Written and Edited by Gregory Bartolomei
According to a news article published by the Associated Press and republished by IBN Live today (February 9th, 2011) [smartphones-outsell-pcs] smart-phones have officially outsold personal computers with 100.9 million phones shipped verses 92.1 million personal computers sold at the end of 2010.
The news article suggests that the rate of sales for smart-phones and PCs are not related and thus not suggesting a trend in the consumer electronics market.
The arguments for this line of reasoning are twofold: one, smart-phones and PCs serve different functions and two, the price difference between the products should be considered in the rate of sales.
To the first argument, that smart-phones and PCs serve different functions, let us define these different functions. All things being equal, a smart-phone is a tool for one to one communication via phone calls or SMS. All things being equal. a computer is a tool for data processing (text, numerical, multimedia, ect…). However, where is the line drawn between these two technologies? For example, all smart-phones can store and process multimedia data while a few models (bordering on many models) offer limited word and numerical processing capacity. Also, with programs like Skype (and other related voice over internet protocols) consumers can use PC’s to communicate via phone calls or SMS. It seems the difference between smart-phones and PCs has become blurred.
To the second argument, that the price difference between the products should be considered in the rate of sales, an analysis of the prices of the products both initial and future are worth due consideration. Let us assume that the average cost of a smart-phone is $100 (the price given in the article) and that the average price of a PC’s is $800 (average price of thirty computers listed on Walmart.com, Tigerdirect.com, and Target.com rounded for simplicity) all things being equal. The cost attached to a smart phone include a two year contract for service, a data plan, and a minutes/SMS plan. The cost attached to a PC’s are a service plan for internet in a home or via one of the numerous hotspot wireless provider. However, it should be noted that more and more business such as Panera bread, Starbuck, and Barnes & Noble are providing free internet. Let us assume however, that a PC purchase requires the additional purchase of internet tied to a one year contract.
Analysis of Cost
SmartPhone: Initial $100 plus two year contract charged monthly (24 months) of data plan average cost $90 a month (this number was assumed from the average midrange charges on a number of smartphone websites)
Thus $100+NPV of $90 for 24 periods at 1.6% inflation = $1881.97
PC: Initial $800 plus one year contact charged monthly (12 months) of internet service at an average cost of $50 a month (this number was assumed from an average of midrange charges on a number of internet provider websites.)
Thus $800 +NPV of $50 for 12 periods at 1.6% inflation = $1341.99
This analysis shows the NPV of a smartphone purchase to be $539.97 more than the cost of a PC purchase. This suggest that a price sensitive consumer would be willing to purchase a PC over a smartphone due to the cost savings.
However, perhaps the most important issue of the differences between a smartphone and PC has yet to be addressed; their mobility. All things being equal, smart-phones are more model then PCs at the cost of their capacity to data process and preform the higher functions of PCs. However, with the expected introduction of technologies like virtual keyboards and projection imagining devices – the size of a smart-phone will soon not be a limit to the functionality it can provide.
So, if the differences between PCs and smart-phones are blurred, the cost of a smart phone is greater then PCs, and the question of the differences in mobility and therefore capacity to data process will soon not be a question what then does this imply to the consumer electronics market?
It suggest that smart-phones and PCs are related and that as soon as smart phones can data process the products will become substitutes. In conclusion, a change is coming and this change will be as radical and significant to consumer electronics as how the P2P software program Napster fundamentally changed the music industry.
This should be something that is a serious consideration to PC manufacturers and if they do not adapt to this upcoming change; there will be a shift in the consumers electronics market.
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