The strength of the home PC market is vital to computer retailers andlike the Partridge family or are you a one-man band? other high street dealers. But for retailers that want to foresee the prospects for 1998 - what to stock and what to drop - knowing the shape of this market is essential. Unfortunately, it's also elusive.
Despite a plethora of market research agencies in the UK, estimating the strength of consumer and small office/home office demand has always proved difficult.
Original predictions for the UK were based on US experience, where by 1993 a third of homes had bought a PC, despite global recession and limited push from vendors. If these predictions had come true, 70 per cent of the 20 million UK homes would own a PC and computer retailers would be rich.
Clearly, this is not the case. So what is the state of the UK home market?
How many British homes have a computer? Market research figures not only vary from one analyst to the next, but often bear little resemblance to the reality experienced by those at the sharp end.
'The figures are bullshit on bullshit,' says Stephen Rigby, deputy managing director of Byte Computer Superstores. 'We have to rely on gut feeling for the market.'
As early as 1995, a widely publicised survey said that one in four homes in the UK had a computer, which put the UK on a par with the US. Yet, at the time, PC vendors put the figure at less than one in 10.
Why the disparity? Undoubtedly one in four people replied yes when asked the question: 'Do you have a computer at home?' But the definition of computer could mean a Windows PC or a Sega Megadrive.
Cable & Wireless Communications published a survey of its customers - essentially Mercury telephone and Videotron cable TV customers - in December. A staggering 54 per cent said they use a computer at home and 22 per cent said they have a Net connection.
Should dealers base their buying decisions on such results? No. A large chunk of Cable & Wireless' 54 per cent may have been referring to a PlayStation or ageing Amstrad PCW, and hence can be discounted. The figures will also be higher than the national average because of the type of people who are Cable & Wireless customers, namely those with the gumption to switch from BT to Mercury based on price and service.
Sixty per cent of the respondents said they ranked price as the most important factor when choosing a telecoms carrier, whereas half the UK population doesn't even know they have a choice - they think BT advertises as heavily as it does to encourage us to make more calls. And Cable & Wireless customers seem to understand the difference between Sky and cable TV.
So all in all, they are less likely to be conservative Mr and Ms Averages and more likely young and technically savvy. Cable & Wireless' customer base also has a South East regional bias.
Dataquest's end of the year review of the entire European market - business and consumer sectors - painted a rosy picture too, with Q3 sales ending October growing by 17 per cent. And much of this is down to bullish consumer sales, say Dataquest analysts.
'We have entered a new growth cycle, which the nature of the market suggests will last some two-and-a-half years,' says Steve Brazier, associate director of Dataquest's European PC group. 'We expect this steady growth to be maintained, and it will be a continuous process driven by economic fundamentals rather than a stepwise process of technology improvements.'
In the consumer sector, the UK is out-performing the rest of Europe, including those countries with a higher penetration of PCs in the home such as Finland, Switzerland, Sweden and even Germany, which has traditionally been a stronger market and remains so in the business sector.
But a 17 per cent hike in total revenue across Europe in Q3 1997 has to take into account that at the same time the year before, Europe was thawing from an early 90s recession. Large increases this year are to be expected.
Datamonitor based its recent Consumer Online Services report on the assumption that 20 per cent of the UK's homes have a PC. This makes it a middle-of-the-table player in sixth place behind Finland (31 per cent), Sweden (30 per cent), Switzerland (29 per cent), the Netherlands (22 per cent) and Denmark (25 per cent).
Surveys are often sponsored by vendors that want to know the state of their market and are often commissioned by marketing directors who want to show their worth to the rest of the board, or a board which wants to show its worth to the shareholders. This is not to say that they are untrue, but there are different ways of asking a question.
What UK computer retailers need to know is how many people can say yes to the question 'do you have a PC at home which can run Windows 95?', since this accounts for the majority of what stock retailers fill their shelves with, and thus determines likely demand for software and peripherals.
The answer to two other questions would also be invaluable: 'If you don't have a Windows 95 PC at home, when do you intend to buy one?' The answer may be never for many respondents. And, 'if you have one already, when do you envisage replacing it?' This would determine the likely demand for first-time and replacement PCs.
Accurate figures of this nature cut both ways. Realising that the penetration of Windows 95-capable PCs is much lower than the hyped figures would have a sobering affect. It would make manufacturers and retailers alike reflect on the amount of work still to be done.
'It has been a tough year, and you will see some alarming figures for 1997 sales for some branded PCs,' predicts Rigby.
Some may realise that after all the time and millions spent on marketing, it is time to stop flogging and bury the poor horse.
No PC manufacturer makes money selling PCs to consumers through retail.
They all say they do, but they also all subsidise costs with profitable business-sector sales. If they had to spin off the consumer sector as a separate company, how many investors would it attract? That is the real test.
For a PC manufacturer to sell through retail takes deep pockets and nerves of steel. This year, some manufacturers just won't have what it takes.
Industry bets are now being placed on Mitsubishi, Olivetti, ICL/Fujitsu and Hewlett Packard.
On the other hand, figures show a high penetration of Windows 95 spec PCs in the home, which means a strong customer base for peripherals, software and replacement PCs, but poor machine sales to first-time users.
The real picture though seems to be a combination of the two - lower than predicted penetration but no solid market for first-time buyers.
'There are fewer first-time buyers out there, but I'm seeing exceptional sales on software, scanners and printers,' says Rigby. 'We'll be taking a more active look at second and third-time buyers this year.'
No one had stunning PC sales before Christmas or in January. 'The main impact on trading was a fall in the pre-Christmas period in sales of PCs, although software and computer peripherals grew strongly,' said Dixons' chairman Stanley Kalms, commenting on Dixons' performance from 16 November 1997 to 10 January.
But software is a high-volume, low-margin business. Consumers don't see why they should pay more than music CD prices for titles when they are given away on magazine covers and bundled with hardware, hence the growth in budget ranges and piracy.
Although peripherals have saved the day for many retailers, there are only so many printers and scanners you can sell before the market becomes saturated. The industry needs to recruit new users or keep finding new add-ons to sell existing users. Home networks anyone?
So what fuels consumer demand for PCs? There are currently five ingredients - replacing an old machine, children's education, the internet, a desire for the next electronic consumer device and home working.
Home working includes sole traders, the executive who needs a PC at home as well as in the office and the payrolled teleworker. The latter two often have machines bought for them by the company as part of a corporate purchasing plan, so few go through retail.
Sole traders may need a PC to write letters and do rudimentary accounts, but this hardly requires a #1,500 Windows 95 box. However, it does offer the opportunity for up-selling. If a sole trader is going to buy a home PC for business, he or she might as well buy one which can run multimedia software and surf the Web too.
Small businesses which need multiple computers will turn to a dealer that can plan, install and maintain their system for a monthly fee, and retail is not perceived as having staff to provide this service. The exception being independent dealers that have built their local reputation on it.
Selling the PC as the next consumer durable is hardly viable. Even if people already have a TV, VCR, hi-fi, microwave and all the rest of it, there are too many other things competing for your #1,500 - a better car, foreign holiday, private medical coverage, private education, DIY, the list is endless.
Those interested in exploring the mysteries of the internet are more likely to already have a PC. There is no money in selling modems, and the best a retailer can hope for is a steady drip of people upgrading machines as Websites become more sophisticated.
Of the 143 million households in western Europe, 6.3 million are already online, including 1.35 million in the UK and 2.2 million in Germany, according to Datamonitor. It also predicts that by 2002 there will be nearly 40 million online households.
The advent of Web-enabled TV and the rise of the internet as an entertainment medium may pull more households online, but the Datamonitor report assumes consumers will use mostly PCs to access the internet.
'Despite increasing competition from network interface devices such as network computers, PC TVs, set-top boxes and internet-enabled games consoles, access to the internet via a PC will continue to be the dominating method in the foreseeable future,' states Datamonitor.
The report adds that of those 40 million online households, in four years' time, 38 million of them will gain internet access via PCs, using ISDN, ADSL or cable modems.
Whichever way you look at it, that's a boat-load of PCs to sell into Europe's homes between now and 2002.
'I keep reading figures about how the internet is driving PC sales, but it hasn't happened in my town yet,' says one independent dealer.
Even if Datamonitor's prediction came true, the trend in home entertainment is away from the PC business' capital purchase model and towards the monthly payment model of satellite or cable TV. Until internet access and Web channels become bullet points on the services roster of cable and satellite providers, universal Web access for all but the elite is a dream.
Education is still a strong motivator and is likely to stay that way while the government is banging the drum for IT in schools. But it is not putting up much cash and as yet, few retailers have been killed in the rush.
This leaves the replacement market, driven by the presence of Pentium II, pushing graphics performance to the next level, and the advent of Windows 98. Whether Windows 98 will see as big a consumer takeup as Windows 95 remains to be seen. Microsoft has to first overcome the US Justice Department's objections before it has even tackled consumer resistance.
While the software giant has temporarily agreed to remove Internet Explorer from its Windows operating system, the real court case starts in April to see if it has been abusing its position as the leading software company.
'1998 should be a better year for selling PCs - it could hardly be worse than 97,' says Rigby.
Next week Andrew Charlesworth examines the demographics of the installed base of home PC users and their likely purchasing requirements.
Infrastructure provider says international sales now make up 51 per cent of its revenue
Suzanne Chappell of TMS plans sailing venture after selling Oxfordshire-based TMS to acquisitive Chess
Withdrawal of credit insurance by some providers a 'reflection' of current challenge facing IT sector, according to MD Steve Soper
SMART's UK managing director joins Lenovo to boost SMB business