The two top selling laptops last quarter (on Amazon) were the ARM-based Samsung Chromebook which cost $249 and the Macbook Pro which costs $1,199.99. According to NPD, the average selling price of laptops in the last quarter was $429, yet the average selling price for Macs was $1,419. It is well know that Ultrabooks ($700-$1200) do not sell well.
These facts drive Windows fans nuts. How can Apple get away with charging that much? Who would buy a sub-$500 laptop - they are "junk". Why won't people buy nice touch ultrabooks? Why would anyone buy a laptop that can only web browse?
The answer to these questions and more lies in the following:
- How people use a laptop
- The quality of Microsoft Windows
- How the PC Industry works
- The rise of tablets
What do most people do with a laptop?
- Web browse, for many even their email is handled via a web browser.
- Some will do word processing. Most of this will be trivial in terms of features used.
- Some will use a specialized program such as Outlook to read email.
- Some will use a program such as PowerPoint for presentations.
- Even fewer might use a spread sheet in a trivial manner.
- They may have one or two other applications they use occasionally.
The quality of Microsoft WindowsI do not think it is a coincidence that the two top selling laptops did not run Microsoft Windows. Window is painful, pure and simple. You are constantly dealing with updates, maintaining anti-virus software, etc. Strange, unexplained things happen. I personally just spent 6 hours figuring out why my screen suddenly stopped turning off when the system was idle. Things like this just do not happen on a Mac or a Chromebook. Windows is overly complicated. It is "designed" to meet the whims of the most complex of enterprises, then foisted on consumer and smaller business users. Its one size fits all philosophy means it serves no one well.
Windows 8 of course makes Windows seem all that much more undesirable to most users. In ways it is symbolic of the overall way Windows was created. Windows 8 is essentially Windows, with an extra user interface duct-taped on. Windows in general is a pile of features glued together to met somebody's check list, rather than an actual design. The fact that Windows can still run DOS apps shows just how badly it needs a fundamental house cleaning.
How the PC Industry worksThe PC industry is a complex hierarchy of companies that cooperate to make a laptop. As prices of laptops have plummeted, narrow profit margins for most of these companies means they are finding it difficult to deliver quality products. That Microsoft and Intel have refused to allow their margins and even prices to drop, greatly exacerbates this problem. In the days of Windows 3.0, Microsoft and Intel together got around 12% of the average price of a PC. Today, in a $400 PC they get around 40%. OEMs, pressured by this, do everything in their power to get you to buy a more expensive PC where they can actually make a reasonable profit. This is why cheaper PCs have bad track pads, loud fans, and general bad design. Nice, inexpensive laptops are possible, just look at the $249 Chromebook (which contains neither Intel Chips nor Microsoft software).
The rise of tabletsAs more and more people have tablets, they find they do less and less on their laptops. Their tablets work with few hassles. They spend almost no time on maintenance tasks. They may still need to do a few things on a laptop. But why would one want to spend more on a laptop than on the tablet they use all the time? [Thus, the $429 average selling price. This price is around the price point where one is able to run something like Microsoft Office in a reasonable manner and is also less than the price of an iPad.]
Answers to the questions
Why would anyone buy a laptop that only web browses?
Many users do nearly all of their tasks in a web browser. If they prefer to type, a Chromebook is a great way to do this. Especially if it only costs $249. The security features in Chromebooks make it nearly impossible to get a virus, making them much safer for things like banking. Chromebooks are lower maintenance, even than tablets. There are now many apps available that work offline, go over to the Chrome Web Store and search for offline.
Who would buy a sub-$500 laptop? (They are junk!)
Low end laptops are only junk because the OEMs make them that way to encourage you to upgrade. Most people put up with them, because they really do not use their laptop that much anyway. Mid-range laptops generally come with a Core-i3 chip or better. The truth of the matter is that very few users need that much CPU power. The $249 Chromebook proves that laptops at these price levels should have better screens and trackpads.
Why won't people buy nice touch ultrabooks (or non-touch ultrabooks)?First of all, touch is not useful for the tasks people normally do on a laptop. All it really does is make your screen messy. People have enough experience with their tablets to realize that touch doesn't make sense when doing the intense work usually done on the laptop. As to ultrabooks, the PC Industry uglification of cheaper models means you are at the $1000 price range before you begin to get a decent laptop. If you are paying that much, why not just buy a MacBook, among many other benefits, you don't have to use Windows. The point here is that only the people that really have to have the power of upper end laptops are willing to pay the $1,000+ price tag. As this is an essential tool for them, paying $500 more for a MacBook (given its quality and status) just isn't a big deal. Everybody else buys the ugly laptops (which do not need to be that way), paying the least that will get their job done. Ultrabooks fall in the middle ground and thus do not sell well. Intel's latest plan of requiring all Ultrabooks to have touch will fail in an astronomical manner.
How does Apple manage to sell laptops for such a high price?This really was answered in the last question. People that actually need high-power notebooks or people for whom money is not an object, do not mind paying the higher price to get the nice integration and better OS that is on a MacBook. I know of many Windows developers that do their Windows development using high-end MacBooks and Virtual Machines.
The Future of LaptopsAt least for a time I expect to see Apple getting an increasing share of the high-end market. Chromebooks will likely take 10% or more of the market by 2014. Surely, there will be Chromebook competitors by then as well. The low-end laptop market will be switching to ARM-based machines soon. The $249 Chromebook is great, but the new chips coming out this year will make an ARM-based laptop truly feasible. The new laptops will be running Android and/or Traditional Linux. By Christmas 2014, 64-bit ARM chips will be common, at that point I expect to see most laptops be ARM-based. These machines will be able to do what 85%+ of laptop users need to be able to do. This will cause great turmoil in the current PC Industry. One foresees a Best Buy that has no systems running Windows. I'm expecting an average selling price of $375 by the end of 2014. These laptops will be much more pleasant to use that what the PC Industry is currently offering, for example they will not have fans. One would expect that Apple might try to make some higher end versions.
In case you doubt this is possible, take a look at these items on Amazon now:
ViewSonic VSD220 22-Inch (21.5-Inch Vis) Full HD 1080p LED Touchscreen Smart Display and Android 4.0 ICS All-in-One
WolVol NEW (Android 4.0 - 1GB RAM) SOLID BLACK 10inch Laptop Notebook Netbook PC, WiFi and Camera with Flash Player (Includes Mini PC Mouse)
WolVol 7inch Android Tablet PC Laptop Netbook with Installed WiFi 4gb HD 256mb RAM (INCLUDES: Velvet Pouch Case, Charger, Mini Optical Mouse)
There are dozens of Android "Stick" PCs available as well. These plug into TV sets via HDMI and use keyboard and mouse via USB for input. Prices range from $38 - $99.
It is common in the Android world that "white box" companies put out devices in advance of Android really being able to handle the functions required. I expect we'll hear a lot about non-tablet/phone Android during Goggle I/O this May.
Can the PC industry stop this?Probably not. Microsoft moves far too slowly to do the massive amount of work that is needed to fix Windows before it is too late. The Surface RT pretty much proves that even a cut-down version of Windows does not work well on ARM chips. They might be able to save their Office franchise by making ports to the new platforms, but that would be unusual behavior for them. Intel might be able to make chips that are competitive, however the chips like CloverTrail, shipped late, were not competitive by the time they shipped and the rumors say that Intel is charging twice what the best of the ARM-chips cost. Additionally, Intel will need to overcome its reputation among OEMs. Intel has been a bully on many occasions, OEMs will think twice before allowing themselves to be trapped there again. The OEMs themselves are already branching into the new areas, many already make Android tablets. Dell has a huge Android-based initiative that is too hard to describe here, but is the basis for them wanting to become a private company and is supposed to be a competitor for Chromebooks. Among the major OEMs, only HP has not publicly announced plans or products using Android.
UPDATE: I've added a related post that contains a video that demos what I am talking about here.