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How the Cloud affects Desktop, Laptop, Tablet and Smartphone sales.

Apple DevicesI've been following the earnings calls of several major hardware vendors over the last few quarters, and it seems as though there has been a general slowdown in overall sales numbers. While this may be partially the result of a weak global economy, I believe there are more things at play here. I will use Apple as an example, because while they had a ‘disappointing’ Q2, they are still ahead of everyone else in the industry, and I believe it is due to the tight integration between their hardware and software offerings.

In Apple’s recent earnings call for Q2, Peter Oppenheimer, CFO, said “Our weekly iPhone sales continue to be impacted by rumors and speculation regarding new products.” iPad sales, however, were up 84% from a year earlier and up 44% from Q1 at 17 million units. Apple’s Mac line of desktops and laptops was almost flat in terms of sales. These earnings fall into something of a pattern that I think will continue in a broader sense across the tech industry, potentially harming the earnings of some companies.
It wasn’t too long ago that Apple heralded the release of the new iPad as the end of the PC era. Everything we have seen since then has proven that statement to be true. Desktop and laptop sales have fallen sharply across the industry, while smartphone and tablet sales have increased. Speaking specifically about Apple, iPad and iPhone sales have crushed the competition. What is causing this tectonic shift in device sales, and what will it mean in the long term?

From an end user perspective, devices fall into one of two broad categories: creation and consumption. Traditionally, desktops and laptops have been creation devices: devices people use to create content for consumption. This content can be documents, graphics, websites and games. Smartphones and tablets have traditionally been consumption devices: devices people use to consume content that has been created. People will typically watch movies, listen to music, read ebooks, send and read email, look at photos and surf the web on these mobile devices. I use the word ‘traditionally’ because the lines are slowly becoming blurred as more content creation capability is being built into mobile devices over time.

If you look at the typical user base for electronics, there are far more consumers than creators. It is very difficult to give an exact ratio, but I would estimate that less than 10% of users are creators and the rest are consumers. This would explain the tectonic shift away from content creation devices, such as desktops and laptops, toward consumption devices like iPads and iPhones. Even as more people want to start creating content, these mobile devices are enabling much simpler ways of doing this, further solidifying their place as the go-to tech devices for the vast majority of people. I believe this trend will not only continue, but also accelerate as time goes by.
The rapid acceleration of this trend is being helped by the recent explosion of Cloud Computing. While you can find tons of information about Cloud Computing on my blog, for those that may be new to this site or the concept, Cloud Computing is using computing resources for various tasks over a network connection; typically the internet. In essence, ‘The Cloud’ can be loosely translated as ‘The Internet’ for most of this discussion. Most of the daily interactions with mobile devices center around using Cloud services like Facebook, Linkedin, Twitter and Pinterest. In their early existence, most of these services were merely websites, but as mobile device usage has skyrocketed, locally installed applications or ‘apps’ for all of these services are now available. The same goes for most online banking websites and their applications. Mobile devices like the iPad and iPhone also have a native web browser, such as Safari, for viewing standard web pages that may not have an app available. Even Google has entered this space, providing the immensely popular Chrome web browser for mobile devices.

The Cloud has also enabled these mobile devices to become content creation stations by utilizing the horsepower of servers on the internet to do things such as image editing. Pixlr, a popular image editing website and app takes the place of larger image editing applications such as Photoshop, which require far more processor power and ram than mobile devices have. This has allowed people to shift away from expensive desktops and laptops to cheaper mobile devices, and still be able to do many of the same tasks they did before. There are now apps for music creation, writing, note taking, photo editing, online file storage, shopping, presentations and even live television streaming. The Cloud has fundamentally shifted the tech device market away from laptops and desktops to mobile devices.

There is one last thing that the Cloud has done to ‘put the final nail in the coffin’ of laptop and desktop sales: it has extended the life of existing laptops and desktops. As more of the tasks that were traditionally done on laptops and desktops are shifted to the Cloud, the applications that performed these tasks are being remade as web applications which function inside a web browser. Older applications like Microsoft Word, Excel and Powerpoint are being replaced with online versions of word processor, spreadsheet and presentation apps such as those from Google Docs. This has drastically reduced the power that desktops and laptops specifically need to have to be useful. Thus, people who typically needed to replace their computers every two or three years to keep pace with the new ‘bloated’ applications no longer need to do so. Coupled with the weak economy and uncertainty, more people are keeping their computers until they absolutely have to replace them.

Mobile workers, like myself, have mostly transitioned to Cloud based applications for everything from word processing to payroll. There was once a day where the tasks I needed to perform required a lot of processing power, and I had several computers running in my home office 24/7 to get everything done. My laptops even had to have significant power in order to run all of the applications I needed for business. This led to a roughly two year replacement cycle, if I was lucky. Now that I am able to do everything I need in a web browser plus a few minimal apps (similar to those on a mobile device), I have no need to replace my current MacBook Air. As a matter of fact, my computing power needs dropped so much that I can probably keep this laptop for the next five years and not experience a drop in performance. The other amazing thing that has happened is that all of the applications I need to use on my laptop for business are available as apps for iOS on both my iPad and iPhone or as websites that I can access via Safari or Chrome for iOS. I can literally run my business from an iPad if I wanted to. On a typical day, I will often get more than half of my work done on my iPad, saving certain tasks for my laptop that are a little more cumbersome on a tablet.

So, in recapitulation, the Cloud has made it possible to do almost any computer related task on a tablet or smartphone. The Cloud has also made it possible to do almost all of these tasks in a web browser, which extends the life of existing computers for users. These two fundamental shifts in computing platforms and power requirements has dealt a double blow to the makers of laptops and desktops. This will play out over time in their earnings and market share. Apple leads the industry in all of these areas and are poised to reap the rewards of being the first to market with a viable smartphone and tablet, which remain the pinnacle of their respective categories to this day.

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