The Rise and Fall (and Rise) of American Computer Brands

American Brands

For most industries and products, becoming commoditized and being shipped overseas is the last stage of innovation. It’s when an innovative product, whether that be cars, TVs, or computers, becomes so mainstream and so good that the only way to continue innovating and growing market share is by innovating the price: by being the most affordable and reliable brand on the market.

Within the automotive industry, GM and Ford were crushed by Honda, Toyota, and Nissan. Within the TV industry, RCA and Philips were crushed by Sony, LG, and Samsung. And within the computer market, Dell, HP, and IBM were crushed by Lenovo, Acer, and Asus, or at least that’s what it looked like.

Starting in the second half of 2006, HP, Dell, and Apple started peaking out and losing market share to the Asian brands. At the time, HP had 17.7% market share, Dell had 14.5% market share, and Apple had 4% market share. Over the next five years, however, HP’s market share would drop to 16.2%, Dell’s market share would drop to 10.9%, and Apple was no longer even part of the top five. In the meantime, Asus, Acer, and Lenovo had grown their market share substantially.

It seemed like this was the final hoorah for American brands before Asian brands permanently took over, just like we saw with countless industries before. But that’s not what happened. Over the next decade, American brands would make one of the strongest comebacks we’ve ever seen. HP’s market share would grow to 21.4%, Dell’s market share would grow to 15.2%, and Apple’s market share would grow to 10.1%. Together, they control a whopping 46.7% of the global computer market.

For perspective, they only controlled 36.2% back in late 2006 and only about 30% back in 2011. So American computer brands have not only recovered to their early 2000s peak but have grown well past it to control nearly half of the market. But how? How were these American computer brands able to buck the trend and successfully compete against the Asian brands?

Well, let’s find out.

Exhausted Consumers

But anyway, taking a look back, American brands’ bleeding market share within the computer market had less to do with anything that they did wrong and more to do with general market sentiment. You see, ever since computers started becoming more mainstream in the late 80s and early 90s, PCs have evolved substantially. For starters, computing power has gone through the roof. The number of transistors per microchip went from 100,000 to nearly 50 billion. In other words, computing power went up 500,000X.

It wasn’t just the raw power of these computers that was skyrocketing, but everything that went along with that. Take UIs for example. Back in the 80s, most computer UIs looked like this. In the 90s, we saw UIs like this. And in the 2000s, we started seeing UIs like this. It was the same thing with applications as well. First, you could mess around with Word, Excel, and PowerPoint.

Then you could mess around with preliminary browsers and the early internet. Then you saw the rise of websites like Google, Facebook, and YouTube. Eventually, we saw fully-fledged software that runs on the cloud that you can access from anywhere.

The hardware needed to accommodate all these changes was also rapidly evolving. You needed more capable ethernet hardware, you needed a floppy disk reader, you needed a CD drive, you needed USB ports, and so on. The rate of innovation within the computer industry throughout the 80s, 90s, and 2000s was unprecedented.

And while this was a great testament to what humans could accomplish in tech, it was also rather exhausting for consumers. Every 2 years, everything about their computers was completely outdated. Whether that be its speed, its UI, its capabilities, or its IO.

So, naturally, people started viewing computers as a disposable good. Something that didn’t last long and constantly needed to be replaced. This consumer exhaustion is what gave rise to the Asian computer brands and what allowed them to thrive.

When you had to replace your computer every 2 years, it was a no-brainer to get the cheapest one on the market. But moving into the 2010s, everything about computers changed, or rather everything stopped changing.

Peak Computer

Technically, we still saw rapid progress in several aspects. For example, regarding computing power, transistor counts have rocketed from 1 billion in 2010 to nearly 50 billion today. But for the first time, this hasn’t really mattered for the average person. Sure, if you’re a gamer, there is no such thing as too much power. But if you’re just scrolling social media, watching streaming platforms, and doing light work, you really don’t need all that much power.

It’s a similar story with UIs as well. UIs have surely gotten more and more refined over the past 10 to 15 years, but we’re no longer seeing the leaps that we used to. Windows today doesn’t look all that different from Windows 10 years ago. This is even true with user experience-centric companies like Apple. The last major visual leap we saw on iOS was iOS 7, which at this point is over 10 years ago.

We’ve also more or less settled into using products from big tech. In fact, Google, Netflix, Facebook, Apple, Amazon, and Microsoft account for 57% of all internet traffic, and it’s only growing. As for IO, the average person has more or less ditched external devices altogether. This isn’t to say that computers haven’t changed at all over the past 15 years, but the changes have been more infrastructure-centric as opposed to consumer hardware-centric.

For example, 15 years ago, it was difficult to stream 1080p videos on YouTube over the internet. You would often have to pause the video, let it buffer for a while, and then play it if you wanted a smooth experience. Today, however, streaming 4K over wifi is quite common. This has little to do with the wifi chips in your computer and smartphones getting better and a lot more to do with internet speeds getting way faster and Google’s servers becoming way more capable.

If anything, we’ve become less and less dependent on the raw power of consumer devices. All we really need is a strong internet connection and everything else can be handled by the backend. This leads us to the whole idea of network computers. The network computer was a device created by Oracle back in 1996. Oracle’s vision with this computer was to create a rudimentary device that didn’t have to do anything other than display content and receive inputs. Everything else would be handled by the backend. You could upgrade the backend, modify the software, and improve reliability, all without the user having to do anything.

Unfortunately, the network computer would end up being a massive flop, but that’s just because the market wasn’t ready for it. Today, however, all computers are largely just network computers and most applications are progressive web apps. As such, computers have far more longevity even if there is a lot of progress because much of the progress happens behind the scenes. In fact, the current average lifespan for computers is 5.63 years and it’s expected to grow to 6.54 years by 2027.

So, consumers are much more willing to invest in a better computer as it will actually last for several years, and their annual computer budget doesn’t even need to increase. For example, let’s say the average person is willing to spend $500 on computers every 2 years.

If you’re replacing your computer every 2 years, this limits your per-computer budget to $500. In other words, you can only afford an entry-level Dell or an Asian option. But if you only have to replace your computer every 6 years, your per-computer budget suddenly goes up to $1,500, allowing you to afford a higher-end Dell or a MacBook.

Zooming out, this is exactly what the data shows us. Global computer shipments have been falling off a cliff ever since the late 2000s, not because people don’t use computers but because they don’t upgrade as often.

While this has left the overall industry in decline, it has also vastly improved per-unit economics. But achieving peak computer only tells half the story. After all, within the TV space, Asian brands dominate the flagship market as well, and that brings us to the role of American brands in all of this.

In The Trenches

So far, we’ve primarily been discussing the general dynamics and consumer sentiment within the computer industry. At first, consumers got exhausted from having to buy new computers all the time, so they moved to cheaper Asian brands. As computers became more long-lasting, however, consumers moved back to American brands. But it wasn’t as simple as just that because American computer brands played quite an active role in all of this.

You see, going into the late 2000s and early 2010s, both HP and Dell immediately realized that the computer market was getting commoditized. When IBM had this same realization back in the 90s with desktop computers, they simply decided to exit the business altogether.

But HP and Dell had a different solution. Instead of raising the white flag, they decided to get into the trenches and fight. They cut margins to 0 and even negative levels to remain competitive against Asian brands, and over time, Asian brands slowly suffocated in their own race to the bottom.

Here’s the thing: no one actually liked these Asian brands, other than maybe Lenovo, but they’re not even an Asian brand. The Thinkpad is an IBM brand that was simply made cheaper by Lenovo. When it comes to brands like Acer, though, consumer sentiment is pretty bad. While there were some positive comments about Acer’s higher-end lineups like the Predator series, most of the comments were overwhelmingly against Acer, making it clear that the only reason people bought budget Asian computers was purely due to price.

These brands had extremely low brand loyalty, and the moment that Dell and HP were able to come within shooting distance in terms of price, people switched back because they actually had good experiences with these brands or at least better experiences than with Acer.

Apple only accelerated this trend by positioning themselves as the premium computer brand. Dell and HP took full advantage of this. Instead of positioning themselves as a competitor to Acer, Asus, and Lenovo, they positioned themselves as the Windows Macbook, who also sells cheaper models as well. The Dell XPS lineup, for example, accomplishes exactly this. This strategy was great at recapturing the consumer PC market, but there was still one problem to address. Dell and HP were no longer making any money.

They had a solution for this, though: the enterprise market. Dell and HP doubled down on not just selling computers but also server racks and cloud solutions to enterprise customers. That’s where they would make their money. The consumer market was for brand recognition, while the enterprise market was for profit.

And that brings us to the last and likely most important trend that has allowed America to win back the computer market, which is that the consumer PC market has become an enterprise market itself. We have a full video about this trend if you’re interested, but essentially, computers are no longer consumption devices.

Most consumption has moved over from computers to mobile devices. People no longer use computers primarily to check Facebook messages. They use computers primarily or even solely for work and productivity. If they don’t have a productive need for computers, they more than likely just use smartphones for everything, unless they’re enthusiast gamers.

In other words, the modern productivity-oriented computer buyer is no longer interested in budget garbage. They want high-end workhorse machines that they can get 10,000+ hours of productivity out of. Apple, HP, and Dell cleverly positioned themselves in this new blue ocean of prosumers, and that is how they won back the computer market.