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

OEMs to blame for poor Windows 8 sales over the holidays, says retail expert

By Gregg Keizer, Computerworld
January 08, 2013 07:31 AM ET

Computerworld - 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.

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Windows 8 failed to turn around slumping PC sales during the recently-concluded holidays, final data from U.S. retailers showed, confirming earlier estimates.

The answer, said Steven Baker of the NPD Group: Raise prices.

"This had to happen," Baker said in a Monday interview, referring to the unsustainable razor-thin margins and the continual rush to undercut competitors' pricing. "Even if Windows 8 had been a warmed-over Windows 7, [OEMs] would still have been beaten up," Baker said of a counter-factual where Microsoft just kept doing what it had been doing, and declined to turn Windows in a different direction.

According to NPD's numbers, PC sales during the 2012 holidays -- starting in late November and running through the end of December -- were down 11% compared to the year before. Earlier data from NPD, from just before the Oct. 26 launch of Windows 8 through the Black Friday weekend of Nov. 23-25, portrayed sales as off 21% from the same period in 2011.

2012's 11% holiday downturn was consistent with the year-long slump in PC sales, said Baker. "Despite the hype, and hope, around the launch of Windows 8, the new operating system did little to boost holiday sales or improve the year-long Windows notebook sales decline," he wrote in a Jan. 4 statement.

Experts have struggled to explain the slow start for Windows 8, which according to some metrics lags behind the uptake of 2007's Windows Vista, a perceived flop. They have cited a sweeping set of reasons, including a weak economy, Windows 8's confusing dual interfaces, enterprise upgrade fatigue after migrating to Windows 7, and competition from tablets -- nearly all of which run a rival's operating system -- for technology dollars.

Baker pinned Windows 8's inability to invigorate PC sales not so much on Microsoft, but on its OEM (original equipment manufacturer) partners who design, make and sell Windows PCs. Essentially, OEMs failed to convince enough buyers that notebooks with touch-sensitive screens -- hardware able to strut the new operating system's biggest innovation -- were worth their higher prices.

Baker traced that failure in part to years of habitual price cuts by computer makers that intensified between 2008 and 2010, when netbooks -- smaller, less-capable, and above all else, cheaper portables -- were the rage, accounting for upwards of 20% of mobile PC sales.

On Saturday, long-time Windows watcher and blogger Paul Thurrott cited NPD's data to make a case that netbooks poisoned the well. Baker seemed to agree.

"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.

Originally published on www.computerworld.com. Click here to read the original story.

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