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PC prices must rise, not fall, to solve Windows 8's lousy start, analyst argues

Gregg Keizer | Jan. 8, 2013
The holiday slump in PC sales -- down 11% compared to 2011 -- means that PC makers must raise prices, not continue a race to the bottom, an analyst argued today.

"If you use the netbook analogy, OEMs 'trained' customers to devalue their products," said Baker. "They told customers then that what they had been paying $800 for before was really worth only $300. That dragged down pricing across the board."

Netbooks, in fact, created the sub-$500 Windows notebook market, Baker said more than two years ago in an interview with Computerworld. That fueled sales, but at the same time depressed revenue for OEMs.

Over the holidays, said NPD, the average sales price (ASP) of a PC notebook sat at $420.

Those low, low prices now haunt computer makers: A sub-$500 laptop simply can't show off Windows 8 and touch. And because consumers have been trained to expect cheap PCs, they were unwilling in 2012 to spend enough to justify a move to the new OS.

Additional NPD data showed that was what happened. During the holiday season, sales of sub-$500 PC laptops dropped 15.5% from 2011's number. But sales of notebooks in the $500-and-up category increased by 3.5%.

"Windows 8 and touch is the right product," Baker asserted. "But Windows and touch at $349 is not. It just is not a good enough platform for Windows 8. And it's trying to compete with tablets."

And failing.

"A tablet does everything that a low-end PC is expected to do, and it has touch," said Baker. "Those tablets can sell for $200 to $250, because their makers don't expect to make money from the hardware."

But while Thurrott contended that the PC industry had to solve the poor sales problem by lowering prices, Baker said just the opposite.

"That's just not a winning battle," he said. "Does touch have to average $700 to $900 [for a notebook]? No. But it has to average $500 to $700. Cheap PCs just cannot compete with tablets."

In other words, OEMs must stop racing to the bottom of the price barrel, and instead take on the much tougher task of raising prices and convincing consumers that it's smart to pay more to get more.

If that sounds familiar, it's Apple's personal computer business model in a nutshell.

"It won't be easy, but it's doable," Baker said of computer makers' need to talk customers into paying more for a credible Windows 8 laptop. "There's evidence that it can be done. Before 2009, people willingly paid $600 to $700 for computers, and that was with a crappy operating system, Vista. But you need the right product."

As an example, Baker gave a nod to Lenovo's IdeaPad Yoga 11, a $799 hybrid that runs Microsoft's Windows RT, the tablet-oriented spinoff of Windows 8.

Baker was optimistic that the computer industry would take note of 2012's data, and learn the lesson that they must persuade consumers to spend more.


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