Another one bites the dust

Today we learned that Sony has sold off their PC business, although from the sounds of it (and certainly for anyone outside Japan) Vaio PCs are just history.  In my view this is a healthy development.  Too many airlines with too many seats meant that under anything other than ideal conditions an airline couldn’t sell a seat for enough money to make a profit.  So it was a race to the bottom in prices,  but also in service and customer-friendly policies.  And lots of trips to bankruptcy court.  It took industry consolidation, and discipline from the remaining players, to start that industry on a path back to health.  And it definitely is still a work in progress.  The PC industry has some of the same business dynamics, and I wish the comparisons ended there.

It’s too easy to get into the PC business and too hard to differentiate products within it.  The good news has been a race to the bottom in prices, but that has brought with it mediocrity in design, spotty quality, crapware, crapware, and more crapware, and incredible customer confusion as they try to figure out what the difference is between two PCs priced 2x-3x differently.  And no PC maker is healthy on a per-unit profitability basis, except for Apple of course.  Apple, via its monopoly on OS X, has very different market dynamics than anyone running a broadly available operating system can achieve.

Assume a company developed a supersonic transport and created their own airline around it, refusing to sell to other airlines.  They would have a unique service for which they could charge a premium, and assuming they found the price point for maximizing revenue and profitability and maintained margin over market share discipline, they could become the most profitable airline in the world (by a wide margin).  That’s because all other airlines would be flying the same Boeing and Airbus planes with the same characteristics, economics and competition for the same passengers to fill their seats.

In the computing world we have that supersonic transport airline equivalent, Apple with IOS and OS X.  Then we have the numerous minimally undifferentiated companies flying “Boeing”  (Microsoft Windows and Windows Phone) and “Airbus” (Google Android and Chrome OS).  So we have the race to the bottom with all its negatives and a problem with sustainable profitability and health for all PC makers.

Part of the solution in the PC industry is the same one that is happening in the airline industry.  You need fewer players and you need the remaining ones to exercise increased discipline (that it, margins over market share).  And once you’ve achieved that, and have a few healthy participants, they can focus on greater innovation, better service, higher quality, etc. as differentiators.

The problem with Sony is that while they imagined themselves as the airline with a supersonic transport all they really had was the same old 737s and A330s with better paint jobs and prettier interiors.  They tried to use that to justify supersonic transport like premium prices over their competitors, but potential customers generally found the premium greater than the perceived value.  This indirectly added to the mindset that, just as with airline tickets, customers go for the lowest price and ignore the other differentiators.

On top of the general problem that Sony hasn’t even been delivering what they promised; I think over the last few years they just failed to introduce breakthrough products.  Why is it that Dell and Lenovo are leading the charge on 8″ Windows tablets?  Even in the 10″ space Sony was essentially a non-player.  And their 2-in-1s featured some of the oddest, and least usable, design choices any player brought to the table.  Pay more, get less.  Does that really work?

I’m not an Apple fanboy, but I do believe you get value for the extra money Apple demands.  The question with Apple is “do you value those things enough to justify the extra cost, plus the negatives that come from leaving the Windows ecosystem”?  For 5-10% of the world’s population the answer is yes.  And Apple has per-unit profitability to make it interesting to focus on that 10% rather than get into a price war trying to go for the other 90%.  Sony was not Apple.

Sony leaving the playing field creates opportunity for others.  Everyone needs excellent cost control, but not everyone needs to be an ultra-low cost carrier.  With Sony out of the picture other PC makers can look at trying to push a little more into the premium PC space.  Samsung already seems on its way out of the Windows world, or at least on its way to niche player status.  Perhaps we can lose one more global PC maker, such as Acer, which would really open the door to a healthier PC industry.  A Dell or HP will continue their focus shift more towards enterprises, or perhaps re-find their MoJo in the consumer space (as Dell seems to have done with the Venue 8 Pro) and take advantage of a smaller set of competitors to become both more aggressive and profitable.  Lenovo will continue their march to being the top global player.  And Microsoft can take the niche that Sony always wanted, providing premium products, but at competitive yet profitable prices.  ASUS could regain its footing, perhaps becoming the global “Low Cost Carrier”.   Specialized ultra low-price local market players could thrive with less pressure on the “majors” to compete with them primarily on price.

Of course Sony is leaving the PC world but is remaining in the Android Mobile Device world.  Acer, if it left the PC world, would remain in the Android and ChromeOS worlds.  There is an overabundance of players in the Android (and increasingly ChromeOS) world,  Yet only Samsung is making serious money.  They’ll have their shakeout eventually, but right now we need to see the Windows PC world rationalized.  Sony’s departure indicates that is really starting to happen.

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21 Responses to Another one bites the dust

  1. Info Dave says:

    Wasn’t the premium PC space what the Intel Ultrabook was suppose to satisfy? Whatever happened to the Ultrabook?

    • halberenson says:

      No, “Ultrabook” is Intel’s program to push its collection of chips to a class of thin and light notebooks that was initially popularized by the MacBook Air. Most of the notebooks introduced in the 11″-13″ now meet the Ultrabook spec and are entitled to use that name (if they use Intel’s chips). They may be premium in that they have minimum specs that exceed those of the lowest-cost notebooks, but they also have lower specs than full notebooks. And because pretty much everyone now has a device that meets the Ultrabook (and/or AMD’s similar Ultrathin) requirements you have the same situation. If you want an Ultrabook you can get it from everyone, and while some have premium Ultrabook offerings (e.g., super high PPI screens and Core I7 processors) the same price over everything else characteristics of the rest of the PC market are exerting themselves.

  2. Bob - Former DECie says:

    Sony seems to have the same problem in the TV world. I never bought a Sony TV because the last time I looked at them, possibly a decade ago, their TVs had a slightly better picture, but the were significantly more expensive than their competitors and their warranty was significantly worse than their competitors. As a result, I never even considered them when I finally made the move to an HD TV several years ago.

    Also, if consolidation means that junky $300 PCs go away, I’m all for it.

  3. Edgar says:

    I think the only capable of create a premium brand in the PC market is Microsoft.

    I own a SurfaceRT and my next purchase is going to be a Surface Pro 3, but as today I cannot find a decent windows 8 desktop, I mean with the ingenuity and build quality of the Surface line, to replace my 4 year old Dell XPS laptop as my primary work PC.

    Microsoft must have to charge the premium PC market, OEM’s have failed miserably, they are driven by shareholders profit rather than a customer satisfaction and lack the vision to overcome that, just look at HP.

    • Info Dave says:

      Long ago, the OEMs gave the work to the ODMs, and PCs were designed by accountants with spreadsheets, rather than engineers. Why do you think all of today’s PC are made out of shiny black plastic?

    • halberenson says:

      Surface Pro 2 with a dock is my home desktop machine.

      I did get an ASUS Essentio Core I7 system unit for my consulting office because I wanted a huge disk, lots of memory, and expandability. I have two Dell monitors on it, including a 23″ touch enabled one. From my standpoint this is an area the OEMs do well at because you can configure to your heart’s delight, but it’s a shrinking market segment.

  4. B Glosser says:

    Airlines; You talking about the Concorde per chance? The 747 workhorse won out in the end. Reliable, solid, economical. Want to know how old I am? Remember when flying was fun? Before airline MBAs started cramming us into seats the size of pretzel snacks. While the rest of the world invests in bullet trains we in the US continue to sit on our thumbs, kowtow to… the special interest lobbies.

    • halberenson says:

      Actually no, and I think you missed the point anyway. United, Lufthansa, Air France, Delta, etc. all operate 747s. While Boeing did quite well the airlines struggle to make money. Intel and Microsoft did (and continue to do) well, PC OEMs struggle to make money.

      I also totally disagree with you on the bullet train point. Americans just don’t want them, or at least not enough they’d actually pay for them. So you have to force them down the public’s throat using tax money to build and operate them and sell tickets at a price way below the actual cost of moving someone from point A to point B. You likely have to seize, via eminent domain, vast amounts of private property in order to build them. And then their greatest attraction, the reduction in hassle compared to airport security, will go away as soon as a terrorist attack is attempted. We’ll have you getting to the train station 2 hours before your train, needing government-issued ID and a check of “no fly” lists in order to board, prohibitions on taking liquids on board, etc. And if they do become popular the bureaucrats running them will cram so many people in that only the Tokyo subway system at rush hour will be less pleasant. Or perhaps you’ve never ridden the Long Island Railroad during rush hour.

      I think a lot of the memories of when flying was fun are wishful thinking. The tube on all Boeing narrow bodies is the same tube dimension as on the 707, and they’ve always had 6-across seating. So while they may configure them with less legroom (unless you are in a premium economy section) the seat width hasn’t changed in 50 years. Meanwhile the real price of a ticket has come down dramatically, and since it seems that 95% of flyers make decisions purely on ticket cost the bean counters are mostly right in focusing solely on keeping the price of tickets down at the expense of comfort and service. They’ve introduced Premium Economy to capture the 5% willing to pay a little more (or throw their loyalty to that airline). And it works. I fly United as much as possible because I’ll always get an Economy Plus seat and often an upgrade to “First” (which isn’t really First any more). When I don’t it is often because on flights under 2 hours I’d rather be crammed in like a pretzel than pay dramatically more for a flight little longer than I used to commute on the Long Island Railroad!

  5. Eolirin says:

    “Americans just don’t want them, or at least not enough they’d actually pay for them. So you have to force them down the public’s throat using tax money to build and operate them and sell tickets at a price way below the actual cost of moving someone from point A to point B. You likely have to seize, via eminent domain, vast amounts of private property in order to build them.”

    All of these complaints apply to the interstate highway system too, should we not have built that?

    • halberenson says:

      Well, except for the part about “don’t want them”. They are wanted. And even within the current system I would be fine with their total cost being paid for by the user base. I don’t oppose tolls, for example. Personally I would like to see highways, and railroads, be private sector activities.

  6. Sumit says:

    Nailed it! Now the only hope is HP gets ‘consolidated out’ of the market (yes, yes, I am negatively biased towards HP)!!! Microsoft/Dell/Lenovo/ASUS or Acer (whichever one survives) should be enough!

    • halberenson says:

      Every move HP makes in the PC business just totally baffles me. I can’t understand their branding, their model differentiation, their crapware choices, etc. And they are amongst the leading players in putting energy into failed attempts to avoid Windows rather than in putting their best ideas into Windows-based devices. Where is their competitor to the Dell Venue 8 Pro? They actually have a 10″ tablet offering that isn’t bad, but isn’t exciting either. And they haven’t seemed to put any marketing energy in either.

      HP is probably not a company that should exit the PC business entirely, but they are the company that should exit the consumer PC business and focus entirely on businesses. Their corporate strength is the enterprise and that’s where they should focus their attention.

      • Sumit says:

        True, and not to forget quality and ‘support’. Their h/w (consumer) fails left, right and center and they refuse to provide fixes for issues in firmware/BIOS. Once you are out of warranty you can’t even pay them to fix something. I had to replace keyboard and hdd of a 13 month old laptop myself.
        Not to mention if you decide to update the OS, they make it very hard to find the original drivers (there isn’t any hope for newer drivers ever).

        Company wise, their identity crisis is well documented. They want to get into the Android market but don’t have the guts to go all out and take on Samsung, and when they look at Win PCs, the wafer thin margins on PC begin to look much juicer when compared to Android devices. So stuck between a rock and a hard place.

        For a company that co-designed server processors and have decent server systems, their consumer stuff is totally botched! Sticking to servers (as you said) might be the best for them.

  7. B Glosser says:

    Well I beg to differ. My wife and I had occasion to take the Chunnel train from London to Paris a few year ago. It was marvelous! From London to the heart of Paris in under two hours. No hour bus or taxi to the airport, no two hour wait at the airport, no additional hour bus from DeGaul to our hotel. No boarding hassles/line. (Notice train carriages have entryways at each end.) No passengers trying to wrestle over-stuffed roll-ons into the overhead compartments. Nobody asleep in the isle seat or carts in the isle when you have to take a pee.
    After leaving the Chunnel they announced, we are now traveling 100 mph, a little later 120 mph, finally 180 mph. You could get up, stroll down to the snack bar, buy a sandwich, take it back to your seat, and watch the French countryside wiz by. I cannot remember immigration, I believe it was taken care of on the train.
    Between San Francisco and LA flights depart every half hour or more often. Oakland to LA maybe not as often. In terms of fuel expended per passenger, time spent getting to and from airports, and impact on the environment I cannot imagine a more inefficient method of travel. Seems as tho you spend more time taxiing than in the air. Likewise the eastern corridor between New York, Washington and Miami similarly suffers.
    It (a modern rail system) is akin to the Interstate Highway System, possibly JFK’s greatest legacy. (Planned during the Eisenhower administration, implemented by Kennedy?) What a boon that has been for the country not only for creating jobs, but for being a tremendous boost to the economy.
    But back to the point, PCs are the workhorses, tablets are the hula-hoops every kid wants to have. Trouble is a good PC lasts 5 years and that is no good in a consumeristic society. And yes, back when I was young, stewardesses were friendly and not overworked, and flying was a pleasure, not an ordeal.

    • halberenson says:

      I’m not saying there aren’t good rail experiences, or that rail isn’t accepted in many parts of the world, etc. Or that no one would use rail. There is actually good rail service between Boston and New York, but that hasn’t changed the dynamics of the market in any measurable way.

  8. Brian says:

    I bought a Sony Vaio Duo at the start of the school year. It has one of those “oddest, and least usable, design choices any player brought to the table”. But, it works like a charm.

    I was going bad to grad school and decided to splurge on a laptop/tablet. In particular, I wanted a Haswell device (the program has 8 hours of classes on Saturdays) that had an active pen (for note-taking in OneNote). The Vaio was about the only thing available at the time that met my specs. Yes, it was more expensive than most others but tuition bills make all other dollar amounts look small. I really like it a lot. I’m a little sad that it’s an orphan now.

    That oddball hinge works very well. It’s particularly well suited for classrooms and meeting rooms because opening and closing it just seems less “intrusive”. Sigh.

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