The Cloud and the Death of the Computer

There is a monumental shift going on in the computing world. Increasingly, users are using web apps instead of those on the desktop. The shift began with email, but now, people are using web apps to create documents, spreadsheets, store photos and video; even rich applications like photo editing are now available inside of the web browser.

With “the platform” shifted to the web, there is no need to use Microsoft Windows anymore. We can use any old OS (Linux/OSX) with FireFox and we’re good to go.

This shift has created a whole new hardware category: netbooks. Netbooks are a cheap and mobile version of the long-heralded “NC”, or network computer. In the 90’s, tech gurus called the death of the PC more than a decade early, and welcomed a future of ultra-cheap NCs. With NCs, they prophecized, we’d store all our data on the web and get by with tiny (<4GB) hard drives, relatively slow processors, no disk drive, and an internet connection.

The ASUS Eee PC was the first netbook to make it on the scene. Its selling point: a $245 price tag, WiFi, a 7″ screen, a 2GB solid-state disk for storage, 256 MB of memory, and Linux. ASUS promptly sold millions of Eee PCs in its first 6 months on sale, and has since expanded the line to include larger models with bigger solid-state disks, bigger screens, more memory, Windows XP pre-loaded, and even a desktop version.

This development is a huge disappointment for Microsoft and all the major computer makers, including Dell, Lenovo, Apple, and HP. Microsoft will be devastated because there will be no reason to pay extra for Windows Vista. The computer makers will lose because there’s no longer any reason to upgrade one’s computer, and computer sales will shift to ultra-low priced (not to mention low-margin) NCs.

This process, as I’ve described it, is already occurring. The best example is Japan, where we’ve seen more than 5 consecutive quarters of falling PC shipments. The reason: most consumers would rather spend money on a new mobile phone (itself a capable mini-computer), video game console (ditto) or flat-screen television over a new PC.

Laptops have seen their share of PC sales increase, but combined sales of PCs and Laptops have fallen.

This is horrible news for the industry, but it’s also an opportunity for innovative firms that can foresee the future of computer use, and build that future into their products. It’s also a victory for consumers, who will presumably pay much less for their hardware going forward.

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