Paul Thurrot wrote an excellent analysis of what may have held back Windows 8 sales during this past holiday season. I think when you couple consumer’s expectations that notebook PCs should sell for $300-$500 with the absence of any of the new tablet/convertible devices being available at retail you get a pretty good picture of what happened. Throw in consumer caution about Windows 8, driven by pundits who knocked it, and you’re close to 100% of the story.
The good news is that Windows 8 will run on pretty low-cost systems. Paul has another post with Best Buy’s current deals that helps explain the situation. The $369.99 Toshiba Satellite in the ad looks pretty sweet for a mainstream PC buyer. Want a touchscreen? The cheapest option with a similar configuration is the $579.99 Acer Aspire. That’s a 57% markup primarily to get a touchscreen. Or to put it in another perspective, you could buy the Acer or you could get the Toshiba and an Amazon Kindle Fire, and still have enough left over to cover your Starbucks bill for a week. Want something in the heavily promoted Ultrabook camp and you are talking $700 and up.
The Toshiba isn’t a bad system for running Windows 8. It has a 1366×768 display so you can use Windows 8’s Snap feature to have two Metro apps on the screen at once. And it has a multi-touch trackpad so you can use gestures for navigating around Windows 8 even though you don’t have a touchscreen. These are both valuable, but not near enough to get anyone to throw away the two, or three, or four-year old notebook that is working fine for them.
Overall when you look at the classic PC business it is now largely a replacement market. And without a compelling reason to replace a notebook, and with consumer’s dollars now in search of Smartphones and Tablets, the replacement cycle for PCs keeps stretching out. It’s not simply a pricing problem, though clearly that plays a role.
What’s at the root of the Vendor/Consumer pricing discrepancy? It is partially the dynamic that Paul wrote about in which Netbooks dragged the average selling price of PCs into unprofitable territory while setting consumer expectations about future pricing. Vendors are hoping that new technologies will both let them increase their average selling price (ASP) and accelerate the replacement cycle. So far they haven’t found the formula that does either.
The second factor is a classic demand/supply problem. Touchscreens are in very short supply with Apple and a few other players having locked up the entire supply chain. That is keeping supply of touchscreens for notebooks low and prices high. Just keep in mind that we’ve seen this before, particularly with display technologies. The heavy demand and high prices will drive a lot of manufacturing expansion and within a year or two supply will catch up to demand. At that point prices will drop dramatically, both for touchscreens and for the systems that incorporate them.
But some of this misses the point. A $449 touchscreen notebook would slightly improve ASP but would have little impact on the PC replacement cycle nor lead to new business. A $349 touchscreen notebook would harm ASP but only minimally shorten the replacement cycle. To shorten the replacement cycle in a meaningful way and generate new business you need more dramatic change. That’s where Windows Tablets and Convertibles come in.
To accelerate the replacement cycle, and expand the overall base of PC systems, you need form factors that meet needs that existing form factors can’t meet. Windows 8 targeted those with its support for tablets and convertibles, but those devices were largely absent from retail this past holiday season. These form factors can accelerate the replacement cycle by allowing the consumer to carry one less device around. It allows a scenario where the customer prematurely replaces an existing notebook with a convertible rather than add a tablet to their computing mix. They also help with ASP expansion because they are replacing two devices, allowing a consumer to justify spending more. The fact that all Windows 8 tablets introduced to date either come with, or have available, a keyboard dock (or cover) also testifies to how the PC ecosystem sees their ability to be both tablet and notebook as the key to revitalizing the PC business.
What we saw this past holiday shopping season should not have been a surprise as there was nothing going on in the stores to convince consumers they should replace PCs that were working just fine for them. Touch will become a ubiquitous part of the computing experience, and help keep PCs relevant, but touch alone will not shorten the consumer PC replacement cycle. For that to happen we need more dramatic form factor expansion. Those convertibles and tablets are just now appearing at retail, so we won’t get our first really good read of the impact they are having until companies start posting first quarter 2013 results.