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Business leaders of PC vendors face a stark choice and must decide between overhauling their businesses or leaving the PC market by 2020, according to Gartner. If they decide to stay, they need to rapidly determine what changes to make or what alternatives to adapt in today's over-penetrated PC market.
"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," said Tracy Tsai, research vice president at Gartner. "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."
Tsai also said that the traditional way of gaining shipment market share by competing on price to stimulate demand simply won't work for the PC market over the next five years.
"Today's PC vendors need to adjust to the new realities that are shaping consumption, including the fact that PC users are extending PC lifetimes until end of life, business PC applications and storage are moving into the cloud, and are less reliant on PC performance and, crucially, that price and specification are not enough for a user to upgrade a PC — a new and better customer experience is the only true differentiation," she added.
Gartner has identified four alternative strategies that PC vendors can use to adapt to the PC market of the future. These are based on corporate culture and assets, business operation and technology innovation, and completely revamping the business.
Tsai says the current model requires high volumes to generate enough cash flow to cover the cost of business, so, in a declining market, consolidation of vendors is inevitable.
"PC vendors need to streamline operations, shift their focus away from gaining share, and increase the sales proportion of midtier and high-end products to improve operating profits for long-term business sustainability," said Tsai. "Another key factor that needs 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 also need to shift focus away from 'distributor and reseller customers' wants' to 'users' needs," Tsai addedd
The second model suggests that PC vendors need to form a new team that can experiment with new business and revenue models for PC products, such as PC as a service.
The third alternative is a more conservative way to explore new product offerings and new market opportunities, such as making PCs smarter in terms of sensing, speech, emotion and touch; expanding new products for the connected home; or developing products targeted to vertical markets. It's a gradual way for PC vendors to expand into new products based on their current business model.
Alternative 4 is the most aggressive way to transform in terms of business operations and product innovations. In this scenario, PC vendors could establish a new business unit to run business in a different mode and explore new technology solutions to create a completely new product line. This would include working with new channel partners and independent software vendors (ISVs) and partnering with startups. The resources and revenue model might be completely different from a vendor's existing structure.
An example could be personal assistant robots. A PC can serve as an "information butler" at home, a combination of a chat bot and voice-activated virtual personal assistant, with revenue from developers and third-party content and service providers, such as those in retail, healthcare, education, video or music.
