Friday 30 September 2016

Best of luck Microsoft, but the Surface Book isn't going to save the PC

James Titcomb

Published 12/10/2015 | 11:42

Microsoft Photo: Getty Images
Microsoft Photo: Getty Images

Three things happened in the space of two days last week that explain perfectly the state of the market for personal computers.

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On Wednesday morning, at a glamorous Apple-style event in New York, Microsoft unveiled its first laptop, a breathtaking combination of design and function called the Surface Book that the company, without a hint of humility, dubbed “the fastest laptop on any planet”.

Then just a few hours later, it emerged that Dell, a computer hardware giant with its better days behind it, was in talks with data storage company EMC over a $60bn deal that would be the biggest technology takeover in history.

And finally on Thursday, IDC, a research company that tracks worldwide sales of tech products, said that sales of PCs in the third quarter of the year had fallen 10.8pc against the same quarter a year ago, a much worse decline than expected.

To understand these events, it is best to look at them in reverse-chronological order. First, the IDC figures. Sales of PCs – laptops and desktop computers combined – have been on a downward trend since 2012 after a decade of unbroken growth, and now sit at roughly 2007 levels.

Reasons for this include stretched corporate IT budgets, diminishing returns from upgrades and Microsoft’s lacklustre software releases, but the main factor has been the rise of mobile. Touchscreen smartphones and tablets have redefined personal technology, combining the internet with portability and ease-of-use to become the dominant platform.

This brings us to Dell. Once the world’s biggest PC manufacturer, whose low-cost manufacturing and fashionable designs allowed it to disrupt lumbering giants such as Compaq in the 1990s, it has suffered more than most from the decline of the industry. In 2013, its founder, Michael Dell, took it into private ownership, saying a radical strategy to turn it from a hardware company into an enterprise-focused services group would be easier out of the public glare.

Buying EMC, a move that reports suggest could be announced this week, is the clearest manifestation of this. “Selling PCs isn’t working for us, we need to try something else,” the company is saying.

Similar things are happening at HP, which is splitting into two next month to free its growing data and infrastructure unit from its declining hardware operation, and Lenovo, which bought Motorola’s mobile business from Google last year. In other words, the world’s PC manufacturers are getting ready for the demise of the PC.

This brings us on to Microsoft, and the company’s first PC. The company never really had to make hardware. Its ludicrously-profitable software made it the biggest company in the world at one point, and its founder, Bill Gates, is still the world’s richest man. It could rely on Dell et al to compete away their margins and promote the hell out of computers running Windows.

The Surface Book isn’t Microsoft’s first physical product – its Surface tablet is now in its fourth generation, and it makes a wearable fitness device called the Microsoft Band – but it is the first in the category that made the company such a success.

Why is it making such a bet on hardware, just as the rest of the industry is pulling back? Well, that’s exactly why - when the PC was on the rise, Microsoft never needed to be its champion: Dell, HP and so on did it for them, with Microsoft simply taking all the profit. Now, as computer sales fall into decline and PC manufacturers ask whether they really want to be PC manufacturers, Microsoft has to carry the flag itself.

It can’t afford to watch the PC fade into obscurity: Microsoft has missed out on mobile almost completely, despite a few costly but ultimately futile attempts to break Apple and Google’s hegemony. Satya Nadella, its chief executive, has made admirable attempts to make Microsoft more relevant, putting its software into rivals’ smartphones and tablets, but the company does, and probably always will, rely on PC software for the bulk of its profits.

In making the Surface Book, which by all accounts is the pinnacle of laptop engineering, Microsoft is screaming: “Hey, PCs are still exciting, look at this one!” It is also sending a message to other computer manufacturers that they need to up their game if they want to keep a slice of what is left of the market.

Can it save the PC? Probably not. Consumers are unlikely to give up using their ever-more capable smartphones just because a slightly-better PC comes along. One could argue that laptop and desktop computers will always have to exist to get “real work done”, but it is becoming increasingly apparent that this is not really the case.

Slack, an office collaboration tool that works just as well on mobile as on computers, is replacing email in many workplaces. Last month, Apple unveiled the iPad Pro, a high-powered tablet with a laptop-sized screen and keyboard that many will see as a realistic alternative to buying a new computer. Google has a similar proposition with its new Pixel C.

But history has few instances of a declining technology being saved by a spectacular version of it – Sony’s decision to develop higher-capacity MiniDiscs in response to the iPod never really paid off, to give one example.

Microsoft is doing everything it can to keep the industry that has defined it alive. But it’s probably too late.

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