The PC is broken: Time to fix the business model or quit

​PC makers can take one of four paths if they want to survive: but can they really make the changes needed?

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Can the PC business be fixed?

Image: bdStudios, Getty Images/iStockphoto

Grim news for PC makers: they face a stark choice, either to overhaul their business model or just quit making PCs in the next few years.

Analyst Gartner expects the number of PCs in use to decline from around 1.48 billion last year to around 1.33 by 2019, which is going to make life a lot harder for the companies that sell them.

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"The PC business model as we have traditionally known it is broken," said Tracy Tsia, research vice president at Gartner.

While the top five mobile PC vendors have picked up 11 percent market share over the past five years (from 65 percent in 2011 to 76 percent in the first half of 2016), that has come at the expense of profit, Tsai said. Gartner predicts that the installed base of PCs will continue to decline over the next five years, which means continuing erosion of revenue and profit for PC vendors.

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"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," said Tsai.

Consumers and businesses are holding onto their PCs longer than they would have done previously, and as business applications and storage are moving into the cloud this means they are less reliant on PC performance in any case. Customers in general aren't as likely to upgrade based on price or specs alone. PC makers have also struggled to figure out the role of the PC in the era of smartphones and tablets: while the rise of hybrid and two-in-one devices has provided a ray of hope, it's a slim one.

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According to Gartner, there are four alternative strategies that PC vendors could pursue over the next few years.

1. Stick with the existing products and business model

This relies on high sales volumes of PCs, in order to generate enough cash flow to cover the cost of business. In a declining market that will inevitably mean vendor consolidation. It's a high risk strategy, according to the analysts.

"PC vendors need to streamline operations, shift their focus away from gaining share, and increase the sales proportion of mid-tier and high-end products to improve operating profits for long-term business sustainability," said Tsai. Companies that stick with this path will need to move their focus from volume and market share to margins and profitability.

2. Existing products, new business model

Vendors could experiment with ideas such as 'PC as a service' whereby vendors could partner with a digital education content publisher. In this model, the two-in-one devices are bundled with digital content on a subscription basis: the PC is free to users, but is subsidised by the publisher.

3. New products, old business model

PC makers could expand into new markets by making PCs smarter (better speech and touch interfaces, for example) while expanding new products for the connected home, or developing products targeted at vertical markets. "It's a gradual way for PC vendors to expand into new products based on their current business model," said Gartner.

4. New products, new business model

This is the most aggressive option, which might mean working with software companies and startups on businesses with a completely different revenue from a vendor's existing structure. One example might be robots, where a PC could serve as a 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.

"Some vendors may need a whole new business and product strategy to turn their situation around. PC vendors need to identify their core competencies, evaluate their internal resources, and adopt one or more alternative business and product innovation models to stay in or leave the PC business," said Tsai.

The question is, are PC makers willing to face up to this kind of future?

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