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Value Added Services to Transform PC Sector

Worldwide personal computer (PC) shipments grew by 8.7 percent in the fourth quarter of 2006, according to IDC's Worldwide Quarterly PC Tracker.

While Europe, Asia/Pacific (excluding Japan), Canada, and Latin America continued to grow at a healthy clip, shipments in the United States and Japan continued to decline. Slowing commercial enterprise sales constrained the growth of some market leaders and had a significant impact on the U.S. and Japanese markets. Despite these pockets of slow growth, the retail and consumer markets remained relatively strong -- even in more mature regions.

Worldwide PC shipment growth of 8.7 percent brought quarterly shipments to 65.6 million for the quarter. This was down from 9.1 percent growth in the third quarter and 1.4 percent below a forecast of 10.1 percent growth for the fourth quarter. For all of 2006, PC shipments reached 228.6 million with growth of 10 percent compared to growth of 16 percent in 2005 and a forecast of 10.4 percent for 2006.

"This was a busy quarter, with the release of Vista for commercial users and the pending release for consumers on top of the ongoing transition to Portables and a generally slowing market," said Loren Loverde, director of IDC's Worldwide Quarterly PC Tracker.

"Add to that the changing pricing environment and segment dynamics and it was a very challenging quarter. HP clearly was able to capitalize on the situation, solidifying its lead in worldwide quarterly shipments with a 3.4 percent share advantage over Dell, but it also reflects underlying pricing and segment trends that were tough on competitors such as Dell, Lenovo, Gateway, and Fujitsu-Siemens."

As Dell updates its strategy, it saw fourth quarter shipments fall year on year and sequentially in the United States and worldwide. Nevertheless, the company maintained its number one position in worldwide shipments for all of 2006, though by a narrow margin. Meanwhile, companies such as HP, Acer, Toshiba, and Apple benefited from a combination of strong retail and consumer sales, portable PC adoption (notably in the consumer segment), and aggressive pricing.

From this perspective, it does not appear that the January release of Vista's consumer version had a big impact on fourth quarter shipments, but IDC believes that it remains to be seen if the consumer drivers will remain strong in the first half of 2007.

"The U.S. market displayed an unseasonably weak performance, largely attributed to poor commercial demand, affecting vendors such as Dell and Lenovo," said David Daoud, manager of Personal Computing and PC Tracker Programs at IDC. "However, the consumer notebook market was solid, essentially benefiting vendors active in the retail sector. The channels were also relatively healthy, taking advantage of low component prices and healthy demand in the SMB segment."

While most hardware vendors will continue to enhance their marketing focus on new product enhancements, I believe that the growth of value added services (VAS) will be be a key performance indicator that will differentiate companies from competitors. Moreover, the consumer electronics (CE) and handheld mobile device sectors will continue to blend with the personal computing sector, as complex digital multimedia applications evolve.

Value added service growth will follow strong market demand as both enterprise and consumer multimedia applications challenge the skill, knowledge and patience of mainstream users. Adoption sometimes appears to have outpaced typical product design innovation, and device usability issues are still a major factor in user satisfaction studies.

User education and interactive tutorials are still the preferred antidote to poor product usability. However, the growth of user generated content has created a significant new opportunity for vendors -- engaging expert users as co-creators of short 'how to' video guides that enable all users to extract the full utility and value from their system (hardware/software).

While internal enterprise help desks and vendor tech support centers will continue to provide the required fault isolation and problem remediation services, I predict that the user application support environment will be transformed. The opportunity is huge, since this whole VAS space is essentially under-served and no clear market leaders have emerged.

The broad spectrum of expertise that separates the most skilled from the least skilled user has never been greater, and new multimedia-related product enhancements may further broaden the gap between savvy gadget geeks and their humble mainstream counterparts.

Also, harnessing and rewarding the help and collaboration of the 'brand loyalist' has previously been the norm of only a few forward-looking vendors thus far -- the Apple multimedia user constituency is one that immediately comes to mind. It all started with user forums based upon threaded messaging platforms, however, the future will be about adding short digital video clips.

That said, the market is primed for new innovation. We know from research that many current digital media devices and associated software is grossly under-utilized by the typical product user. The demand for application support has swelled, but it's mostly been untapped. That's about to change.

Vendors with VAS design talent will become the essential business model enhancement that will elevate the computer or CE vendor's core value proposition -- beyond the realm of technology or product design. The bar of expectations has been raised, once again. The balance of power will likely shift, as vendors broaden their perspective of customer experience supremacy.

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