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Why are tablets and smartphones insulated from tough economic conditions?

The iPad launched in April (i.e. Q2) 2010. Since then the PC industry (excluding Macs) has seen a decline in growth. The following graph illustrates global shipments as reported by Gartner:

Note that the growth rate has been negative for 4 out of the eight quarters since. The latest data shows a decline in shipments of over 9% bringing yearly growth to negative territory for the first time since the recession of 11 years ago.

There’s not much I can say that hasn’t been said every quarter since 2010. The industry analysis as provided by Gartner suggests a different cause for the decline, becoming more creative each quarter. This time it’s “challenging economic environment” and “lack of appeal and innovation”, “delays due to tax incentives”, “lack of new models”, “conservatism”, “clearing out inventory” and “softness”.

The primary challenge to these ascribed causes has to be that all these factors also affect the tablet industry and yet it’s growing at phenomenal rates. The rate of new product introductions is not faster for the iPad than for PC vendors. The public and private sector buying conditions are the same. The “conservatism” on the part of institutional buyers should affect the newcomer more than the established.

The notion that an outside challenger with a new platform, an unproven set of features and missing “security” should grow in the face of difficult macro conditions that are slowing the established platform makes no sense.

My hypothesis is that the new products are solving new jobs for the users and those new solutions are trumping any “softness” in demand. In other words, an upgrade to an over-serving product will be deferred at the slightest excuse while an installation of an under-serving product that attacks an unsolved problem will be rationalized no matter the circumstances.

One product will be met with “Why should we buy it?” and the other by “Why shouldn’t we buy it?”

These are the decisions made by millions every day and yet it seems that some analysts don’t see any pattern forming. Such is the dilemma of disruption.

  • aaarrrgggh

    Gartner isn’t allowed to say “saturation,” which is the real problem and everybody knows it. Smart phones and tablets are still in a growth phase, and more niche form factors will help that market to collectively evolve and grow over time.

    At this point, I would have to think that 80% of PC demand is on the business side, and there haven’t been a any huge drivers to cause mass upgrades. Additional use-cases for tablets keep being developed.

    • http://www.isophist.com/ Emilio Orione

      Saturation? You mean there is already a pc in every house, like Bill Gates dreamed in his book? Or there are houses where an ipad is enough or offices where executives travel with their ipad and no more with their notebook or offices where ipad is the computer, like trading rooms?

      • deemery

        Actually, I suspect it’s “both”. My wife rarely touches her iMac, preferring to surf and read emails on her iPad during TV commercials.

      • AdamChew

        In terms of convenience and flexibility the iPad wins hands down.

        The battery life just goes on and on.

    • FalKirk

      “Gartner isn’t allowed to say “saturation,” which is the real problem…” – aaarrrgggh

      Saturation? If saturation were the problem, then tablets wouldn’t be selling either. Instead, they’re doubling sales every year.

      What you might mean is “over-serving” the market. Traditional PCs are more computer than most people need or want. They provide power that many users don’t need and can’t use and they provide a level complexity that most users abhor.

      Personal computers are not dying. They are (mostly) not being replaced by tablets either.They are shrinking due to attrition. As they come to the end of their life cycles, users have to decide to replace them with a new PC or replace them with a tablet. More and more are choosing to do the latter.

      • LTMP

        Wouldn’t it be fair to say that the PC market is saturated?

        If most people and enterprises don’t feel the need to replace the ones they have, or are content to replace them with tablets (or even phones), then the PC market is saturated.

        If we look at the iPad as being a disruptive device, then the PC market can be saturated while the tablet market is not.

      • FalKirk

        The PC market wasn’t “saturated” until the tablet came along and demonstrating that a smaller, lighter, cheaper, easier to use device was preferable to the PC. That’s not saturation, that’s disruption.

        Until the tablet came along, if you wanted a computer you bought a notebook or desktop. There were no other choices. Now people are not buying notebooks and desktops because tablets better serve their purpose. That’s not “saturation” of a market. That’s cutting the bottom out of a market.

      • LTMP

        I disagree. What tablets have done is disrupt a portion of the old PC market. iPad effectively split the old market in two.

        Tablets have not disrupted workstation computers. In time, perhaps they will, but there are things which a touch interface isn’t ideal for.

        Such jobs as design work, spreadsheet work, professional video and even text editing (at the moment) are easier to do on a traditional PC. Current tablet offerings underserve that market and have not disrupted it.

        It is fair to argue that the portion of the old market which was not disrupted, is now saturated.

      • LTMP

        I disagree. What tablets have done is disrupt a portion of the old PC market. iPad effectively split the old market in two.

        Tablets have not disrupted workstation computers. In time, perhaps they will, but there are things which a touch interface isn’t ideal for.

        Such jobs as design work, spreadsheet work, professional video and even text editing (at the moment) are easier to do on a traditional PC. Current tablet offerings underserve that market and have not disrupted it.

        It is fair to argue that the portion of the old market which was not disrupted, is now saturated.

      • LTMP

        I disagree. What tablets have done is disrupt a portion of the old PC market. iPad effectively split the old market in two.

        Tablets have not disrupted workstation computers. In time, perhaps they will, but there are things which a touch interface isn’t ideal for.

        Such jobs as design work, spreadsheet work, professional video and even text editing (at the moment) are easier to do on a traditional PC. Current tablet offerings underserve that market and have not disrupted it.

        It is fair to argue that the portion of the old market which was not disrupted, is now saturated.

      • FalKirk

        I agree with the facts in your comments but not with your conclusion. The workstations you speak of will continue. But many computers were over-serving their customers. As those computers grow older they will be replaced by tablets, not by another notebook or desktop computer.

      • LTMP

        Actually, I think we ARE in agreement.

        We’re just dickering about exactly where the line is drawn between the disrupted, and undisrupted markets

        In fact, I think that as tablets mature, they will continue to eat away at the PC market, just as the PC ate away at the mini and mainframe computers.

        One thing that I’m not sure of is the saturation of the remaining PC market. I think it is likely that the market isn’t saturated, just severely depressed, although clearly near the top of its growth curve.

        I was just trying to show that saturation wasn’t an unreasonable argument.

      • FalKirk

        “Actually, I think we ARE in agreement.” – LTMP

        I think we’re in agreement too. I think we would not have even gone down this path is I had just been more precise in my wording.

        I appreciate your clarifications and your patience.

      • LTMP

        Falkirk, your posts are always a pleasure to read, here and elsewhere. You often make me rethink my preconceptions.

        Can you think of any place other than Asymco where a discussion like this would occur in comments?

      • FalKirk

        Thank you for your kind words.

        “Can you think of any place other than Asymco where a discussion like this would occur in comments?” – LTMP

        I love ASYMCO. First, you get Horace’s brilliant insights. Second, there is the comment section. Some of the best minds in the world freely sharing their thoughts.
        I think that Horace’s work is so intelligent that it drives the trolls away. A truly unique environment.

      • LTMP

        Couldn’t agree more.

        Commenting at ASYMCO is like speaking up in a great classroom. You know that your thoughts might be (will be?) disputed, but rarely will they be ridiculed.

        It makes for a great learning environment.

      • FalKirk

        I agree with the facts in your comments but not with your conclusion. The workstations you speak of will continue. But many computers were over-serving their customers. As those computers grow older they will be replaced by tablets, not by another notebook or desktop computer.

      • http://www.asymco.com Horace Dediu

        Talking about disruption in the past tense is only useful if you’re a business historian.

      • LTMP

        Good point. I should have been more thoughtful with my wording.

        Disruption of the PC market is an ongoing process, but not a steady one. For instance, it probably surges with the release of each new iPad generation.

        I should have been using the term “hasn’t yet been disrupted”, or “isn’t likely to be disrupted”.

  • http://www.isophist.com/ Emilio Orione

    Why excluding the mac?
    In the same conditions the mac growth has been remarkable, was that just better execution by apple?

    In the tablets market all device should in theory try to resolve the same new problem for users, yet iPad is the clear winner for now. Is it just better execution by apple?

    Market’s growth is a sign of expanding of needs, while in market movements depends on execution that is appeal, but needs not only relay on basic utility, it solves my needs, but also on the whole packet, it solves them smootly, easily, beautifully and it is valuable.
    People’s don’t buy what you do but why you do it, says Simon Sinek, and your belief shape your product and your product is a demonstration of yours values.
    The lack of execution can doom a market. Smartphones of tablets did not had an explosion until iphone or iPad, the right executions the two markets were waiting.

    Perhaps PC are not over serving the market, they are fading due to comparison with mac’s better execution that make clients think on what’s better and in the same time for tablet’s disruption.

    • rattyuk

      But that would throw off the actual situation. Just because Apple is creating a halo effect for their products it shouldn’t be reflected in general PC growth.

      • http://www.isophist.com/ Emilio Orione

        In fact the general PC market is not growing, only apple’s products are.
        I mean mac, that are PC like the others, are growing while the market is not, that is execution’s only merit. It is not an expansion of needs, the needs are in contraction because other mobile devices are better suited to meet some of the needs, it is a concentration of value in execution that is unprecedented.
        Expectations have raised. People not only seek a satisfaction of their needs but also a quality and valuable execution. The only PC that grew for a while were ultra books, characterized by a better execution than traditional notebooks and higher prices and that happened in recession times.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        “n fact the general PC market is not growing, only apple’s products are.”

        That’s not entirely accurate. According to the latest IDC & Gartner stats, Apple’s Mac sales have dropped 6% year to year. But due to a bigger drop in year to year PC sales, Apple’s market share has increased to approximately 12.5%.

      • http://www.asymco.com Horace Dediu

        The 6% drop is for the US only and an estimate subject to revision. We don’t yet have estimates for global Mac sales from Gartner (public at least). Apple reports both regional and global figures on the 25th of October this year.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        Thanks for the clarification.

      • http://www.asymco.com Horace Dediu

        Digitimes research estimates that Apple notebooks shipments increased 30% sequentially (global). If desktops stayed flat then the total could be about 4.9 million units or 2% y/y growth.

      • twilightmoon

        At this point its not only Apple but it’s huge base of dedicated users, that are highly sophisticated, educated, willing to spend money and especially willing to buy songs and apps and videos. That along with developers who are prospering and pushing the platform forward, it’s moved past Apple, and has it’s own gravitational pull now.

      • unhinged

        You forgot to mention insanely good-looking.

    • twilightmoon

      Emilio it’s a completely false assertion to state that all tablets serve the same needs. If you consider all tablets to be only media players then the iPad only has an advantage there in terms of iTunes which helped keep the iPod ahead of its competition.

      However the real value proposition for tablets is software. In this area the iPad competitors are nowhere to be found. Like Laser Disc players or Betamax or 8track of yesteryear, non iPads are also-rans here. Horses that finish the race but no one remembers and are quickly abandoned and forgotten orphaning the hapless customers that were lured in for a purchase. Their money is gone and their tablet will quickly be shoved into some drawer and forgotten next to their Zune.

      The massive gap in Internet use between the iPad and the brand X tablets backs this up. If other tablets are being purchased nearly as often as claimed, they are not heavily used nor are there people buying non iPad tablet software in volume.

      • http://www.isophist.com/ Emilio Orione

        As you can see I have said: In the tablets market all device should in theory try to resolve the same new problem for users, yet iPad is the clear winner for now. Is it just better execution by apple?
        That doesn’t mean that all executions are the same but that all tablet can potentially solve the same needs, they all are touch devices with more or less similar characteristics.
        Clearly platform makes the winner but also winner makes the platform.

      • twilightmoon

        The problem with saying similar characteristics, its like saying if I have a car with an engine and all the other parts of a normal gasoline based car, but it only runs on highly unstable transuranium isotopes. Then while it may appear to be similar to other cars, it is totally useless since fuel for it is completely impractical. Similarly tablets with no software are nearly as useless. They can provide a screen and speakers to play media through, but that makes them only slightly more useful than a dedicated portable dvd player.

        A tablet without a library of useful software is simply not capable of “resolving the same problem for users.” You can use that phrase over and over and it is just as untrue the 57th time as it was the first time you typed it.

      • http://www.isophist.com/ Emilio Orione

        Both cars try to resolve the same problem for user: transport, but I dare say that the nuclear one has not the same characteristics as the internal combustion engine car.

  • Accent_Sweden

    So you are saying that the analysts are in denial that the cause of the slow down is Apple. Previously a more cynical interpretation seen here (not necessarily by Horace) and other places has been that the analysts wouldn’t report the logical conclusions because their customers are the very companies with the most to lose from the new competitor, the iPad, and don’t want to hear the truth as they are unable to compete in the same way. So it isn’t just that the analysts are blind to the cause of the disruption, but that they are intentionally ignoring it since it would undercut what their clients want to hear. In other words, that the analysts are intentionally misleading their customers.

    Blindness is of course faultless. Intentionally lying is unprofessional.
    At the end of the day, of course, the motivations are less important. It’s the fact that they are ignoring/not seeing the reality that opens up an opportunity to make money, for Apple and its investors. It’s also a question for potential disruptors: how to find an industry’s blind spots?

  • Sacto_Joe

    Actually, there are several things going on simultaneously, and thus the causes of the drop in PC sales overall are getting obscured. In the enterprise market, the PC use is probably fairly stable, now that the recovery appears to be taking hold. However, the entrenched nature of Windows suggests there will be little turnover to Macs there. At the same time, tablets are clearly finding a use in the entrrprise, often in novel ways. The other big market, however is the consumer market, and there the Mac is clearly enjoying growth at the expense of PC’s. Of course, tablets are filling the need there as well. Indeed, I think it’s fair to say that Apple has conquered the consumer market. Finally, the worldwide economies are affecting sales.

  • famousringo

    I’m eager to see how the story will change once Windows tablets start showing up. Will they be classified as “media tablets”? Will they receive the honourable title of PC while iPad remains king of the media tablet ghetto? Perhaps Windows RT devices will be classified as media tablets while Windows 8 tablets get lumped in with the PCs, completely obscuring how effective Microsoft’s approach is as a whole.

    How are we gonna spin this, analysts?

  • Glaurung-Quena

    I think this article asks the wrong questions.

    The reason for the discrepancy is that PCs and tablets are apples and oranges. Tablets are a brand new device; regardless of the economy, all the people who might want one don’t have one, and so they are buying them in droves.

    The low market for PC’s has a little to do with the economy, but much, much more to do with the fact that, for the first time ever, even an older PC is still “fast enough” for most purposes. A 5 year old PC will have a dual core CPU at 2ghz, and that’s still more than adequate for office productivity, web surfing, or media consumption. Since Intel’s core duo came out, there hasn’t really a compelling reason to upgrade hardware for most users.

    • Francisco A. Hirsch

      ‘One product will be met with “Why should we buy it?” and the other by “Why shouldn’t we buy it?”’ dixit Horace

      • Robert Cetti

        The article and replies all seem very insightful for me. What a great resource to enjoy reading on a Sunday morning!

  • dave

    Any chance you could update the PETG chart from your Aug 1 2010 post Apple’s Valuation Struggle Continues ??

  • Walt French

    The rotation of excuses is interesting. But why must it be one thing or another?

    I’ve previously commented how amazing the iPhone adoption curve leapt up despite the severe recession. Income went down, optimism went down, purchases of other products went down, and the iPhone went up.

    While Horace has had excellent training in Disruption Theory & such, I had the pleasure a few decades back of learning from an excellent economist that my employer was consulting to. Back then, HP electronic lab equipment was soaring without any impact from recessions (the personal PC was in its infancy), but Mr. Marx knew that once the new technology crossed a certain point, it would be subject to the ordinary business cycle pretty much like any other piece of investment equipment.

    • famousringo

      Disruptions are usually accompanied with a change in values. The incumbents are chasing the old values which made a product “good” and the disruptor offers a new set of values which define “good”. These disruptive products offer such a good value prospect to consumers that they’re almost completely detached from the economic environment until they start to reach the point where improvements along the new measures of value are difficult for consumers to absorb.

  • aftoy

    Paul Thurrott’s slant? As expected PC sales drop before Win8. Anybody have stats for sales drop when Win7 released?

    • ChKen

      What, no vouchers for a free upgrade?

  • http://twitter.com/SparksGlosticks Ahmad Kadhim

    Out of all the reasons Gartner mentioned, wouldn’t it have made ten times more sense to just say people are waiting for Windows 8? That’s more plausible than all the rest combined.

  • http://twitter.com/SparksGlosticks Ahmad Kadhim

    Out of all the reasons Gartner mentioned, wouldn’t it have made ten times more sense to just say people are waiting for Windows 8? That’s more plausible than all the rest combined.

  • ChKen

    PCs are ubiquitous and so are subject to macro issues, while tablets and smartphones are still finding new markets and niches to exploit that let it overcome the macro issues that PCs face.

    • http://www.asymco.com Horace Dediu

      Smartphones and tablets are selling at twice the rate of PCs and will be in the hands of more people than PCs in a few months. Within a year there will be twice as many smartphones and tablets in use than PCs. Although they are and will continue to find new markets, I would not call these markets niches. The addressable market today is 6 billion connections or about 5 times more than the addressable PC market.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        When 90% of the world’s population is making $1 or less per day, the addressable market is not 6 billion for tablets or iPhone-type smartphones. They simply cannot afford it.

      • twilightmoon

        No possible way that 90% of the worlds population is making under $1 per day or under $400 per year. I do not doubt there are sizable populations at that level but its nowhere near 90%. If you just single out China and India with a combined population of 1/3 of the total world population you don’t have nearly 90% at that level in either. Both have rapidly growing middle classes, growing manufacturing and educated populations. China alone has a middle class near the total size of the US at around 300 million. That puts Chinas middle class at a little over 4.2% of the 7 billion people on the earth, none of them make under $400/year. Unless you want to point out some people in the US with incomes that low the US adds another 200 million adults. This covers most of the 10% making over $400/year in your model and I did not add in most of the Asia Pacific Rim, India, any of Europe or any country in the Westen Hemisphere besides the US.

        In short you are not even close. There at minimum billions of people who can and will be buying smartphones or tablets or both over the next decade. I would put the total number north of 2/5 of the world population or north of 2.5 billion.

      • http://www.asymco.com Horace Dediu

        6 billion connections to mobile networks already exist today according to the ITU. Each represents a SIM card. Each SIM card may or may not represent a device but it does represent a service agreement with an operator. The value of all those SIM card services contracts is well in excess of $1 trillion per annum. The value of all devices sold is about 25% of that (but in addition to it). So the pool of money spent on devices is a quarter of the spending on services. The model where every user owns a smartphone does not require that the overall spending increases. The $1.25 trillion spent on mobile telecommunications every year (excluding over the top services) is plenty of opportunity for supplying smartphones to all.

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