... and more disruption to the Wintel ecosystem from Google

The Q1 figures show how the PC industry continues to struggle. Besides the shrinking numbers, news focused on the fact that Chromebooks outsold Macs in the US for the first time. Although comparisons were made with Apple computers, the real victim is the Windows PC. The rise of the Chromebook is actually a case in point of Harvard's Clayton Christensen's theory of disruptive innovation. With the recent announcement that Chromebooks will soon be able to run Android apps, further disruption is inevitable.

In an earlier post we described the decline of the Windows PC as part of a larger phenomenon: the decline of the Wintel ecosystem. Google is now throwing a very compelling business case in the laps of organisations that must, in any case, prepare for an accelerated decline of the Wintel empire!

The PC share of the market of programmable devices (computers, smartphones, tablets) has evaporated. Q1 2016 data about the industry from IDC Research illustrate how much most of the PC manufacturers continue to struggle. Last month Gartner put some of these number into perspective:

  • Over the last five years, global shipments of traditional desktops and laptops have dropped by one third and sales value dropped by 44% in the same period.
  • With an oversaturated market and with falling average selling prices, the only profitable market segments are found in high end niches, like gaming.

The mainstream news focused mainly on the fact that Chromebools outsold Macs for the first time in the US. Something that appeals to the broader audience as one of the battles in the ongoing rivalry between Google and Apple. But others look at it from a different angle. This week, Charles Arthur updated his perspective that it's a case in point of low-end disruption. It's all about Google versus Microsoft.

Harvard professor Clayton M. Christensen developed the theory of disruptive innovation. At first, new good-enough products enter the market and replace the well-developed, more expensive products that overserve the low-end segments. Then, as the low-end products improve, they capture a larger portion of the market and drive the higher priced well-developed products (ever) further upmarket. The incumbents initially benefit from higher unit margins, but their sales volumes shrink and overall profitability gets hurt. Eventually the newer lower-cost players dominate the disrupted market.

Chritensen's disruption theory has proven robust and applicable to many industries. The personal computer itself was a disruptive innovation. A decade ago, the smartphone disrupted the PC market. Five years ago, the Chromebook had all the characteristics of yet another disruptive innovation in this market. In his post, Charles Arthur isolated the development of Windows PC's specifically, clarifying that this disruption  impacted mostly Microsoft. Some numbers: in the US market in Q1 2016 almost 10 million Windows PC's were sold and 2 million Chromebooks.

Charles Arthur combined the numbers from IDC Research with the figures from the largest PC manufacturers to estimate the revenues development of Windows PC's.

In Christensen's theory, the good-enough product improves and continues to gain market share. Last month's announcement provides guidance and evidence: Chromebooks will soon be able to run Android apps. In this way, more than two million applications will become available and amongst them: Microsoft Office. This will certainly attract new customers and in particular in the enterprise market which is Microsoft's home turf.

Chromebooks are built with advantages that carry more weight in organisations. Their low purchase prices is only the first element of a very appealing business case; there are additional savings in licences, effortless support and maintenance and they have a robust security architecture. This is why Chromebooks have become the preferred choice in the US education sector.

Furthermore, organisations can realise significant additional benefits and savings in other areas -storage, file systems, upgrades, projects, user support- when Chromebooks are combined with the use of other Google cloud services. In a recent interview, Microsoft's Chairman John Thompson stated that it's "inevitable that part of our business will be under continued pressure." He also reflected on what happened to AT&T when the world shifted to mobile: "What's the likelyhood that could happen with on-prem versus cloud? That in three years, we look up and it's gone?"

In an earlier post we described the decline of the Windows PC as part of a larger phenomenon: the decline of the Wintel ecosystem. It's evident that Google has thrown a very compelling business case into the laps of organisational decision makers who must, in any case, prepare for an accelerated decline of the Wintel empire!