PC

I truly believe, and many others in the company believe, that there will come a day that the tablet market in units is larger than the PC market.

Tim Cook Discusses Q1 2012 Results - Earnings Call Transcript - Seeking Alpha

Question is when?

I began by projecting growth rates of various market participants including the leading Windows PC makers (HP, Acer, Dell, Lenovo and Asus), the combined "others" and the Mac. I also added the iPad, Samsung's tablets, other Google sanctioned Android tablets and Amazon. I also projected a split between traditional and tablet Windows shipments.

The underlying assumptions are:

1. Mac growth continues at 25% as it has on average for a few years
2. Windows grows slightly in 2012 with the introduction of Windows 8 late in the year. However I anticipate Windows 8, including tablet versions, to mostly be upgrades with slow enterprise take-up within this time frame.
3. The tablet versions of Windows begin shipping in Q4 2012 with 7% of total Windows shipped. The ratio reaches 20% by end of 2013.
4. iPad growth will flatten for '12 and '13 at 100%, similar to iPhone's historic performance.
5. Android tablet growth will be significant in the current year and follow iPad growth pattern though settling at 80% during '13.
6. Amazon growth will be approximately 80%.

Building the platforms combined growth bottom-up gives the following forecast for the next two years (and historic growth shown for perspective.)

[FF = form factor]

Given these assumptions, the day when the tablet market (by units) will exceed that of traditional PCs will come sometime in the fall of 2013.

As yesterday's post noted, the tablet market will be additive. This can be seen in the vendor shipments forecast that accompanies the model:

In January I noted that there were more iPads sold by Apple than PCs from HP, the largest PC vendor in the fourth quarter. Including all tablets, this is the distribution of market shares by units shipped.

Note the different color palettes for Windows and non-Windows.

By the metric of tablets+PC's Apple appears to be the leading vendor. However, if we consider only the Mac, Apple is still well behind. The historic unit volumes of the two is shown below:

Although Apple has nearly doubled its shipment volumes since 2008, it's still only one third that of HP. In addition to comparing volumes, we can also measure profitability. In this case HP's PSG (Personal Systems Group) reports operating profits and we can estimate the same from Apple based on a gross margin estimate and an operating expense estimate (as percent of sales).

The comparison looks like this:

The operating profit for Apple is 2.7 times higher from a third the units. This gap is a result of a vast difference in profitability. HP's operating margin for PCs is 5% while Apple's is 21%.

A few days ago I highlighted that Apple's iPhone yields disproportionate profits because of the way it performs the jobs its hired to do by consumers and operators.

With the Mac the story is that Apple's OS X is primarily responsible for delivering quadruple hardware margins vis-a-vis the most successful PC vendor.

Both iPhones and Macs are sold as hardware products and the entire econometric analysis of Apple depends on hardware cost structures. This is because hardware lends itself to easy measurement. However, a casual observer would be stumped by a comparison with competitors which cannot come near the profitability Apple enjoys. How can the same bundle of components (admittedly mostly off-the-shelf) be sold at triple the margins?

It comes down to software. Apple has a monopoly on iOS and OS X and charges for it through its hardware. That's a very valuable monopoly. It's worth at least $1 billion per quarter.

The iPad and Mac businesses both grew well in the last quarter. Tim Cook said they are observing some cannibalization of Mac from the iPad but much more switching to iPad is coming from the Windows PC market.

The evidence is still hard to pin down directly but the fact that PC sales (excluding the Mac) are down gives credence to the claim. Mac growth, in contrast, is largely unaffected. The following chart shows the the iPad volumes vis-a-vis Mac volumes and the Mac growth through recent history.

The iPad has out-sold the Mac since inception and is now about three times the volume. However, the growth rate in the Mac has not changed much.

The impact on the PC market has been discussed recently and the data in the following chart is an update given more precision on the units from Apple:

The new data shows that the iPad alone would be the largest PC vendor and Apple with iPad and Mac combined is selling 5 million more units (or 30%) than the top PC vendor.

The impact of the iPad is not specific to any single vendor (Apple included). It competes for time and purchase decisions across all computing alternatives and though many times it's additive, it is also substitutive and will become increasingly so.

Tim Cook mentioned on the earnings conference call that Apple sees the iPad as addressing a market larger that the PC market:

I truly believe, and many others in the company believe, that there will come a day that the tablet market in units is larger than the PC market. In fact, it's interesting to note that in the U.S., it's clear from the IDC's recent data on desktop PCs in the U.S., that tablets exceeded desktop PC sales last quarter in the U.S.

 

Yesterday's post described the history of personal computing platforms over the past 37 years. It showed a distinct shifting of "eras" between traditional personal computing and the emergent mobile computing represented by device-based platforms.

Underlying these lives (and deaths) of platforms were the growth (and decline) of fortunes of companies and people. I hoped that by observing these patterns insight could be gained into the conditions for success or failure.

The following graph shows the companies which were predominant (in the top five ranking by shipments[1]) during each year of the industry's history and the volumes they were able to obtain during that period. I also added Nokia and RIM as examples of the challengers coming from mobile devices.

It's a difficult graph to interpret. The pattern I observed was that most companies were not able to sustain presence in the top five ranking for long. Indeed, regardless of having one's own platform or being a licensee, companies seemed to fade reliably. Some were acquired, some sold their operations but there is a distinct impermanence to their prosperity.

To sharpen this perspective of longevity I indexed each company to the point when they entered the "prosperity zone" and measured their staying power within it. The following graph shows these indexed lives.

 

Apart from Apple, IBM remained in the business the longest (24 years). Compaq was second with 20 years before being bought by HP. HP and Dell are still operating after 15 years, having tied Atari and Commodore. After these ancients, the upstarts Nokia and RIM are struggling to remain relevant after 10 to 12 years.

Then there are the transients like Packard-Bell/NEC, Toshiba, Radio Shack and Fujitsu which lasted less than 10 years. The newest PC companies are all from China or Taiwan: Acer, Asus and Lenovo. Their longevity cannot be called yet though Acer seems to be in decline. Lenovo, which took over IBM's brands continues to grow. However, as yesterday's post showed, without diversification into devices, pure PC makers are likely to fade.

But besides this interesting history lesson, there is a deeper, unsettling observation. The scale of these periods of prosperity is far shorter than the average person's career. Indeed, the entire time span of the study is 35 years, about the time an average person will be employed. All the companies failed to maintain prosperity over this time frame.

These are a small sample, flawed by showing only hardware units, but I consider it a proxy for the overall technology market. Software-only or services companies have had no better records.

The implications for company managers and workers is profound. Chances are that the business you work for will not prosper for more than a decade and will reward you for an even shorter period. Similarly, as witnessed by the P/E ratios, investors have  given up on this industry as one with any quality of earnings.

There is no "rule" that this has to be so. The high mortality rate and short longevity of technology companies is a consequence of a failure to manage innovation and disruption. Apple may be an exception--one I think worth studying. Though not always prosperous, it has managed to survive, being the only company from the early era of personal computing to still be operating in the industry. Indeed, it's now the most prosperous. Maybe it's a fluke, but I rather think it's due to an ability to re-define itself as the market shifts. Its essential quality being an ability to disrupt itself.

And if we think about it this way, ultimately, longevity is more important than prosperity. Without patience there is nothing but chance determining prosperity. The fate of more than company finances rests in the balance.

Notes:

1. Apple did not maintain a position in the top 5 throughout this period but is shown as a benchmark as it remained in the same business throughout this period.

Thanks to Jeremy Reimer I was able to create the following view into the history of computer platforms.

I  added data from the smartphone industry, Apple and updated the PC industry figures with those from Gartner. Note the log scale.

The same information is available as an animation in the following video (Music by Nora Tagle):

httpv://www.youtube.com/watch?v=8h-C6u4yLj4

This data combines several "categories" of products and is not complete in that not all mobile phone platforms are represented. However, the zooming out  offers several possible observations into the state of the "personal computing" world as of today.

1. We cannot consider the iPad as a "niche". The absolute volume of units sold after less than two years is enough to place it within an order of magnitude of all PCs sold. We can also observe that it has a higher trajectory than the iPhone which became a disruptive force in itself. Compare these challengers to NeXT in 1991.
2. The "entrants" into personal computing, the iPad, iPhone and Android, have a combined volume that is higher than the PCs sold in the same period (358 million estimated iOS+Android vs. 336 million PCs excluding Macs in 2011.) The growth rate and the scale itself combine to make the entrants impossible to ignore.
3. There is a distinct grouping of platform options into three phases or eras. The first lasting from 1975 to 1991 was an era of rapid growth but also of multiple standards and experiments. It was typical of an industry in emergence. The personalization of computing brought about a new set of entrants. The second phase lasted between 1991 and 2007 and was characterized by a near monopoly of Microsoft, but, crucially one alternative platform did survive. The third phase can be seen as starting five years ago with the emergence of the iPhone and its derivatives. It has similarities to the first phase.

We can also look at the data through a slightly different view: market share. Share is a bit more subjective because we need to combine products in ways that are considered comparable (or competing).

First, this is a "traditionalist" view of the PC market as defined by Gartner and IDC, and excluding tablets and smartphones.

This view would imply that the PC market is not changing in any substantial way. Although the Mac platform is gaining share, there is no significant erosion in the power of the incumbent.

Second, is a view where the iPad is added to the traditionalist view.

This view is more alarming. Given the first chart, in order for the iPad to be significant, it would need to be "visible" for a market that already ships over 350 million units. And there it is. If counted, the iPad begins to show the first disruption in the status quo since 1991.

The third view is with the addition of iPhone and Android.

This last view corresponds to the data in the first graph (line chart). If iOS and Android are added as potential substitutions for personal computing, the share of PCs suddenly collapses to less than 50%. It also suggests much more collapse to come.

I will concede that this last view is extremist. It does not reflect a competition that exists in real life. However, I put this data together to show a historic pattern. Sometimes extremism is a better point of view than conservatism. Ignoring this view is very harmful as these not-good-enough computers will surely get better. A competitor that has no strategy to deal with this shift is likely to suffer the fate of those companies in the left side of the chart. Treating the first share chart as reality is surely much more dangerous than contemplating the third.

I've used anecdotes in the past to tell the story of the disruptive shift in the fortunes of computing incumbents and entrants. I've also shown how the entry of smart devices has disrupted the telecom world and caused a transfer of wealth away from the old guard.

The data shown here frames these anecdotes. The data is not the whole story but it solidifies what should be an intuition.

[Update]

Additional platforms added to the first chart.

 

Gartner published its estimates for "PC" shipments during the fourth quarter. As I've done in the past, I combined their estimates with known shipments from Apple and separated Apple's performance from the Windows-based market.

I also take into consideration the iPad as a potential competitor for computing purchases. Apple will report fourth quarter results including Mac and iPad shipments in less than two weeks but I am using my own estimates until then.

Here is how the platforms grew over the last few quarters (all figures are global):

The Gartner data implies a 3% decline in the size of the Windows PC market during the last quarter. This is the fourth quarter of disappointing Windows performance. If you observe the pattern for the Mac vis-a-vis  Windows there is a similarity in the overall cycle but a divergence in terms of growth. The "spread" between Windows and Mac OS X is increasing and has reached an all-time high of 28 points.

But the more interesting story is that the decline in Windows seems to be coincident with the growth in the iPad. The green (Mac + iPad) shows the effect of the new category while the red line (iPad only) shows that growth in isolation (year-on-year).

Coincidence?

Ever since the iPad launched the hypothesis that it has an impact on PC has been hanging in the air. Most analysts (including Gartner) argued that there was no effect from iPad and that the problems with Windows were all due to one-time circumstances. We hear the same about the last quarter with floods in Thailand being blamed.

However, in the latest quarter Gartner began suggesting that "consumers' attention was diverted toward other product categories, especially smartphones and media tablets."

One wonders if these "media tablets" are not PCs and yet they negatively affect the purchase of PCs whether they are indeed competing with PCs.

Historically, Apple's sales to business and government buyers of personal computers have been, in a word, minuscule. To put a number on it, Forrester published data where the estimated value of those sales in 2007 were 2.8%. A figure lower than Apple's overall market share of PCs in that time frame.

Things did not improve much in the years following. The following chart shows the split between Windows and Mac OS X for the value of enterprise computers sold in 2007 through 2009.

Apple's share of value went from 2.8% to 3.7%, an increase of 1 point of share, but one which in real terms was not very valuable because the overall market declined due to recession. Revenues for Apple were basically flat at around $2 billion each year as shown in the second chart.

However, the situation changed very rapidly in the last two years.

Apple's share of enterprise revenues doubled from 3.7% to 7.8% in 2010 and nearly doubled again to 14.6% last year. A large part of that acceleration was due to the iPad which generated an estimated 6 billion in sales in 2011, triple what Macs were grossing in 2007.

Forrester goes further and estimates the same data for the next two years.

The estimate seems to be an extrapolation of the last two years which may or may not happen and we should treat it with caution.

However, if the pattern emerges as an extension of the near past, Apple's position in the market at nearly 30% share next year would be a sea change. It may challenge for the top spot among all vendors to the sector.

It's been said many times that "if only Apple put more emphasis" on Enterprise sales, imagine how much more growth they would obtain. However, I believe that this reversal of fortune did not come about from paying more attention but rather from paying less attention to Enterprise.

Enterprise buyers are demanding customers. They have highly specific requirements and ask vendors to conform to multiple layers of dependencies. As a result, enterprise vendors (led by Microsoft) have done all they could to make their software and hardware conformable to these needs. For decades this was the modus operandi and, due to the early adopter nature of businesses in personal computing, the resulting product was passed on to consumers as the "standard". Consumers accepted it as it was better than having no computers at all.

The problem is that customers, especially demanding ones, don't realize that a new basis of performance might be more beneficial. Apple and mobile devices in general presented this "low-end" alternative not in response to requirements from business but in response to requirements from consumers who had been much more eager in the last decade to adopt new technologies with fewer strings attached. All the security, conformability and legacy issues of the early business adopters turned them into late adopters as technology shifted.

So a company focused on an asymmetric market led with new solutions to problems that enterprises did not think they had. Mobility was something few IT managers asked for and was granted begrudgingly to only those "most valuable" who needed it due to cost and security considerations. As Apple willfully ignored these Enterprise needs it, paradoxically, created exactly what they needed.

It pried entry into the most difficult of markets by not even wanting to enter.

In thinking about how this market will evolve, I hear about "consumerization" and cost reduction as benefits and justification of this shift. But fundamentally, what is happening is a classic low end disruption. Enterprises increased their demands beyond what the users in those enterprises could absorb. Instead of ultra-secure, locked-down and immobile computing, users were looking for flexibility, agility and mobility. That's what Apple was listening to.

Apple's best strategy today would be to persist on this trajectory and listen to the under-served consumer rather than the over-served and over-demanding IT manager.

Guessing the next Apple product has become the parlor game of choice for a whole generation of technology journalists and analysts. The premise of the game is that given a track record of breakthrough products, there is always another one just around the corner. Being the one to predict this next breakthrough product creates credibility and demonstrates the domain knowledge of the predictor. If the prediction fails to materialize there is consolation in dismissing the actual announced product as disappointing, unsophisticated or, worst of all, uninteresting.

Most often, these guesses are as much a reflection of the analyst as they are an analysis of the company. Too many predictions are designed to impress or demonstrate the imagination or knowledge of the predictor. They typically anticipate a giant leap of functionality, power or market re-structuring. They envision revolution not evolution; a cutting of the Gordian knot not a polishing of ugly rocks.

Yet nearly all of Apple's launches have been sustaining improvements in existing products, technologies or platforms. To name just a few:

• The iPad is an evolution of the iPod touch
• The iPod touch is an evolution of the iPhone
• The iPhone uses OS X and Objective C from the Mac
• OS X came from NeXT
• The app store market model came out of the iTunes store
• The iTunes store came from iTunes which came first to the Mac as a media sync tool for the iPod
• etc.

John Gruber explained the process last spring as it relates to many of Apple's launches. Although the iPhone did introduce a new user input method and experience that takes consumption in a new direction, its building blocks were there for all to see for many years. The iPhone is a natural evolution of the computer with a handy little "Phone" app.

Likewise, the iPod came seemingly out of nowhere but by watching the original launch you see it as part of a "media hub" strategy that envisions the Mac as a personal server. The very products which ended up disrupting the Mac/PC began as extensions of their victims.

You can trace the DNA of almost all of Apple's products to previous products. If Apple did not have these foundations, the slow-motion revolutions would not have happened. Rather than a deliberate big bang, Apple's disruptions are the result of a discovery process. A test, iterate and improve loop. This is why they seem obvious after the launch but also why they seem to be such an anti-climax.

Therefore, the challenge of predicting Apple's next product should be tackled not only through an act of imagination but by carefully projecting the current products and understanding where they can evolve.

So it is that I approach the question of Apple's TV disruption. My working assumption about the next Apple TV is that it already exists. It's none other than the existing Apple TV, improved.

Here are the clues or hints I noted:

• It uses iOS and the hardware from the devices that run it. It originally ran a PC architecture and shared a kernel with Macs.
• It has been integrated with iTunes media stores (with the notable exception of the iTunes app store)
• It has begun to introduce channels other than downloads (ESPN, Wall Street Journal) thus establishing its own distribution for traditional content
• It is a global product, depending only on the Internet protocols and independent of the balkanized cable standards
• Through AirPlay it is integrated with Macs and Apple devices.
• Through display mirroring, iOS devices can use the TV as an external monitor and can even change their own behavior when doing so

This last point is intriguing. I have not seen discussion of this feature, but if using an iPad 2 or iPhone 4S with iOS 5 and an Apple TV with the latest software updates it's possible to have an iOS device become a controller for TV-based game experiences. Developers are already using the API. When using a pinball game with screen mirroring, the device becomes a controller while the action takes place on the big screen. Switching display mirroring off bring the action and control back onto the small screen. There are still problems with lag and the processors are over-taxed on high frame rates, but the APIs are already there for developers. (I could also mention the potential of new a Bluetooth standard for better wireless response).

What these signals point to is Apple defining the TV as an iOS portfolio product. This means integration with iTunes, including an app store. This, in turn, means unleashing developer/creative talent through new monetization opportunities. This means new user experiences in discovery. This means FaceTime-like communication through the TV. This means many other things but mostly it means that the TV will be a platform product.

The only challenge is a (currently lacking) smooth interface. Perhaps that's where voice comes into the picture. But whether that is built-in at the next rev of the product or not is not the story. The story is going to be the sustaining improvement in the original Apple TV. A wonderfully asymmetric product begging to be ignored. A product that because of its apparent lack of success, effectively hides all its secrets in plain sight.

HP's CEO Meg Whitman admitted that, when iPads are included, Apple will overtake HP as the world's leader in computer shipments.

“We need to improve our game and our products to take over the leadership position. Apple could go past HP in 2012. We will try to become the champion in 2013.

When the quarterly shipment data is seen as a chart the doubt of this happening disappears:

 

 

 

 

 

 

 

 

 

Note that the combined iPad+Mac has already overtaken Dell. In fact, the iPad alone overtook Dell in Q3 and might overtake HP in two quarters.

 

 

 

 

 

 

 

 

 

The iPad is growing at an average of 170% y/y (average of two quarters) while the Windows PC market is growing at an average of 1.9% over the same period (source: Gartner, company reports). The

Placing the iPad in the "competitor" category is an important admission for a PC company. Categorization choices make all the difference when thinking about strategy. The new tablet product may not appear at first glance to be competitive with the current definition of a PC (though it might very well be a personal computer.) But definitions tend to evolve. Categories are abstractly defined. The original PC was certainly not competitive with Mainframe computers and perhaps it still isn't. But that does not mean that usage (and hence value capture) did not migrate. Most people today would say a PC is a "real computer" and the Mainframe is simply an old computer.

Whitman notes that the iPad is not the only computer people use and most have a PC as well. That may be true as it was true when the PC was new. Most companies that supplied PCs to workers maintained large computers for "mission critical" applications like accounting and engineering. The two technologies lived side-by-side for many years. In fact, in the beginning there was a thriving market for software and hardware that would allow PCs to be used as terminals to access central computers. It wasn't until PC servers and server software like that from Novell and networking from 3COM became commonplace that mainframes and minis began to fade.

So in practice, there was no big bang start to the post mainframe era. The evolution of the PC went through stages. It was an isolated local computer, a client-server solution and then finally a web-enabled communication product on its way to ubiquity. But the era did change.

So if history serves as a guide, the displacement of the PC won't come from a direct substitution but a more sinister and hard-to-predict subversion through new applications and a re-definition of what a PC is. The driving forces are not just volumes but new input methods, new user interfaces, new jobs to be done, new software and many innovative companies working within an ecosystem.

If there is one difference today it's that things are happening a lot faster. A transition that took a decade is happening in three years today, even though the entire market is orders of magnitude bigger.

When I visualize the cycle time of technology change, I see it as the waveform to the left: as cycle time decreases (i.e. frequency increases), the opportunity (amplitude) also increases.

Analysts have to count things in order to measure value. It sounds easy but it can be tricky. As I pointed out with PCs vs. iPads, if you count an iPad as a PC you can get into a lot of trouble with your clients. But if you don't you end up directing them away from confronting an existential threat. Only very rarely is a market report published in contradiction to widely held sustaining beliefs. More often than not analysts bow to the source of their paychecks and in so doing show their rear end to the truth.

This comes up again now with respect to how to count tablets. Consider that there is little difference in architecture, software or design between an iPhone and an iPad. They run the same OS, use the same microprocessors and have similar communication methods, inputs and sensors. However they are considered completely different products and counted as part of separate markets. The only physical attribute that differs is the screen size. So we have to conclude that the size of the screen is a huge determinant factor in deciding whether a product is a tablet but not a smartphone (or music player).

But what about tablets themselves? Their screen sizes vary widely. A 10" screen is certainly a tablet device, but a 4" screen certainly isn't. Where is the boundary exactly? It seems that a 7" device is still a tablet but a 5" may not be. The Dell Streak 5 device is presumably not a tablet. The arguments then descend into an arbitrary definition of tablet based on whether it fits in one hand or in a bag of a certain size.

This begins to sound academic. Why should it matter what size is or isn't a valid tablet? Buyers are not in the market for screen sizes. They are in the market for products that can be hired to do jobs or address pain in their lives. So as far as consumers are concerned, these categories are meaningless. If you want to design something you'd better segment according to jobs to be done.

However, buyers are not the target audience for the analyst. Nor are product designers (hopefully anyway.) Part of the reasoning of offering market research is that it presumably helps ecosystem participants (vendors, developers, retailers, etc.) decide where to invest their time and money. They are the target audience. They don't spend their lives reading tech blogs. For them it's important to understand "which way the wind is blowing" and that's where an analyst should be helpful with data.

But then if we are to measure ecosystems, we have more difficulties.

The iOS ecosystem is pretty well understood. Apple publishes the number of devices it sells and the number of apps on its store and downloads, etc. We can assume Microsoft will do the same with Windows 8 as they do already for Windows in general.

For Android, it's a challenge. Google measures activations, but that may not cover the actual units sold. Google admits that it does not know how many Android devices are sold or even how many are for sale. It's in the nature of open source that it's not controlled and hence not measurable.

But analysts still try. Consider the estimate that about 27% of all "tablets" shipped are Android. That's not something Google helped with. Google can report the number of activations of a certain version of the OS, but they themselves don't know what the device looks like or what size screen it has. A device vendor can put any version of Android on a device of any size. To find out how many tablets run Android, you need to try to estimate "bottom up" by adding the output from various vendors.

However, it's clear that a large number of these devices are not exactly Android. Consider what  Kevin C. Tofel writes for GigaOm:

I asked Strategy Analytics to clarify both of those points and received the following email response from Neil Mawston, the analyst who wrote the report: ”Yes, the press release refers to shipments, not sales. All sub-versions of Android are included. Yes, the B&N Nook Color tablet is included in the tablet figures.”

So the B&N Nook is counted as an Android tablet and part of the 27% share of Android. But Google itself does not count the B&N Nook as an Android tablet. It's not something that can even use the Android brand. From Google's own documentation:

We define an "Android compatible" device as one that can run any application written by third-party developers using the Android SDK and NDK. We use this as a filter to separate devices that can participate in the Android app ecosystem, and those that cannot. Devices that are properly compatible can seek approval to use the Android trademark. Devices that are not compatible are merely derived from the Android source code and may not use the Android trademark.

In other words, compatibility is a prerequisite to participate in the Android apps ecosystem. Anyone is welcome to use the Android source code, but if the device isn't compatible, it's not considered part of the Android ecosystem.

So to summarize, whereas the Nook is counted as an "Android tablet" it...

• cannot be called an Android device without violating the trademark
• may or may not compatible with Android Apps
• does not include Google Services like Google Maps
• cannot license the Android Market client software or brand
• is not considered to be a part of the Android ecosystem by Google

All this is also true for the Amazon Kindle Fire and whatever Baidu, Alibaba and other Google competitors will be selling. Furthermore, Google can define compatibility and therefore what "being Android" means arbitrarily and can change that definition at will. It can even withdraw compatibility on the basis of business priorities.

It matters because these devices might end up very popular (see Amazon's reporting of Fire's pre-orders in its quarterly earnings call) and in aggregate could even be the majority of "Android tablets".

The result is that most analysis of the Android ecosystem (and by comparison, all mobile ecosystems) depends on classifying as Android devices those that compete with Google, and indeed, with Android. For the purpose of assessing value, growth and opportunity for third parties such reports fall short.

So what should be done?

The solution is simple: Count as Android devices those that are allowed to be called Android as per Google's own definition. It makes clear that developers can reliably sell their software through the Android Market. It makes clear that those devices are designed to use Google services and it makes clear that those devices are not designed to compete with Google.

Those devices which are using "derived" Android source code and are not compatible (as per Google's definition) and are not allowed to be called Android by their vendor should be called something else. Maybe "Android-like" or "Android derivative" or "Non-Google Android" or just "Other".

Last quarter the iPad had unit growth of 166% with revenue growth of 146%. The iPad is selling more than twice the (also rapidly growing) Mac. The two product lines are shown below:

A big reason the Mac is still growing is that it now consists of 74% portables and the MacBook Air and Pro products are still largely unmatched and have a near monopoly in their target price.

The Mac's average selling price has remained remarkably steady for three years.

But more importantly the iPad and the Mac both outgrew the PC market. Taken as OS X vs. Windows, the growth rates were 27.7% vs. 2.5%. If iOS is included along OS X, Apple grew its "computer" shipments at a rate of 99%.

The following chart illustrates the growth rates for Windows, Mac and Apple as a combined OS X/iOS.

The Windows platform still ran on 82% of PCs sold in the quarter with iOS taking second with 10.5%, OS X third with 4.7% and Android at about 3%.

Even though Mac OS X grew faster than the overall PC market for 20+ quarters, its market share is still below 5%--lower than what the iPhone has been able to obtain in the far larger mobile phone market.

That share has grown from 3.2% in the same quarter of 2008 but it's still a very slowly changing landscape.

However, if we include the iPad, Apple begins to not only grow very rapidly, it moves up sharply in terms of ranking among PC vendors.

Last quarter's 16 million OS X and iOS tablets brought it into second place behind the 16.6 million PCs that HP sold. That was enough to give Apple 15% share vs. 15.7% for HP. Over the last three years Apple has gained nearly 12 points of percentage of share.

The other vendors mostly lost share but the most affected were the smaller OEMs. HP lost 2.6 points, Acer 3.9 and Dell 3.4. However "Other" lost 10.5 points. Lenovo is the only major vendor to gain share (+4.48 points).

What's interesting about this pattern is that whereas in the phone business "others" is a rapidly growing group of companies, in PCs the smaller vendors seem to be suffering. They still make up about 30% of the market but that's down from about 40% three years ago.

In contrast, "Other" went from 15% to 24% of the phone market in the same time frame. Part of the explanation is that the entry of the iPad took the wind out of the "low end" netbooks and other cheap PCs. Consumers migrated low-end usage to a product re-built around those jobs.

In the mobile phone market, the disruption is in the opposite direction: communication is moving rapidly up-market from real-time voice to latent messaging and from storage consumption to broadband consumption. The companies being rewarded today in the phone business are those who are leading the charge to new markets.

In other words, on the PC, we are witnessing low-end disruption. On the mobile phone we are witnessing new market disruption. The irony is that the low end PC and the high-end mobile are very nearly the same thing but the industries, channels and incumbent business models are very different.