and Toshiba need to offer consumers a bit of guidance on what a tablet is, what it can do, and how it complements the extensive range of devices they already own.
Hello world…I’m back from maternity leave and taking on a new coverage area for Forrester: I’m expanding from covering eReaders to covering all consumer PCs. This makes a lot of sense given the evolving nature of the PC, and the convergence of eReaders with other devices like tablets and netbooks. My colleagues, James McQuivey and Nick Thomas, will be picking up more of Forrester’s coverage of media and content strategy, while I focus on the hardware and software. It’s particularly appropriate that this change coincides with the launch of the Apple iPad—a device that, more than any other to date, blurs the line between device categories.
So in the interest of getting right back to business, here’s our call:
This achievement wasn't unexpected -- in August, 2007, we predictedthat Acer would become a formidable industry titan: "Acer's announcement that it will acquire Gateway is a clever plan, as Acer simultaneously improves its brand recognition, channel reach, and opportunity for gains in margin. Like IBM Deep Blue, Acer strategists calculated several moves ahead in the global PC chess game. If the execution is solid, this deal will create a powerful third-place PC competitor that will challenge HP and Dell by 2009, and it portends the rise of non-Japanese Asian PC superpowers."
Acer has proven shrewd in product strategy over the past few years. (Indeed, we declared that "even war strategist Sun-Tzu" couldn't have done better!). Acer's work with Ferarri was a masterstroke in branding (from an unexpected company, at the time). Acer's excellence in netbooks has ridden the wave of the market at the right time. More fundamentally, Acer's cost structure benefits from its proximity to Asian-based factories and original design manufacturers (ODMs). Dell, once the king of cost structure, isn't in as privileged a position. And Acer's access to retail channel (including Gateway's) and experience in SKU management in retail is currently superior to Dell's. (Dell re-entered retail after a long hiatus).
In June, 2007, Forrester declared the beginning of the Age of Style. The Age of Style thesis posited that style and visual design would become critical vectors of competition in consumer electronics. We started our coverage of this trend with consumer PCs predicting that form factor innovations, increased aesthetic diversity, and consumer choice and personalization would become central tenets of competition for consumer PCs.
The baseline of comparison, of course was grim: For many years, consumers' home PCs and work PCs looked rather the same. Mostly bland and functional PCs reigned, aside from the products offered by a few trailblazers like Apple and Sony. But the growth of multi-PC households transformed PCs from "digital hearths" for the entire household into personal devices. Next, laptops moved the PC from the den out into the world -- making PCs devices that are public in nature.
Personal, public devices lend themselves to personalization and customization. Consumers wish to self-express through their choices: The color I like, a theme I enjoy, an association (with an organization or another brand), or even my personal beliefs -- as with the PRODUCT (RED) PC we wrote about when it was released. Self-actualization through the PC I carry with me is often, now, a goal for many consumers.