Will Mobile Devices Ever Replace PCs?

In his famous post titled Dawn of a New Day, the departing Microsoft CTO Ray Ozzie has outlined his vision of the ‘post-PC world’. Those were bold words from the executive of a company that has made a fortune selling software for PCs. Many have since latched onto the idea of a post PC world, an idea that got a huge boost when Apple launched the iPad. Many people quickly concluded that mobile devices such as smartphones and tablets will eventually replace the PCs - the desktops and laptops.

Photo: Lubor Ptacek

Today, however, the prevailing notion is different. There is an understanding that computer use-cases vary widely between content creation and content consumption and most people argue that they prefer creating content on a PC while the mobile devices are well suited for content consumption. People usually say that the keyboard is too small to type longer passages, there is no mouse and the screen real-estate is too limiting. As a result, most of us use both PCs and mobile devices today.

So what is the future going to look like? A post PC world as Ray Ozzie predicted or a world in which we will continue carrying around multiple devices including a laptop?

Well, I’d argue that all the technical limitations of mobile devices today are just temporary. Most iPad users already use a keyboard for extensive typing and it is just a question of time before Apple adds a mouse or a mouse-like pointing device. The screen size limitation is rapidly going away with the ability to add an external monitor which is also possible today. Alternatively, a pico projector provides another way to get a big-size screen for mobile devices.

The software for content creation is increasingly becoming available on mobile devices. Apple’s office applications such as Pages, Numbers, or Keynote are well adapted for mobile content creation. Even Microsoft is now rumored to be releasing Microsoft Office for iPad later this year. Similarly, Adobe now offers Photoshop Touch and Autodesk provides AutoCAD WS for mobile devices. Content creation software for mobile devices had to be adjusted to the different operating systems and different way of interaction but there is no reason why content creation wouldn’t be possible.

Yet even more innovation is coming that will make the distinction between PCs and mobile devices irrelevant. The data input is becoming less textual and more, well, human. Voice recognition and verbal controls are becoming useful. Apple’s Siri and Nuance’s Dragon Naturally Speaking are only the beginning. The gesture technology is also becoming more sophisticated. Innovations such as Microsoft Kinect are showing the way of interacting with computers via full-body gestures. Either way, it doesn’t matter whether the computer is a desktop, notebook, game console, or mobile device.

Our habits and skills will also become a factor. We have all been conditioned to use the QWERTY keyboard and learning a new way of interacting with computers may feel difficult. It is quite likely, that a new generation of users will emerge who will be trained in new skills which will make some of today’s constraints obsolete.

Ultimately, I am confident that mobile devices will replace PCs. But those mobile devices may not look quite the same as the ones we use today. The software and hardware will be more powerful and user friendly. And we will see a plethora of add-ons which will expand the content creation capabilities - I wrote about some of the amazing accessories back in December, 2011.

Today, when I arrive in my office, I don’t work on my laptop. Well, I do but I plug it into a docking station which adds a full-sized keyboard, a mouse, a monitor, a camera, and a set of speakers. Why should I not be able to do the same with my smartphone? I am convinced that the day is coming when we will have docking stations for our tablets and smartphones and we will use them as our primary content creation devices.

Mobile devices will replace the PCs

...and our carry-on bags will be a few pounds lighter!

Kindle Fire - The Price Is Right

Today, Amazon announced the long awaited Kindle Fire, a new tablet based on the Android mobile operating system. While the announcement was expected, the aggressive price has caught many by surprise. $199 for an Android-based tablet makes it the most aggressively priced tablet on the market. But is that the right price? Let’s take a closer look!

The $199 Kindle Fire could be a game changer

The entire tablet market should be grateful to HP for having recently conducted the largest price elasticity of demand (PED) test ever. If you remember, HP launched their TouchPad with the base price of $499.99. They reportedly manufactured 270,000 of the TouchPads, but after several months of trying, they had sold less then 10% of their inventory (25,000). After pulling the plug on the device, they sold the remaining inventory within hours for $99 a piece.

Being a marketer (and a techno geek), I actually tried to compute the price elasticity of demand for the TouchPad, coming up - as expected - with a high negative number. I got -549, but it’s been many years since business school (note: yes Professor, I have simplified my case by ignoring any substitutes, necessity factor, purchase power, brand loyalty, blah, blah, blah...doesn’t matter in this case). That low of a number means that the price is highly elastic which in turn means that buyers strongly respond to price changes. Duh. It also means that to optimize revenue (or better to grab as much market share as possible), you have to price the product near its marginal cost. Again, not a surprise - you make something and you want to sell as much of it as possible, you keep the price as low as possible to the cost of making it. Duh.

The cost of making the iPad is approximately $229 and we have to assume that Amazon could be in the same range. They can probably sell similar volumes as Apple has and thus have a similar negotiating power with their suppliers. The Kindle Fire might be a tad cheaper to manufacture with less memory and a smaller size. That suggests that at $199, Amazon is pricing the device at or just below cost - as my little price elasticity test suggests.

BTW, if you dismiss my simple price elasticity calculation and instead want to believe the efficient markets theory, you should remember that the discounted TouchPad was selling on eBay for $250. That seams to be the optimal price point at which the demand and supply clear.  Even if Amazon is losing $50 on each Kindle as the Piper Jaffray analyst Gene Munster suggests, it doesn’t matter. Amazon is not looking for any margin contribution from the Kindle Fire (or any Kindle). They are looking for market share and units sold - eyeballs. The margin comes from the content which Amazon can sell to the people who have their devices.

This is also the reason why the other Android vendors such as Samsung, Acer, HTC, LG, Dell, etc cannot play this game. Even if they can match the cost of manufacturing their devices, which I doubt as their volumes are not anywhere near the millions of iPads Apple sold and the millions of Kindle Fires that Amazon is likely to sell, they still need the devices to generate positive margin contribution. They don’t have any content to sell to offset that. Apple, on the other hand, is sitting in the perfect spot today by getting margin contribution from both, the content and the devices. Beat that, … [everybody else]!

The content is critical. The Nook by Barnes&Noble is a comparable reader to the Kindle Fire and it has been on the market for several months now, priced at $250. But since B&N doesn’t have anywhere near the reach of Amazon with its online store, the device hasn’t made a dent into the market shares. Amazon’s new Kindle Fire is no slam dunk but given the success of the original Kindle, we have to assume that they are now a serious player. This is particularly true given the aggressive price of the device with an entire content ecosystem under their control - anything from e-books, magazines, to music and movies.

And so what will happen next? Amazon Kindle Fire is likely going to grab some significant market share in the tablet market. Apple may experience some pricing pressure but will still have the benefit of the Apple brand and user experience - the same brand that permits Apple to charge a premium on their iMac and MacBook computers. While the prices might come down a little, I wouldn’t expect any $199 iPads anytime soon.

All other manufacturers are in trouble. Microsoft must quickly deliver a tablet at all costs because with Kindle Fire, there is another runaway tablet on the market using zero code from Microsoft. All the Android vendors, except for Motorola, who’s now engaged to Google, have even more reason to reconsider their Android bet. They are going to be forced into a price war with Amazon which they can’t win given Amazon’s scale and pricing power. Switching into the Microsoft camp might be the only sustainable move left for them. But the longer Microsoft waits, the less market share will be left to grab. As for RIM, the PlayBook looks like an official failure now and their options are shrinking fast...