The $99 PC is coming, and that's bad news

Chromebooks are finally gaining traction, and PCs on a stick are arriving -- that spells trouble for the struggling PC industry

The vision of Microsoft's Satya Nadella and Google's Larry Page prancing in a pas de deux doesn't go well with your morning coffee. But the two CEOs are indeed dancing around each other as Google pushes into the laptop market with Chromebooks and Chromebits, while Microsoft counters with low-priced versions of the Surface 3 tablet and pressures PC makers to sell cheaper conventional PCs.

The ballet at the low end of the desktop market comes as three other factors hurt the PC makers' ability to make money:

  • A strong dollar is pinching overseas PC sales.
  • The buying blip related to the end of support for Windows XP is clearly over.
  • Convertibles -- Windows laptops that double as tablets -- have not generated much excitement, and thus little revenue.

Although the Chromebook lacks many of the capabilities of a full-fledged laptop, it appeals to budget-conscious buyers who spend most of their computing time on the Web. It's even making inroads into the K-12 education market -- at Apple's expense, says NPD analyst Stephen Baker.

What's more, it has gained significant traction in the overall market in the last year. "The battlefield in 2015 on the consumer side is going to be on the low end," Baker tells me. "The Chromebook has proven it is a competitor, but it will be under pressure this year given Microsoft's interest in pushing down prices."

That said, it's not an entirely even match. If the Chromebook disappeared, Google's financials would hardly be affected. But Microsoft, which will be giving away Windows 10 for a while, and the PC makers have both been hurt as they're forced into accepting lower prices while defending their core business.

I don't think I'd want one, but even sophisticated users like my InfoWorld colleague Simon Phipps, who ditched his MacBook and bought a Chromebook, are singing its praises.

Where Chromebooks are making inroads

You can now buy a reasonably capable Chromebook for well under $200. In fact, two new ones went on sale Tuesday for $149.

The Haier Chromebook 11 and Hisense Chromebook each has an 11.6-inch display, 2GB of RAM, and Rockchip 3288 ARM processors. is taking preorders for the Haier Chromebook, and Walmart is taking them for the Hisense model.

It's easy to exaggerate the success of the Chromebook -- it's hardly a PC killer, as some in the blogosphere would have you believe -- but it's beginning to carve a notable presence in the market.

On the personal side of the PC business, Chromebook sales last year grew in "the low-double digits, representing 15 to 30 percent of sales in the under-$300 market," says Baker. That probably represents 4 to 6 percent of overall consumer PC sales.

IDC estimates that about 6 million Chromebooks were sold worldwide last year, more than doubling from 2.7 million in 2013. In contrast, sales in the overall PC market slipped 2 percent last year, marking the third consecutive annual decline. IDC is projecting that 8 million Chromebooks will be sold this year.

By contrast, IDC in February reduced its forecast for PC sales in 2015. The research company expects sales to decline 4.9 percent to $187.1 billion, compared with a prior forecast for a 3.3 percent decline.

With the exception of the education market, I have yet to hear that the Chromebook has had much success beyond consumers -- largely because it can't run Office-type applications demanded by businesses. But business sales are clearly not holding up the PC market.

Microsoft pushes prices down to get PC sales back up

Even if the Chromebook didn't exist, the PC industry would still be in trouble and Microsoft would be making moves into the lower end of the market. But the rise of the low-cost Chromebooks has given Nadella and company yet another incentive to push down prices.

Microsoft's newly released Surface 3 tablet, for example, sells for $499; the higher-end models go for $799 to $1,949. Compared to those other models, the Surface 3 has a slightly smaller screen (10.8 inches rather than 12), a slower processor, and a less-flexible kickstand. But unlike earlier cheap Surface versions that ran a kludge of an operating system called Windows RT, this one runs the real Windows and most of the familiar Windows applications.

Prices for other manufacturers' low-end PCs are coming down as well. "We've seen 15 percent price declines in the under-$300 price band," says NPD's Baker. Microsoft is also pushing PC makers and retailers to sell cheaper PCs. As a result, you can, for example, now buy Hewlett-Packard's Stream PC for as little as $199.

Intel, which is very dependent on the PC market, is hurting too. But unlike Microsoft, it has some presence in the Chromebook market via its lower-end lines of Atom and Celeron chips, says Nathan Brookwood, a principal analyst at Insight 64.

"Would Intel rather sell a Core i5 instead of an Atom? Of course, but it can still make money on lower-priced chips," he tells me.

The PC on a stick puts even more pressure on PC prices

Intel could even make money with chips for a new class of device, the so-called PC on a stick, Brookwood notes.

The PC on a stick is basically a dongle containing an operating system that plugs into an HDMI port on a monitor or a TV. Dell has sold one called the Wyse Cloud Connect ($129) for about a year now, and Asus and Google will sell Google's version, the Chromebit, this summer. The price hasn't been set, but Google says it will likely go for less than $100.

Intel will also sell its own version of the PC on a stick later this month: One running Windows will cost about $150, and one running Linux will cost about $100. The required wireless keyboard and mouse are not included in any of these products.

I don't think many people would want to turn their TV into a PC, but you could turn your older HDTV into a smart TV with the dongle, says Brookwood. The cheap device might also be a good fit in the education market, and travelers might take it with them on the road instead of lugging a laptop or a pricey iPad.

The PC isn't what it used to be

There's an intangible psychological factor that Microsoft and the rest of the PC industry have to face: Cheap devices like the Chromebook, capable tablets like the iPad, and powerful smartphones are changing how people think about computing.

There are a lot of ways to get your work done or to entertain yourself, and the first thought that enters someone's head to do these things isn't necessarily a PC.

The PC industry can't dance around it.

Copyright © 2015 IDG Communications, Inc.