Scott Martin and Jon Swartz, USA TODAY
SAN FRANCISCO - Some argue that the PC is deader than the phone booth.
Driven by mobile demand, the traditional PC and its makers are fighting for survival. The latest threat comes from Google, which recently unveiled a sleek touch-screen laptop. Its futuristic Chromebook Pixel - with blazing fast 4G Internet and a massive 1 terabyte data storage locker in the cloud - simultaneously combines touch, mobile connectivity, remote data and free Microsoft Office-like services.
People want mobility, so Microsoft-powered PC products are competing against enormously popular smartphones and tablets for consumer dollars. Once leading the way, Dell, Hewlett-Packard and Microsoft now face a new world order led by Apple, Google, Samsung and even Amazon.
"It's a pretty new world, and that's something that Microsoft seems to be struggling with," says venture capitalist Ben Horowitz of Andreessen Horowitz.
Google's next-generation Chromebook Pixel computer comes after Michael Dell last month agreed to take his stumbling namesake PC brand private. And last month, Hewlett-Packard reported consumer revenue in its personal systems group declined 13% from a year ago. Just how bad can it get for the consumer PC industry?
The past 10 years have seen U.S. consumer desktop PC sales shaved nearly in half, according to researcher Gartner. In that same period laptop PCs have more than quadrupled in the U.S. But the past two years have been unkind to both desktops and laptops. Now, worldwide tablet sales are forecast to outpace both desktop and laptops in coming years, according to researcher Canalys.
Consumers aren't replacing those old home PCs with the same. And the traditional PC business is grasping for reinvention, slow to emerge from Microsoft, Intel or household PC brands.
Take Microsoft foe Google. Its Android mobile operating system grabbed 70% of worldwide sales in the fourth quarter of 2012, compared with Microsoft's 3%, according to Gartner. Google is also advancing with its Chrome computer operating system and online services that compete with the software maker's Windows and Office. More than 5 million businesses use Google Apps today, Google says.
Apple is edging into Microsoft's enterprise stronghold as well. General Electric uses 36,000 iPhones and 12,000 iPads, reducing its reliance on laptops, says Greg Simpson, GE's chief technology officer.
"Mobile is the primary way that people interact now with computing," said Mike Riegel, a vice president at IBM, which is focusing attention on mobile services to businesses.
Yet despite erosion of the past few years, the immense installed base of PCs in businesses will make the transition period to mobile devices a long one. In other words, it is a slow, inevitable death, says futurist Paul Saffo. "These things take time."
Microsoft's mobile 'mistake'
Microsoft Chairman Bill Gates said in an interview last month on CBS This Morning that his company's mobile phone efforts were "clearly a mistake." Gates said he and CEO Steve Ballmer are "not satisfied" that they are doing all that's possible on "breakthrough things."
The software giant - which has already acknowledged Google Apps' threat to Office with the launch of its Office 365 cloud version - has also undertaken a dramatic overhaul of Windows 8 to address the mobile masses clamoring for Android devices, iPhones and iPads.
"Windows 8 was built for this entire generation of computing," says Tami Reller, CMO and CFO for Windows at Microsoft. "All of these new touch categories are in high demand."
Yet Microsoft's recent Surface RT tablet entry has failed to woo consumers to touch versions of its Office suite. Microsoft shipped fewer than 900,000 in the fourth quarter, excluding it from the top five sellers, according to researcher IDC.
Meanwhile, Apple reported sales of 3 million iPads in the three days of November following the launch of its iPad Mini and fourth-generation iPad. Apple's iPads ranked No. 1, with 22.9 million sold in the quarter, trailed by Samsung, with 7.9 million, Amazon, with 6 million, and Google Nexus 7 maker Acer with 3.1 million.
"I almost feel sorry for Microsoft," said Adam Greenfield, managing director of Urbanscale and author of Everyware. "They tried with Windows 8 - it's not entirely ignorant, but it's way too late."
Last year was already a bad one for PCs. Combined worldwide shipments of desktops and laptops showed a decline of about 10% in the fourth quarter of 2012 from a year ago, according to Canalys.
"We don't think consumers are going to have a PC per person. That's an old idea. Instead, we think that if you have three people per family, then you will have one PC that is shared, and each one of them will have one kind of device like a tablet or a smartphone," said Gartner analyst Mikako Kitagawa.
Canalys expects the tablet market will grow by 37% on average each year from 2012 to 2016, accounting for 59% of total PC shipments.
"The PC has borne the brunt of this tablet phenomenon," said IDC analyst Crawford Del Prete.
Business model shifts
The computing landscape is fast evolving around new business models that challenge Microsoft's.
The old Windows-Intel business centered around software licenses and the fastest chips is troubled. In its place, Apple has taken sleek software and high-design hardware and centered it on digital content. Apple CEO Tim Cook at an investor conference last month said: "Apple has skills in software, in hardware and in services. And the reality is that the model that grew the PC industry ... that model is not working for what consumers want today."
Google is also taking the all-in-one-shop approach and purchased Motorola Mobility ostensibly for its mobile hardware. But it licenses its Android software for free. Samsung and other smartphone makers boost Google's search and other services with the proliferation of their devices. Google then makes its money from related advertising vs. software licensing.
Amazon uses its massive retail juggernaut and its content sales to underwrite losses on low-priced Kindles, sold below cost. Samsung is meanwhile enjoying soaring smartphone sales by pairing its consumer electronics experience with Google's Android operating system.
With Google giving its software to either smartphone or laptop makers for free, the manufacturers can make more money without having to pay a software license to Microsoft if they go with Google's Android or Chrome. Makers HP, Acer and Samsung have already signed on to make laptops based on Google's Chrome operating system. Those start as low as $199.
"I think Microsoft is challenged in this world," said Forrester analyst Frank Gillett.
The group that has the hardest time in this shakeout is the PC makers, says Rhoda Alexander, analyst at IHS iSuppli. "It's further complicated by the Amazons and the Googles coming into this in how they see the profit opportunity in terms of the content and the relationships they are bringing in ... vs. the profit on the individual device."
Meanwhile, cloud-based services are making desktop software less important. Nearly every major player - Google, Microsoft, Apple - has one. Google's Play and Apple's iTunes and App Store have drawn consumers into their worlds for consumption of movies, music, games and apps. Those cloud services are making Windows 8, with a lacking apps presence in particular, less relevant in the mobile arena.
And cloud services are booming. Start-ups Dropbox and Box are headed for initial public offerings this year.
"What cloud offers is platform-agnostic access to information, applications and processes that free end users from their dependence on proprietary platforms, including PCs," says Charles King, principal analyst at market researcher Pund-IT.
This is causing wrenching changes for traditional makers of PCs, operating systems and packaged applications, such as Microsoft and HP, which have not only suffered slowing product sales but in some cases are seeing deterioration of their brands, King says.
HP launched a $169 Android-based tablet, called the Slate 7, at the Mobile World Congress last month. "We are working today at creating an entry-level tablet with an entertainment bent. Android is the best solution from a cost perspective," said Alberto Torres, senior vice president of mobility at HP, which is also backing high-end Windows 8 tablets.
Personal computing is undergoing a wholesale evolution away from specific devices and user interfaces, King contends. Consumers and businesses have mostly become technologically multilingual and no longer beholden to specific companies and platforms.
The world of remote data and entertainment accessed anywhere has morphed the consumer computing landscape. That's given people easy access to services from Netflix, Amazon, iTunes, Google Play and never-ending apps across mobile devices.
"I think it's a better world for the user because you take a lot of complexity out," said Horowitz.