Buyers and Distribution
PC buyers fell into five categories: home, small- and medium-sized business (SMB), corporate, education, and government. In 2007, home buyers purchased about 42% of the world’s computers, while SMB customers accounted for roughly 32% of the PC market, large corporations for 12%, education for 8%, and government for 6%.53 (In recent years, the home share of the market had risen by a few percentage points; the business share had gone down slightly, partly because of slowing corporate PC upgrade cycles.54) The criteria that guided PC purchases varied by market segment. Business customers made decisions according to a combination of service and price. Education buyers focused on a combination of price and software availability. The consumers who made up the home market, traditionally very sensitive to cost, had begun in recent years to value stylish product design, as well as mobility and wireless networking capability.
In the 1980s, most PC buyers were business managers with relatively little technological sophistication. In general, they bought no more than a few PCs at a time, placed great emphasis on receiving service and support, and preferred to buy established brands through full-service dealers. In the early 1990s, however, as customers became more knowledgeable about PCs, alternative channels emerged. Corporate information technology managers and purchasing departments, often operating under tight budgets, began to buy large numbers of PCs directly from vendors or their distributors. Superstores (Wal-Mart, Costco) and electronics retailers (Best Buy, Circuit City) catered to the consumer and SMB markets. Web-based retailers, which sold PC merchandise at steep discounts, also saw a sharp increase in demand. By the early 2000s, the so-called “white box” channel—which featured generic machines assembled by local entrepreneurs—had become the largest channel for PC sales. Although branded PC makers had recaptured a portion of overall market share in recent years, white-box PCs still made up 37% of worldwide shipments as of 2006, and their share of key emerging markets remained particularly large.55
PC Manufacturers
In 2007, the four top PC vendors—Hewlett-Packard, Dell, Acer, and Lenovo—accounted for more than 50% of worldwide PC shipments. Below this top tier were various PC brands, but none of them could claim more than a 5% share.56 (See Exhibit 7—PC Manufacturers: Worldwide Market Shares.) Even as these companies continued to consolidate the PC market, their fortunes were very much in flux. (See Exhibit 8—Apple Competitors: Selected Financial Information.)
Hewlett-Packard (HP), following a rough period in the wake of its acquisition of Compaq Computer in 2002, had staged an impressive comeback. In 2006, HP overtook IBM to become the world’s largest technology company (with sprawling operations in imaging and printing, software and services, and data storage); it also surpassed Dell as the world’s leading PC maker. Under CEO Mark Hurd, HP rebuilt its PC business around the company’s strong presence in retail channels (where sales via 110,000 outlets worldwide made up 40% to 45% of its PC revenue) and around a “decommoditization” strategy. That strategy (exemplified by the slogan “The Computer Is Personal Again”) emphasized product design, stepped-up R&D spending, and aggressive consumer marketing.57 Dell, meanwhile, had stumbled. In the early 2000s, it had been the leading PC vendor, in terms of both market share and profitability. Its distinctive business model, which combined direct sales and build-to-order manufacturing, made for significant cost savings and enabled its products to become the favorite of corporate IT managers. In 2007, more than 80% of its revenues came from the corporate market. Yet Dell did not adapt quickly to the changing needs of the PC marketplace. In January 2007, three years after handing control of the company to a successor, founder Michael Dell returned as CEO and initiated a far-reaching transformation plan. Under his new strategy, the company doubled its investment in design and began releasing consumer-friendly products,