Monday, November 10, 2008

PC as a service: from margin erosion to new business model

It's no secret that PC prices have been decreasing due to ever-increasing commoditization. And then came the netbooks! Netbooks are cheap, they're portable and they're disruptively fitting with the new world order of cloud computing. The "race to the pricing bottom" is officially on, only accelerating commoditization even further.

The one component of PC pricing which has not maintained parity with the hyper-commoditization curve (at least for developed countries), is the Microsoft software stack. The more lower end PC pricing comes down, the more lopsided the BOM pricing component of Microsoft's wares becomes. This has been one of the major factors in the Linux-ification of netbooks.

Ultra cheap netbooks combined with a shift from local to web-based computing, is creating a new PC value system whereby selling the PC hardware itself is not necessarily the core business value. Rather, there are a multitude of services which can be offered and sold to users of cheap network oriented platforms such as storage & backup, search, media, app stores, location based services, etc. This takes the PC closer to the mobile phone business model, whereby the hardware is sold at a reduced cost or even given away, in exchange for reoccurring revenue and services business on the back end. Don't believe me? Look at Ubuntu Linux founder Mark Shuttleworth's comments about Microsoft possibly giving away XP:

"I've heard creditable reports of Microsoft offering XP at no cost to OEMs."

Every decrease in cost of PC hardware, as well as every increase in network bandwidth or availability moves the PC value system further from the confines of the actual hardware/software system, and closer to "the cloud". This not only forces Microsoft's hand to move their software to the cloud, but also to start focusing on a new services business model. This is not a shift the IT world should overlook. Many new opportunities abound as the new value system re-balances, for examples in the educational and lower end consumer sectors, because these sectors are not so encumbered by legacy of the non-cloud computing model. I also picked those two sectors as examples, because they have an audience of very tech adoptive people who tend to be in touch by-the-minute with the latest Internet oriented services. Innovate, partner and move quickly to ensure your spot in the new business model.

With so many netbooks for sale or announced, PC manufacturers will be forced to continually add value to their offerings, ultimately making netbooks more capable and thus eating up market from notebooks. This will bring down notebook pricing as well. And thus, the PC-as-a-service effect will ripple up the food-chain above them. Winners of the new world order have not yet been established. This is an interesting time...

Disclosure: no positions

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