What is a PC now?February 27, 2013: 7:26 AM ET
Changes in mobile technology and touchscreens are scrambling the old definition of the personal computer.
FORTUNE -- The question "What is a PC?" has been bemusing analysts and industry observers since long before the introduction of the iPad -- but especially since. The answer is not so simple. In some ways, it's a question of mere rhetoric. But when it comes to analyzing markets and companies, it becomes a lot more than that.
Tablets and smartphones have been cutting into PC sales for years. That's because for many people, the newer gadgets do everything they had previously counted on PCs -- including laptops -- for: email, Web browsing, watching video. But in general, they don't do everything that powerful PCs can do or not quite as well, such as video editing, hardcore gaming, programming. Many consumers still want or need a laptop or a desktop machine.
It might sound silly at first to define a smartphone as a "PC." But lots of people who otherwise might have purchased a PC have opted instead for a smartphone, since it does everything they in particular need from a computing device. That's even more true of tablets -- and it will be increasingly so as the differences between tablets, even phones, and PCs narrow. Soon enough, many of us will be carrying the equivalent of a PC around with us to use as a tablet when we're mobile, and then plugging it in at home, attaching it to a keyboard, and using it as a fully functional PC.
Hardware and software makers may have helped blur the distinction. Microsoft's (MSFT) new Windows 8 operating system can be operated like a traditional desktop PC or via a tablet-like interface that is compatible with touch and gestures. Apple's (AAPL) Mac OS, meanwhile, has adopted some features of iOS, the operating system powering millions of iPads, iPods, and iPhones, though the company doesn't currently sell any touchscreen enabled desktops or laptops. And beleaguered hardware manufacturers have adopted touchscreen technology and ultrathin packages that draw from both tablets and laptops. These so-called convertible laptops, like Lenovo's Ideapad Yoga, double as both because their screens can be flipped back and forth.
For the moment, the PC is confused. Consider how market researchers and stock analysts often measure the computer market. Last year, the research firm Canalys declared that Apple had become the world's largest maker of PCs. But that was only because the firm included tablets (which it called "pads") in its findings. "Pads," Canalys said, made up about a quarter of all sales of PCs.
Not surprisingly, the Canalys report got lots of attention and stirred much debate. Harry McCracken of Time magazine took the opportunity to poll his readers to find out what they thought. He added his own analysis and decided that a device is a PC if it meets the following criteria: It run apps; it is general-purpose (and not meant for singular uses, like a game console); it is meant to be used by one person at a time.
He then took a leap and said a PC can be "any size," meaning smartphones can count. But that assumption distorts the market for the simple reason that most people who own smartphones also own a PC or a tablet. Similarly, there are those who buy a tablet in addition to a PC, and others who buy them instead of a new PC. Granular analyses are needed to get a full handle on how and to what degree both tablets and phones are supplanting what most people think of as traditional PCs, and to what degree such devices are purchased as supplements to PCs. (Macs of course are included in the definition of PC, unless it's clear from context that they're being differentiated from machines running Windows.)
Since the Canalys report was issued, the confusion has only deepened both because researchers define the market differently and because the gulf between PCs and tablets is quickly narrowing. That confusion sometimes makes it hard to measure various market trends. A Bank of America Merrill Lynch report on search-engine use in January had to rely on numbers solely from (traditional) PCs because comparable data on mobile searches wasn't available. Is it even meaningful to note that searches on the four major search services -- Google (GOOG), Bing (MSFT), Yahoo (YHOO), and Ask -- rose by 9% in January from the previous year, when mobile data isn't included? "Unfortunately we do not have mobile query data to see the full picture for query growth," BofA's note read. So the report threw in the fact that some search advertisers estimated that mobile searches made up about 15% of the total.
The distinction between PCs and mobile devices remains important for analyzing other allied industries as well. The market for chips that run mobile devices is quite different from the market for chips that run PCs. A Morningstar report this month noted that chipmaker AMD's (AMD) recent troubles are in part due to the "headwinds" it faces thanks to "rapid tablet adoption." Meanwhile, Intel (INTC), which is dominant in desktop PCs, is coming under increasing pressure to show results in its mobile chip sales.
But when looking at the market as a whole, sans all these complicating factors, the trend is clear: Over the five years leading up to the release of the iPad two years ago, sales of traditional PCs and laptops grew anywhere between 5% and 15% a year, depending on the year and data source. Last year, sales declined about 5%, and a similar decline is forecast for next year. Over the 2012 holiday gift season, PC sales declined by between 6% and 10% over the previous year (again, depending on whose data you believe), even as the economy was recovering. Tablet sales leaped by between 60% and 80% during the season. Lots of people are buying tablets and forgoing traditional PCs.
That trend will continue. Over the coming months, more-powerful hybrid and convertible tablets will be coming on the market, and it seems clear that in just a few years time the differences between tablets and PCs will be negligible, at least from a consumer's point of view, though there will still be a market for traditional PCs for certain computing tasks.