Industry insiders across the B2B computing hardware value chain reflect on the evolving state of PC sales and remain hopeful that the new device-as-a-service business model will lead to growth
When Steve Jobs heralded the post-PC era in 2010, it was characteristically hyperbolic, but it wasn’t exactly news.
As several experts like Harvard Business School professor Willy C. Shih put it, PC manufacturers have been playing in a “highly constrained innovation space — one in which the hardware platform is defined by Intel and the software experience is defined by Microsoft” for decades. And while this industry setup led to adoption-friendly prices for users in the beginning, over time, it also led to increasingly small margins for resellers and distributors, decreased ability and incentive to differentiate for manufacturers, and, ultimately, uninspiring technological advancements for all.
But PC commoditisation may still turn into growth. The rate of decline of hardware prices has slowed down since 2014. Also, when we interviewed experts in this shifting space, many were cautiously optimistic. Some alluded to industry-revitalising releases like 2-in-1s from relatively new hardware manufacturers. Even more pointed to the customer-driven business model innovation of selling solutions as an ongoing service, where PC hardware is a key component.
Here, we’ve selected excerpts from our 40+ conversations with experienced professionals on the enterprise side of the PC value chain and transformed them into an immersive oral history of personal computers. We agreed to obscure identifying details to encourage interviewees to be as open as possible, but, rest assured, represented are experienced insiders in top manufacturers (including HP, Dell, Apple, Microsoft and Lenovo), resellers (including CDW, Insight and Connection) and distributors (including Ingram Micro, Tech Data and Synnex) that together ensure that this technology reaches users.
Only time will tell if these recent upticks are outliers or signals of a positive trend. But, for now, these insiders’ collective wisdom suggests that it might be premature to count the PC out.
Marketing executive, Reseller: “There were a lot more events in the past [for] major technology upgrades. There aren’t that many anymore. Pentium 1 to 2 to 3, then the i35, then the laptop, then the iPad. Those are big events that would always garner a lot of news. Apple still has events, not really HP or Intel or Microsoft. Over time, because of the competition that was created, margins bottomed out and spun out of control. Resellers went to manufacturers and said, ‘Look, this is a race to the bottom in pricing and none of us are going to survive like this.’”
Channel director, Manufacturer: “It’s driven by technology, driven by advances specific to Intel. Then what happens is Dell, HP, Lenovo will come up with a new laptop or a new tech that is a better resolution for screen, video acceleration or a better chip, or some pairing of tech and functionality.
The tech has gotten less and less exciting in the PC space. It’s just an enabling tech. It’s not driving productivity. There’s new and more important issues for people to worry about like big data, security, the cloud. Every six months or so, there will be product enhancements, but very seldom is there a draconian change to the product line that requires a great deal of notice.”
Marketing executive, Manufacturer: “Calculators [were new] in the 60s but everyone understands what is a financial calculator at enterprise today. For PCs, it was difficult before, but, eventually, it becomes very easy to buy unless you need credit or fulfillment. It can be done on the website. You just look at product prices because you get the same with every hardware.”
Sales executive, Manufacturer: “At the end of the day, pretty much all computers use the same processor, Intel. It’s not like there are large differentiation capabilities.”
Sales director, Manufacturer: “In the PC space, it is largely commoditised. If it is a large company, you could have a mix of products, sizes, PCs, desktops, etc. There is no PC, per se, for SME or for large [companies]. It is more based on needs, such as mobility. If the profile is of someone who is always on the road, a laptop or tablet just makes more sense. But at the office, maybe a desktop.”
Marketing executive, Manufacturer: “Design makes a difference.”
Marketing executive, Reseller: “They (Microsoft) won with a really good piece of hardware. I have this HP laptop now that doesn’t disconnect from the keyboard and doesn’t work nearly as well. It’s like writing on a piece of paper. They won through a lot of advertising but, at the end of the day, it was a big piece of hardware. Better than anyone else’s in terms of differentiation.”
Marketing manager, Manufacturer: “IT managers don’t decide what employees use, in the sense that it’s no longer only about costs. We all have cellphones that can do a lot of things. So we ask ourselves, why do we have laptops that are so heavy and difficult to carry around. It’s all these trends that led to the 2-in-1.”
Sales agent, Reseller: “For notebooks, the sales pitch is different. Notebooks sell themselves depending on what people need. The conversation revolves around understanding what that person will need that notebook for. We no longer talk about how fast it is. It’s gone from features to utilisation. ‘This is for travelling salesmen.’
(What about 2-in-1s?) I don’t feel comfortable [selling them]. It has too many parts. It has the right spirit, but in terms of compatibility, cost of ownership, people actually using it the right way, people are ok with binary — laptop or tablet. I’m not sure it’ll be so good for commercial use. For schools and government agencies, history doesn’t show that they will be into this kind of thing. They will probably wait and see. Police cars and construction, they will use Panasonic Toughbook, period. A large business, I wouldn’t count on them. They don’t have the dexterity to have the advanced brands. They would give everyone the same general thing.”
Marketing executive, Manufacturer: “In five years, it (distribution) will be different I think. If you don’t add value to the product, businesses will be buying from the B2B account of manufacturers. If it’s for an end product that the customer already knows well, the customer will go to an online platform, like an Amazon for B2B. At the end of the day, the way resellers compete with each other is in services. If you need to localise your products, customise [them], they can do it. They can combine different products from different manufacturers to offer better solutions.
CDW does most of their sales online or through the phone. The end customers are getting more and more empowered. They will ask for software but not the hardware. They will split them. They will buy hardware from the cheapest place possible. If a reseller complements the product with more services, configuration, training, software updates, the customer will buy from them.”
Sales manager, Reseller: “It’s changed. People are smarter, products are better. Before, people had a couple of models; now there’s so much stuff out there. There are so many flavours to the same product. I can still help with ‘paralysis by analysis.’”
Marketing executive, Reseller: “Money is not coming from the OEM (original equipment manufacturer) so I need to generate new value. There have been a lot of [optimistic] projections for laptops, desktops, tablets, 2-in-1s and so forth, but it’s a commodity business. They are toasters. There’s very little money to make on it unless you wrap services around it with resellers. If you are an OEM, you are expanding into these new technologies. There is more profit on servers, storage devices, etc. as the market is more sophisticated.
Channel director, Manufacturer: “That’s where [distribution] partners are maintaining a competitive advantage these days, doing additional customisation on laptops as they come out. Insight will replicate a customer’s environment to understand the user-experience perspective. They will customise laptops from a functionality perspective for auditors, maybe [build] a specific keyboard for accountants, bundle it in a box and ship it to a customer. That’s how they earn their margins.”
Partnerships manager, Reseller: “I have yet to be on a significant [commercial] sale where there is no customisation. I am involved in managing those customisations. That’s me with the OEM, getting the special SKU (stock keeping unit), getting it to distribution. There’s a lot of logistics.”
Marketing executive, Reseller: “Just-in-time [delivery] is happening; it’s not just theory. [The reseller] industry would have 22, 23 turns. [We were] pushing 23 or 24 turns. Customers owed us money before we owed anybody else money. It’s been going on as margins and growth in the industry have flattened out. You might stock up more, but a lot of these products are very specialised. You can really be off if you ordered very specific configurations and the market taste changes. It’s better to be more real time and go for drop shipping.
The driver for consolidation has been the margin collapse. There can’t be smaller players. They can’t survive. The cost of doing business requires high volumes. The consolidation is within [specific domains] because deeply integrated partnerships exist. They (manufacturers, resellers and distributors) have a symbiotic relationship. Very few relationships are treated as transactional.”
Sales agent, Reseller: “For the most part, they (commercial buyers) order on an as-needed basis. I think it’s more common now because our procurement is so good. They just place an order and it only comes to the warehouse if it needs to be customised. This allows us to keep stuff out and get them to clients quickly.”
Sales director, Manufacturer: “It is not a market that you will see a lot of newcomers. I wouldn’t be surprised with more consolidation. It took Lenovo two to three years after buying IBM to migrate the manufacturing exclusively to China. So once they made that transition, with all the resources that were a lot more cost effective there, they could get to better price points that made them very competitive in the marketplace.”
Operations director, Reseller: “Experts are saying that Toshiba, Acer, Asus will likely be bought up by larger players.”
Sales executive, Distributor: “When IT starts slowing down, which has happened in the last year or so, they need to consolidate in order to become more efficient, more relevant. Ingram is about to get acquired by a Chinese company. Tech Data has acquired part of Avnet.”
Strategy manager, Manufacturer: “There is a huge concentration in this industry. Two years ago, I worked with five distributors, now there are two. There are some concentrations with resellers as well. It’s [because of] economies of scale.”
IT director, Customer: “We are thinking of [forming] a buying consortia of one million laptops across large companies like us to buy cheaper and have a consumption-based model.”
Sales executive, Reseller: “We have huge, huge clients saying, ‘I just want to buy a system as a service’ and they are pulling for it because it is the difference between CAPEX (capital expenditure) and OPEX (operating expense) and you can account for these differently and get taxed differently. Some of that purchasing power don’t even come from the procurement team anymore or the CTOs office. Sometimes it comes from the CFOs office. I work closely with IBM, and the reason they want this is for predictable revenue. They know they will have 10 million people all over the world using their service. It makes their balance sheet look better.
I think manufacturers loved the good old days where they could get $50M-dollar orders, but the cloud has really disrupted a lot of technologies. The OEM can help to co-create a new business model for consuming things. It’s all about the data. They have access to the volume that we move and [the volume that] other VARs (value-added reseller) move, and [that they] move directly. They should be able to compile that and optimise.”
Partnerships executive, Distributor: “(Are manufacturers, distributors and resellers forced to adapt to the ‘as-a-service’ model because of customer preference?) No. I think they see this as a growth opportunity. They see it as a differentiator for a business area that over the past years has been declining.
(Is growth a valid expectation?) I think it depends which angle you come from. If you are an HP or Lenovo, you sit on a heavy base of PC business, so you might see it as a threat or an obligation. If you come from a new-device-manufacturer angle, like Microsoft, you have a selected GTM (go-to-market) collection of products that are high end, which can be seen, just on the product side, as a growth opportunity. On top of that, Microsoft has all the operating systems and application software, so it’s a huge upsell opportunity if you market products in a recurring model.
(What’s the delay?) OEMs have not figured out how to use distribution [partners] in an as-a-service solution yet. The primary value that they see is restricted to financing, fulfillment, supply chain, payments. But if you look at services, there are low and micro transactions that the industry won’t be able to monetise [without us]. There is a physical proximity aspect that distributors could use to their advantage. There are not that many that can do it as holistically as [us]. We have the footprint for it. And the resellers can’t do it because not all of them are as huge as CDW. And that is why those hardware-as-a-service models that have existed, have not been scalable as they went directly from the OEM to the resellers. In short, ‘should the OEM include the distributors?’ Yes, but manufacturers should come out with the go-to-market [strategy].”
Marketing executive, Reseller: “OEMs don’t know how to figure this [as-a-service business] out, building something so expensive, and then [have customers] just paying $4 a month on something like that. It would be hard to change [the] hardware [business] as a whole, so incremental perspective is your best way.”
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