With H-P indicating that it will exit the PC business, prematurely kill off its tablet and webOS offerings, and acquire a little-known business analytics company for many billions of dollars, the hardware world as we know it is about to change dramatically.
Many have compared this recent move by H-P to the strategies of IBM a decade ago, selling its PC business to Lenovo and focusing on business services with high profit margins. Others have argued that IBM’s transition was infinitely cleaner, smarter, and well orchestrated, citing the fact that IBM already had a buyer for its PC business where H-P has none in sight.
I’ve read that H-P should open up webOS to developers in the same way that Google opens its Android platform. webOS is superior to Android and iOS in numerous ways, especially in various aspects of its user interface (e.g. notifications). However, despite its superiority, it’s never really been executed efficiently. Would opening it up allow some company (HTC?) to create hardware custom-built for webOS that would sing like never before? Would opening up webOS create a viable competitor to Google’s Android and Apple’s iOS? Probably not, but it’s a nice thought.
I myself have predicted that Microsoft, with its mountains of cash and dwindling importance, will swoop in and purchase the now-devalued H-P PC business at a discount. Though this move would be…well…not exactly in line with Microsoft’s core competency, it would allow Microsoft to integrate its hardware and software vertically in the same manner that Apple has proven to be successful. Microsoft is already halfway there with the Xbox 360, I guess. But Microsoft would be essentially competing with itself, in that it currently enjoys a gigantic profit margin in licensing out its software to large vendors of hardware. If Microsoft were to start producing branded, official Microsoft computers with its software and operating system already installed, it would be the only seller on the market who does not have to pay its own licensing fees. That’s not very fair, and other hardware manufacturers like Dell would be very tempted to look elsewhere for operating system and software companies that play by the rules.
All of these ideas are fine, some may come to pass and others will not.
But I believe there is a larger trend surfacing here. And it has to do with the future of hardware.
The leadership at H-P are not stupid, though they’ve been called that in the past and certainly will again in the near future. They are, in fact, quite smart. And as a major player in the industry, they have a wealth of information at their fingertips. They decided to let it be known that they are considering exiting the PC business. Regardless of whether that move is brilliant or idiotic, there is an underlying message: building hardware is not going to be a viable business for the likes of H-P in the near future.
I have a theory on that, as you might have guessed. Allow me to set the stage.
Companies like Amazon, NewEgg, and eBay have made it dead simple to purchase computer parts. If you want to build a computer on your own, it’s as easy as a Google search and a credit card number. Granted, not many people do this, and the ones who do are either very particular, very hard core gamers, very frugal, or a little weird. But the fact remains, it’s easy as pie to purchase the parts to build your own computer, and have them all delivered to your house next-day.
Now there is an emerging player in all of this, and it is the at-home 3D printer. Organizations like Makerbot allow anyone with a few thousand dollars to build their own 3D printer at home. If you want one built and shipped to you, that’s not too hard either. Or if you want to hire someone who already has one at their house to print you something and send it to you, that’s out there as well. In fact, if you want something to be made, you can have it custom made with absolute precision, with high-quality materials, for cheaper than ever before. The concept may sound revolutionary and 10-years-away, but I assure you it is very real and very right now.
So now, let’s take a look at the playing field for generic PC production. It’s simple-as-dirt to buy computer parts in bulk and have them delivered right to your house in no time flat. It’s becoming more and more possible each day to have custom-designed plastic (and other materials) cases printed with absolute accuracy, at home and for very low cost.
Imagine if a couple groups of 3D printing enthusiasts got together with a couple groups of DIY computer builders, and they started buying generic computer parts in bulk and creating custom computer cases with their 3D printers. They could make an extremely wide range of PCs, at the same quality as H-P or Dell, and with much greater unique appeal. Perhaps the computers might be a bit more expensive, but the greater this group scales their production, the lower the price would become.
So imagine you’re in the market for a generic $599 PC. Of course, you go to Google and search for it. Now imagine that you could either buy a $599 Dell, or a computer with the exact same specs that is custom-built for you, with your kids’ names engraved in the side or a model of your dog standing on top of it. Or you are a huge NASCAR fan and you see a $599 PC with your favorite driver and car literally as a part of the computer case. Inside, the guts are exactly the same as inside the Dell. Which computer do you choose, random Joe buyer?
I’m not trying to say that these do-it-yourself computer producers would put the likes of Dell or H-P out of business. Not at all. People love good brands and Dell would demolish those little players one by one.
What I am saying is that it is incredibly easy to make the exact same computers that Dell is currently making and H-P is currently trying not to make anymore.
It is not, however, very easy to make the kinds of computers that Apple is making. The iPad and the iPhone are both design and engineering marvels. At the present time, creating something like that at home or with parts ordered from Amazon is simply impossible.
Couple that fact with the dominating vertical integration of hardware and software at Apple, allowing them to custom-build perfectly fitting software for their equally perfectly fitting hardware, and you’ve got products that are lightyears beyond what any group of DIY enthusiasts could ever hope to replicate.
So what’s a company like Dell or H-P to do? They don’t make software, they make computers. The computers they make are becoming very simple to imitate and replicate at home, and having been losing market share to Apple for the past 21 quarters in a row. That’s five years. The trends are obviously screaming: exit, exit, exit. People are (1) not buying your core products as much and (2) every day more capable of making your best sellers at home with no expertise required.
In the face of those trends, what would you do? In the words of startup culture: pivot. It looks a little different when it’s a giant like H-P, but mark my words it is the same concept. They have to pivot to stay alive, and they’re attempting to do that, albeit in a very clumsy and fiscally irresponsible way.
There once was a time when people would drive to the store to buy stamps and envelopes so that they could mail letters. A decade or two ago, a house or office without stamps and envelopes would have been considered reclusive.
I haven’t bought a stamp in years. In fact, post offices are now closing all over the country. And if it weren’t for the fact that the government kept them alive on life support as long as they did, they would have vanished a long time ago.
It’s not so much the fact that people could print off their own postage at home, or that they started using FedEx. That was part of it, sure, in the same way that people being capable of building their own PCs with custom casings is part of the downfall of the generic PC production business. But the larger reason that people stopped buying stamps is that they stopped mailing letters.
People aren’t buying generic PCs counting gigabytes and clocking speeds anymore, they’re buying portals into their digital worlds. Portals come in various screen sizes: pocket-sized, paper-sized, desktop-sized, and television-sized. What’s inside the guts behind those screens is becoming less and less important, what is being shown on and achieved by using those screens is the only thing that matters. We are truly entering into a “Post-PC” era.
So what does the future of hardware look like? Several major hardware producers will perfect the art of building hardware that perfectly enables the firmware and software that will run on it. Beyond that basic requirement (that the hardware perfectly enables the software), design, brand, customer-loyalty, provider-contracts, availability, developer-support, and price will take over. Gone are the days in which H-P and Dell can get by just producing generic PCs that only sell because they made the jump from the number 256 to 512, or from 1 to 2, or from MB to GB to TB, or whatever arbitrary tech spec you want to focus on. Here to stay are the days in which hardware producers are the enablers of software, and it will be the richness of the developer-environment and activeness of the user-base that people compare before making purchases.
Think about it, it’s already here in many ways. How often have you heard something to the effect of “Yeah, I like the idea of Android, but everybody I know has an iPhone so if I want to play games and stuff with my friends I need to get an iPhone, too.”
The ecosystem of software and users rules, it’s time to say goodbye to the generic PC business. H-P was just the most recent one to realize that.
Disagree? Mail me a letter. Bet you’ll have to whip out your pocket-size screen to Google the closest place to buy a stamp, first.