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The PC industry should be aiming for higher prices and better quality

It’s been more than a quarter since Windows 8 hit stores and the sales results are ugly (according to IDC). For the first time ever, a new Windows release didn’t result in a sales uptick. Overall sales were down significantly, while average selling prices (ASPs) on non-touch devices barely budged – up $2, to $420 (£260) – while touch-enabled laptops accounted had a much higher ASPs around $700 (£440), but accounted for just 4.5 per cent of total sales. This has led to calls for further price cuts, and a need for cheaper touch-enabled devices.

The ASP gap between Apple and the rest of the PC industry, meanwhile, has continued to grow. It’s now almost $1000 (£620). Before we conclude that slashing prices on Windows 8 devices is the right move, we ought to ask why it is that consumers are so resistant to paying more for a Windows laptop.

What is the true price of cheaper laptops?

The answer to this question has precious little to do with Microsoft. For decades, virtually every computer manufacturer, save Apple, has pursued a relentless policy of cost cutting. The precipitous decline in computer prices is one of the great technological success stories of the 20th century, but the decision to prioritise low prices above all else over the course of decades has rotted the market from within.

The problems haven’t been confined to the consumer market; Dell sold Optiplex systems with a 97 per cent failure rate and instructed its employees to “emphasise uncertainty” when discussing the cause with unhappy business clients. The top OEMs led the drive to outsource customer service to India, even when it hurt customer satisfaction and problem resolution rates.

And then there’s the shovelware – Acer has become the poster child for this particular excess (see the above image). To this day, tech publications write periodic guides to cleaning the crap off OEM systems. These guides exist because there’s a measurable difference between the performance of a clean OS installation and a manufacturer-provided system image.

Not just Acer, but Dell, HP, and the other PC companies have become so reliant on the funds they earn from pre-installed software, they’ve effectively ceded control of the user experience to the likes of Adobe, Amazon, CyberLink, McAfee, Norton, and so on. Not every pre-installed application qualifies as crapware, but programs are typically installed with no thought as to their suitability or quality.

The ramifications of these actions are subtle and far reaching. PC buyers are used to buying systems with mediocre out-of-the-box performance. They’re accustomed to the idea that a laptop comes stuffed to the gills with third-party software that they don’t actually need, want, or use. Customer support? Laughable. Driver support? Nvidia and AMD collectively gave up on wishing OEMs would get their acts together and started providing generic notebook drivers several years ago.

Contrast this with Apple’s discussions of its own included software.

There’s nothing remotely like this at any of the PC OEM websites. The closest comparison is a few bullet points buried in a sea of data, like so:

You don’t have to own a MacBook to see the difference here, and it’s not just smart marketing. Apple is careful about the software it ships.

Every now and then, one of the major players will make a daring play. Dell’s Adamo, for example, sought to challenge the Macbook Air long before Intel breathed a word of Ultrabooks.

Dell launched it, with significant fanfare, at CES 2009, began shipping it in March of that same year, then killed the entire product line in late 2010. HP bought Voodoo PC in 2006, repurposed it as a high-end brand in 2008 and killed it in 2009. It followed a similar path with Palm and webOS, though in that case, it killed the final product in months instead of several years.

This myopic focus on short-term results destroys any chance of building a premium brand. The early Macbook Airs were saddled with ridiculously slow hard drives and weak CPU performance that lagged behind even Apple’s regular MacBook in some instances. Multiple reviewers recommended it strictly as a niche product. The Macbook Air didn’t take over the MacBook’s position as Apple’s entry-level system until three and a half years after launch.

The original Adamo was a mediocre performer at best, but the design had promise. It showed Dell was thinking outside the box. If the company had continued investing in the design, it could’ve been the de facto owner of the PC Ultrabook space by the time Intel even started talking about the concept.

The top PC manufacturers have, with few exceptions, adopted a siege mentality at every price point. In 2008 through to 2009, when netbooks ignited, it was Acer and Asus who reaped much of the benefits thanks to being first to market and aggressively targeting consumers with a wide range of products. HP had some early momentum in this segment thanks to the well-regarded Mini-Note 2133, but the company didn’t capitalise on the opportunity particularly well. Netbooks eventually became ubiquitous but it’s no accident that the early movers were companies willing to take a risk on a different market segment.

The role Microsoft and Intel played

Let me be entirely clear here: Intel and Microsoft are partly to blame for the wretched state of the OEM market. In Intel’s case, the company allegedly used a rebate system that prevented the major OEMs from using more than a small number of AMD processors across various product lines (the percentages shifted by product division and market segment). When Intel created its Centrino, netbook, and Ultrabook brands, it tied the receipt of marketing funds to agreements to use specific parts or conform to particular specifications. Centrino laptops, for example, were required to use Intel wireless solutions.

Microsoft, meanwhile, betrayed its promise to HP regarding what laptop chipsets would and wouldn’t qualify as “Vista Capable.” In August 2005, Microsoft promised Hewlett Packard that Intel’s 915 chipset wouldn’t qualify as Vista Capable. According to internal Microsoft email that came to light as a result of the associated lawsuit, HP “made significant product roadmap changes to support graphics for the full Vista experience. Ramano specifically told Jim [Allchin] that HP will invest in graphics if MS would give him 100 per cent assurance that we would not budge for Intel. This goes beyond desktop for HP as their mobile guys moved off 915 early for the same reasons.”

Microsoft broke that promise. Why? In the words of John Kalkman, a general manager at Microsoft: “In the end, we lowered the requirement to help Intel make their quarterly earnings so they could continue to sell motherboards with 915 graphics embedded.” Anyone want to take bets on the lesson HP learned from that little debacle?

So what does this have to do with Ultrabooks?

A lot more than you might think. Look at a number of reviews on new laptops and Ultrabooks running Windows 8, and a lot of the systems, including the high-end ones, are loaded with the same crap that pollutes the low end models. Laptop manufacturers are aware of how much consumers hate their software choices – if the real point of “value-added” software is that it artificially subsidises low-end PCs, why isn’t the software confined to just these models?

Maybe the TouchPad, Adamo, and Voodoo Envy were the wrong products, but they were the wrong products with the right idea. The only way to change longstanding consumer perceptions is to design products that challenge the status quo – and then keep doing so. It takes guts not to cancel a product after the first generation doesn’t ship in the kind of volume you were hoping for. It’s hard to argue for getting rid of crapware on a high-end system when your overall product margins are in the 5 per cent range.

But that’s what it’s going to take. Apple doesn’t own the $1000+ market just because of some unibody-clad magic. It owns that space because consumers believe, rightly or wrongly, that Apple products deserve that kind of investment, while hardware from the likes of Dell, HP, Lenovo, and Asus doesn’t. That can change. There’s a $1000 (£620) price gap between Apple and the rest of the industry and $1000 per system pays for a lot of potential innovation. The top OEMs have their own economies of scale to leverage.

It’s going to cost. It’s going to mean a lot of missteps and skunkworks initiatives. Some of those initiatives are going to fail. That has to be okay. Product developers have to have the freedom to design a product that puts the consumer first in every way, from the keyboard and trackpad to the chassis material and pre-installed software. No cutting corners. No compromises. It means judging hardware designs based on their long-term potential rather than short-term sales performance.

The tablet/notebook market is evolving at a tremendous pace. New materials, capabilities, and functions are being integrated in software and hardware, from flexible displays to new CPU architectures to new types of device control. The current OEMs have a real opportunity to get in front of this process and own some of the innovation that’s happening, but hiding behind rock-bottom margins will never make that happen. Intel and Microsoft are trying to push PC margins back up – the last thing that would help the market, long term, is another round of price cuts.

Disclosure: The author owns a single Apple phone and is none too happy with it.