Speaking at All Things D in 2010, Steve Jobs famously predicted that "PCs are going to be like trucks": specialised devices that only appeal to people with particular demands of their computing experience while ordinary people would come to prefer smartphones and tablets for all their computing activities. Last month, Enders Analysis consultant Benedict Evans gave a presentation at BookExpo America entitled "Mobile Is Eating The World." In it, he laid out a thorough series of metrics that suggest, when taken as a whole, that the scale of the post-PC opportunity is somewhere between 'ginormous' and 'staggering' -- and that Jobs's vision is coming inexorably to pass.
Now, I don't want to spoil the whole thing. I urge you to read the slide deck for yourself. But I am going to cherry pick a few of the figures I found most interesting to whet your appetite, and add in some of my own ideas as to what this all could mean for the future.
Before that, though, an aside about analysts. There's a strong meme circulating amongst Apple blogs that analysts are idiots and their writing to be universally shunned. Like most strong memes, this one presents a simple narrative; like most simple narratives, this one is wrong. Reality is far more nuanced than that. There are good analysts and bad analysts, as with people in all walks of life. Certainly, I cannot understand why Gene Munster is obsessed with the Apple TV, an idea that makes no sense to me. Evans is one of the good guys though.
The scale of the post-PC opportunity
Evans starts out by talking about just how big the post-PC device market could be in the future. Total global PC sales in 2012 were 350 million; there are 1.6 billion PCs in use, most of them shared between multiple users, and they are replaced every 4-5 years. For mobile devices (including smartphones, feature phones, and tablets), 2012 saw 1.7 billion sales -- almost five times as many as there were PCs -- to a total of 3.2 billion users, almost always used only by one person, and typically upgraded every two years. In other words, mobile is a whole different ballgame to computers, and it always has been. Dwell on those figures for a moment -- 3.2 billion means almost half the planet has a mobile device today (almost all of them low-end feature phones, of course).
Still, mobile sales have outnumbered PC sales for decades; that's old news. What's changed about mobile is the rise of the smartphone and (to a slightly lesser extent, because it started later) the tablet. Since 2007, although feature phone sales have been declining slightly, smartphone and tablet sales have grown very quickly. Today, smartphones make up about one in every three phones sold, and that ratio is continuing to move in smartphone's favour. Furthermore, unlike PC sales -- broadly stagnant for several years now -- there is no sign of growth in phone sales slackening off. There's still half the planet to go, after all.
So where does this lead? Evans predicts that in the next five years, we'll see no change in the size of the PC market -- but explosive growth in the smartphone and tablet space, three to four times bigger than where they stand today. That'll put tablet sales well above combined sales of desktop and laptop PCs, and smartphone sales far above that again.
So it seems Jobs was right. The scale of opportunity in mobile technology is huge. But how well positioned is Apple to benefit from this? And what of its competitors?
Is Microsoft withering on the vine?
In a slide entitled "the irrelevance of Microsoft", Evans paints a stark portrait. As little ago as 2009, almost all online access was done via PCs and as almost all PCs run Windows that meant Microsoft's share of the "connected device" market was pretty large: 80% or so. But as more and more smartphones and tablets have been sold, which almost entirely run non-Microsoft OSs, so that share has steadily declined ever since. It's now down to 25% or so. Certainly, in terms of things like determining web standards, Microsoft is a much diminished influence.
Does that bode ill for the company, however? Don't forget that although Microsoft's share of the connected device market has declined, that's mostly because the overall market itself has grown. PC sales, as I remarked above, have been largely static through this era, and therefore so has Microsoft's revenue from Windows licences. It had a revenue of $18.8 billion in the first quarter of 2013, and $6.06 billion in profit. Not too bad, right? This is because most of the mobile growth has been in smart phones, and very few people are buying a smart phone to use as a PC, so (so far) the affect of the growth in mobile tech haven't been felt in Microsoft's markets.
However, in the last two years, tablets have also been growing explosively (although far behind smartphones) and this is a product category that can replace a PC. So PC sales have, finally, switched from stagnating to declining, and there's the real threat to Microsoft's bottom line.
There's also another element to this story, which is Microsoft's other cash cow: Office. Office sales largely work through a sort of institutional inertia: the main value is that everyone uses it, so everyone shares files around in its formats, and no third party app has ever managed to do a flawless job of opening and working with those formats without munging the layout, breaking the fonts, or some other irritation. But today we're in a world where less than a quarter of people are using Microsoft devices online, and so less than a quarter of people online can choose to work on Office. Most of those of those people are on phones, of course, where it doesn't matter much -- only the brave and foolhardy are doing complex word processing on a smartphone. But many of them are also on tablets, and that could be a problem for Microsoft as tablets eat into laptop and desktop PC sales.
Now, this is a line of reasoning that leads you to the conclusion that Microsoft should port Office to the iPad. I used to have a hunch we'd have seen this happen by now, but so far, it's chosen not to do so, and instead use the existence of Office as an extra selling point for its Windows RT and Windows 8 tablets. In other words, Microsoft is prioritising protecting Windows PC and tablet revenue over protecting Office revenue. It remains to be proven if that was a smart call or not; perhaps the release of Office 365 for iPhone means Microsoft's resolve is weakening, although I'd argue that's not quite the same thing. Few people would choose to use a smartphone rather than a PC for document editing, so the two products don't really compete; whereas people might well perfer to use a tablet to a PC, so the competition has more direct consequences.
The "Four Horsemen"
Evans's lists "four horsemen" of the post-PC world: Apple, Google, Samsung, and Amazon. (He sees RIM and Microsoft as rapidly becoming irrelevant and never gaining relevance, respectively.) How does Evans see competition between these companies today, and how does he see it playing out in the future?
Consider the business of selling devices. In this, Apple and Samsung rule supreme: not in terms of units (Apple and Samsung combined sell less than 30% of all handsets), but in terms of profit (Apple and Samsung hold more than 95% of the profit in the entire handset industry, with the lion's share of that going to Apple).
Note that it's a mistake to believe that this somehow means Android is a failure because Google doesn't make any money on it. Remember that from the very outset Android was supplied by Google to the handset OEMs (HTC, Motorola, Samsung, etc) for free. If one's plan is to make a lot of money, one doesn't generally start by giving things away. Android was never supposed to generate any direct revenue for Google. Google makes money by serving up ads, and to do so effectively it needs people using its various products -- search, email, maps, coughReadercough. Android was designed to ensure that no-one like Apple could establish a stranglehold on the future mobile market and freeze Google out. Or, as Erick Schonfeld wrote for our sister site TechCrunch, "search is Google's castle, everything else is a [defensive] moat [around it]".
Evans also believes there will be significant growth in low-end Android tablets, with 7" screen sizes and prices below (often far below) the $330 price point for a poverty spec iPad mini. There could be as many as 125m cheap Android tablets sold in China alone in 2013, he claims -- compared to 120m tablets sold in the entire world in 2012 (of which 66m were iPads).
However, as many others have pointed out, Evans underscores that Apple products seem to lead the market in usage, far out of proportion to sales; depending on the exact metric you believe, anything up to 80% of all tablet web traffic comes from the iPad. I've yet to find an explanation that entirely addresses this. It's easy to list factors -- some Android tablets are shipped but never sold to end users; some of them are awful, and after a few weeks end up gathering dust; some of them are used regularly, but for much smaller amounts of time per day than iPads; some of them are mostly used for purposes other than web surfing (e.g. in-car satnav and entertainment centers); some of the metrics are biased towards English-language sites, whereas Android is huge in China. But to my mind, none of that convincingly adds up to the size of the difference in the stats. Perhaps I'm wrong, though, and that's all it is; or perhaps there's some other factor I've overlooked. Please let me know your thoughts in the comments.
The ecosystem is key
Selling devices isn't the whole of it, though. For Google, Android devices itself are only a means to an end -- a way to make Google services more accessible and attractive to end users. It's about building and supporting an ecosystem.
Evans finishes on differentiating between ecosystem types and sizes between the key software platform players: Apple with iOS, Google with Android, but also Facebook and Amazon with its as-predicted-by-me (why yes, I am still smug about this; thanks for asking) Android fork.
He (rightly) points out that Apple is qualitatively different from the other companies discussed here. For Google, Facebook and Amazon the platforms are designed to facilitate and increase customer engagement with their services -- ultimately, to either serve them adverts or enable them to buy things. Apple, however, remains primarily a hardware company that uses a strong software ecosystem as a hardware differentiator rather than a end in its own right. If you're inclined to disagree with that, remember that iOS updates are free and OS X updates are cheap -- but iPhones and Macs are neither. Apple's main profit driver and main focus remains hardware sales.
The bottom line
Three years ago, Jobs predicted that mobile devices would come to compete with and ultimately domainate over PC sales, coining the phrase "post-PC" to cover mobile devices that overlap with PCs -- so, smartphones and tablets, as opposed to feature phones. He tied a significant chunk of Apple's future to this vision, by concentrating much of its effort onto iOS and the hardware that runs it. There's plenty of evidence that Jobs was right, and as these trends continue, so companies that are involved in this space -- Apple and Samsung being the most obvious -- will continue to thrive.
If you like his data, I humbly urge you to follow Benedict Evans on Twitter and subscribe to his weekly newsletter, where he routinely shares his insight and data like this. I would also like to extend my personal thanks to Mr Evans for allowing me to reprint some of this slides in this writeup.