PCs aren’t dead yet. Just ask Ron Coughlin, head of HP‘s computer business. The Palo Alto, California company’s PC business has growth at about 11 percent in revenues, year to date. It has become the No. 1 PC company again, as of a couple of quarters.
Coughlin believes HP is taking share from its Windows PC rivals as well as from Apple. And it is expanding in games with its Omen series of desktops and laptops. The company has also moved into virtual reality. It created its own Windows-based VR headset in an attempt to take VR to a larger market.
HP also teamed up with the Venture Reality Fund to invest money into VR and augmented reality startups. And it created a backpack that allows you to wear a laptop on your back that is connected to a VR headset, so you can move around in a VR space without tripping over the wires. I sat down with Coughlin for a conversation about the growth of games, VR, and the core PC business.
Here’s an edited transcript of our interview.
VentureBeat: What are the trends in your PC business?
Ron Coughlin: We’re coming into this conversation with a lot of momentum. There’s been lots of talk about the PC industry. HP has had three quarters in a row of double-digit growth. Last quarter we grew 12 percent. We’re very proud of that. I don’t think many people would have forecast that.
We took number one two quarters ago in overall PC. We extended that lead this past quarter. Not only are we taking share from Windows competitors, but for the first time in years we’re taking share from Apple in the premium category. We’re also building in gaming. Our gaming business, from a standing start, has reached significant scale.
VB: How did this happen?
Coughlin: A lot of the success we’ve had we attribute to insights. We spent a lot of time mining insights, mining customer needs, and we combine that with our technology and engineering to create products. As we go forward, we ground ourselves in several insights. The first is about one life. A person is a person, whether they walk into their work place or walk in to a Starbucks. They don’t want a brick. They want the same type of devices with the same types of experiences. We’re working hard to create those experiences.
The second thing is they want to be connected. Whether that’s in Starbucks, on a plane, in a taxi, they want to be connected. We see connectivity increasing, and we think 5G will be the tipping point for that. We’re preparing for those days.
The third is around context. There’s lots of work in context, but one area we’re going to pull away from the pack on is context within the workplace. We’ll know if your hard drive’s about to fail. Rather than IT having to fix it, we’ll come in and fix it before IT has to. We’ll know if you’re running on one-fifth of your battery life and hurting efficiency. We’ll come in and address that.
Last, relevant to that, is services. This market is tipping to services, whether it’s PCs, retail POS, or even VR. The market is shifting to a service model. It happened to our print business 10 years ago. It’s happening to all different types of segments. A great example, I was with the Kering CEO the other day in France. He said, “If I had known I could have taken my PC business to as-a-service, I would have shifted to that model immediately, because I’ve taken the rest of my business there, and it frees up my IT resources.”
VB: What’s the strategy?
Coughlin: As we go forward, we translate that into three buckets of strategy. One is core. That’s where we do things like reinvent the PC — things like 360s, things like detachables, things like gaming. We’re doing a lot of work there. One of the best examples is in the commercial space. We started with innovation based on insights, that people are using their devices a lot for conference calling. Building a device that wasn’t just a great computer, but—rather than having to carry an external puck, let’s build something with a speaker that delivers the full audio you expect for spoken word. Something with keys that are designed to allow you to mute and hang up and answer Skype calls.
The second innovation in the commercial space is around security. This device is the Elitebook 1040, which has a built-in privacy screen, along with security like SureStart and SureClick that deliver a high level of protection as the customer is wandering around the internet.
The third innovation that happened was Spectre, where we focused on building a super high quality premium device with better materials, great touch pad experience, really high battery life. These three separate innovations that we perfected separately then became part of one device we launched at CES, the Elitebook X360. What’s amazing about this device is it does everything the other three do, but it does it in a great integrated package.
We’ve all been on a plane where you look over the row and you’re reading someone’s slides about the wholesale price of beer. Whether we admit it or not, we’ve done it. You see that enough, you think, “I can’t ever travel without a privacy screen.” 3M had a great business in stick-on or slide-on screens. The idea here was to build it in. Here I’m using a machine with a regular screen. I press one button, and if I look straight on, it’s perfect. Any more than 35 degrees off center, I’m private.
The other thing we have is built-in pen support. We know people use PCs to create as well as to consume. We want to up the ante on creation. We’re building pen into almost every one of our devices as a key part of the strategy.
That’s our core. In our growth areas, we’re focusing on several things. The first, as I said, is device as a service. The market is shifting. 50 percent of commercial customers are either actively deploying device as a service or evaluating device as a service. We think we can lead because of our management services infrastructure and our knowledge after 10 years of running management service operations and the synergy across those two. We also have an active retail POS business. We’re winning account after account on that.
In our future area, we’re focused on two areas. One is 3D scanning. We announced Sprout three years ago. We’re refocusing Sprout on commercial and 3D scanning, primarily. We’re taking that same technology and rolling out and deploying now in 10 stores with a company called Superfeet, scanning feet. You think about what needs to be customized, shoes are a great example. We’re creating custom insoles on our way to custom shoes, printed on HP’s 3D printer, Multijet Fusion. This is our blended reality vision coming to life.
VB: Tells us about VR.
Coughlin: The other big initiative in our future area is VR. We started this journey probably a year and a half ago, announcing a partnership with HTC on the Vive. We provided the compute for their device. We were one of two partners with them. We made the right bet, because they ended up doing pretty well there. We followed that about six months later with an announcement on a VR backpack. When we announced that, focused against consumer gaming, my workstations team—their phones rang off the hook with folks in the theme park industry, auto industry, manufacturing, design. “Can we apply that to our businesses?” We’ve embarked on that and just announced a partnership with Microsoft as well.
What’s interesting in the VR space is how complicated it can be for customers to set up VR. Our strategy initially was to build devices that had the parts, whether it’s the K-series Intel processors or Nvidia GPUs, that were built in. But also we spent a lot of time to make sure that when you set up the machine the first time, it worked well in VR. We saw customers saying that when they plugged in the HTC headset, sometimes the VR experience showed up on the console, and the console showed up in the headset. We’re building software to detect what’s showing up where, which is an important part of making sure the customer has a great experience.
You saw us do more and more things to build in our desktops, and increasingly in our notebooks, the GPU and CPU power to make that possible. A great example of that, we launched the new Omen X notebook about a week ago. We have two lines in Omen. Omen is about great price and performance for gamers, but for the enthusiast who’s looking for maximum performance, the Omen X DNA is about overbuilding, about maximum performance without compromise.
The question was, how do you get some of the features that were historically only available in a desktop into a notebook? This notebook has an overclocked GPU, overclocked memory, a K-series Intel processor that can be overclocked as well. But our insights told us that most customers who bought K-series processors, about 70 percent of them, never overclocked. It was too hard to figure out how to do that. You had to go into the BIOS or use a bunch of different applications. With this version, we also have a new piece of software called Omen Command Center. That lets you control the lighting on the device, the macro keys, all the various aspects of the device, and also gives you a one-stop place to go in and tune your PC and make sure you can overclock to get the maximum performance.
This is no light machine. But most of the time it’s being carried from place to place. Check out the keyboard. It’s a full 22 millimeter action keyboard. It has the clickiness that gamers expect on this kind of device. Very purpose-built for someone who wants to game all day long with no compromise.
VB: Has Windows 10 figured out their thermal problems yet?
Coughlin: I don’t think it’s Windows 10’s job to do. That’s something HP spends a lot of time on. We have some phenomenal mechanical and electrical engineers who’ve gone through this device to make it really overbuilt. The heat pipes in this device let us run a K-series processor over spec. We can take 1080GTX GPUs and overclock them by default. We’re not scaling back. We’re running things beyond spec. It’s our ability to solve things like that with our engineering prowess that’s allowed our gaming business to grow 10 times in the last two years.
On the backpack, this is very interesting. We announced it a year before we launched it. We wanted to see if the ecosystem really wants this. Again, much more hands-on insight in the design thinking, to really see where they saw it going. As we said, one of the big pieces of feedback was, we built it for consumer and gaming, but we got a lot of interest from commercial and other vertical applications.
The key innovations here — first of all, a backpack that moves heat away from the user. Even with the prototype, we found that too much heat was heading toward the person’s back. The design changed pretty dramatically. The whole notion of these high-output batteries was a critical part of that. Putting a notebook in a backpack isn’t that complicated. Running the notebook like it’s plugged in all the time is harder. These high-voltage output batteries were a big part of that. You can hot swap them. The computer has a battery in it, so when these batteries die, you pop them out, charge them, and put in a fresh set without rebooting the system.
We also got feedback that said when it’s not being worn as a backpack, it’s awkward to have it lying on a table. We built in this docking station that allows you to take the backpack off the straps, pop in here, and use it as a full desktop with all the ports you want running right to the screen.
For the gaming space we spent a lot of time with accessories to make sure the experience was complete. We just launched the new Omen keyboard. It uses blue switches, the full clicky feel that customers expect. We’re also supporting, across our line, 26-key rollover. If you have multiple key presses at the same time, on a regular notebook we don’t capture that, but in a gaming notebook you don’t want your weapons to go up just because you’re shooting. We also heard feedback from some customers that said our mouse was too light or too heavy. We’ve designed the mouse so you can open it up and take weights in and out, so it’s exactly how you want it every day.
VB: Did you guys announce a price for this yet?
Coughlin: Yes, it’s $449, with hand controls. In the VR space in particular, we spent a lot of time with HTC, but we’re also supporting Oculus in our configurations. We’re very much invested in our partnership with Microsoft in this space as well. This is the forthcoming headset from HP that works as part of the holographic platform. A few things you’ll notice about ours, compared to some of the others out there — a lot of work’s been done to weight it and make it adjustable. You can adjust it from behind. It works with different head shapes and sizes, but also, the weight is centered so you don’t feel it pulling on the back of your head. It’s going to have a much more aggressive price point than HTC and Oculus, so it’ll put more sockets out there, which will get more developers building great VR content.
VB: There’s some concern that either people with glasses — it’ll fog up the inside lenses, if you stay in it for about an hour.
Coughlin: We haven’t seen that yet, in a lot of testing. We do a lot of ergonomics and human factors work, and we’ve not seen that. Our lead person on VR, Spike, wears this thing all day long with his glasses.
What you see us doing is building out, when you talk about commercial. Where we’re stabilizing — like I said, we got calls for the workstation team. Where we see a big opportunity, a more than $10 billion market, is commercial VR. Given our commercial legacy — number one in commercial PCs for multiple years — we’re now taking this and creating a Z version. We’re working with automakers on design and troubleshooting. We’re working in the medical field, in education contexts. We’re working in manufacturing. Military training is a perfect example. We’re excited about the commercial VR opportunity. It’s much less crowded there.
It’s about cases where you need to create an experience that would be expensive to replicate in a physical space. You’re doing an anatomy class. Cadavers are expensive, a lot of overhead associated with that. I can do that training and watch what you’re doing to see if you made the cut properly and give you feedback. That’s not a concept. They’re teaching anatomy today at Case Western to first-year med students in VR.
VB: Is that a classroom full of these things, then?
Coughlin: They have 12 or 15 folks in the class. It’s a different kind of lab. My favorite is — I don’t know how old you are, but when I went to school we’d have these big bulky textbooks on Roman history and you’d see a picture of the Colosseum. If you have VR, all of a sudden you’re in the Colosseum. You’re experiencing this place.
VB: It seems like VR, in that kind of case, needs a one-to-many sort of experience. One computer talks to 30 visors.
Coughlin: One of the experiences in particular that the Microsoft platform is focusing on is this notion of one-to-many and collaboration. The question is, is collaboration a key opportunity for VR? We’re seeing that in some gaming experiences as well. A lot of problems are being solved in gaming that end up having applications in the commercial space. We see that a lot in general, but in an even more concentrated way in VR.
We have a lot of momentum and we’re excited about what we’re doing on our core, things like device as a service, and then VR and immersive computing.
VB: I saw you guys joined as a co-investor in the Venture Reality Fund. That tells me there’s some seriousness here about VR. At some point you decided it’s on the right trajectory. How did that come about?
Coughlin: Let me address that on multiple levels. If you look at the two years we’ve been an independent company, what’s interesting is — I’ve been with the company 10 years. The first company we bought was a 3D scanning company called David Laser. Small acquisition, technology acquisition, those are the types of things you used to hear about Intel or Apple doing. That wasn’t the type of stuff we were doing around our PC business.
One, that’s a great feature of us being a focused stand-alone company. Then VR, similarly, came from CTO’s office. My team said, “Hey, we want to go after VR.” They said, “Let’s find out who’s doing interesting things. How do we tap into the cutting edge of VR development?” We evaluated the opportunity and saw that this is what we wanted to do. Both of those are testaments to a shift from a commodity bundler of Microsoft and Intel to a company dedicated to providing its own IP, developing its own IP.
Again, technology for the sake of technology, we see that a lot. In this case the decisions are based on seeing a real customer problem, based on feedback we heard through telemetry or in a conversation. We understand the root cause of what the customer wants and either found — like in the David Laser example – or invented to fill the gaps and make sure we had the complete experience. The VR Fund is partly to just expose us, so we know where the industry’s going and if there are opportunities for us to partner or buy technology to pursue those.
VB: Does it concern you at all that the consumer acceptance of VR is slower than expected? The sales are not on the steepest curve.
Coughlin: First, that’s why it’s in our future bucket and not in our core. Our future bucket, we’re patient. We’re letting technology play out. A perfect example is immersive computing, where we started in consumer, created a new UI, and then realized, “Okay, the magic is in commercial and 3D scanning.” The nature of future is we’re evolving the technology as we interface with customers.
Two, that headset right there, we’re selling it for holiday. We’re sold in. I will tell you that I expected dribs and drabs of orders. It won’t change the over $30 billion number for Q4, but it is not insubstantial in terms of the numbers that have been ordered. Not projected, but ordered from retailers. It’s more scale than I expected it to be.
VB: And it’s consumers driving that, as opposed to enterprise?
Coughlin: That’s wholly consumer. Where we are with enterprise is, we’re engaged with probably 20 different commercial customers, whether it’s design or showroom and so on. What’s interesting about this is, we’re not going to be a commodity player here. We met with someone from a luxury carmaker, at our workstation team in Fort Collins. I said, “Are you using VR in your design process?” He said, “Well, I have VR. It’s sitting in the corner.” Why is it sitting in the corner? Because nobody provided him with a solution that takes the hardware, takes the software, customizes it for how he uses it, and ideally provides it with service. That’s the opportunity and the mission we’re on.
As you build new platforms and new experiences — having done ecosystems at Microsoft and Amazon and now HP, three things that have to happen iteratively. You have to have an ecosystem of applications, which is about content. You have to have the tools that get developers inspired to build things. You have to have sockets to build them for.
What I love about this product is it’s going to drive sockets. It can leverage a lot of the applications that are already in the Windows ecosystem. It brings the price point down. It gets developers excited. It’ll mean more content, drive more sockets, and the whole thing starts to spin up. As this launches for holiday, we’re right at the edge of that big jump.
VB: With the backpacks, are you started to see some of that demand come in from theme parks?
Coughlin: That’s one of the customers that is engaged, yes.
VB: As far as how high-end to aim the headset, where did you guys settle on that as far as what kind of PC is required to drive it?
Coughlin: When you look at the higher framerate, more GPU-intensive solutions, that’s the case where HTC and Oculus are going to drive a super high-end Omen-class PC. If you look at Microsoft’s approach with this headset, they’ve done a lot to make it not put a huge load on the GPU. The ability to make it work on more PCs in the current installed base is a core part of that strategy.
You’ll see different kinds of applications being developed. The ones that were initially more high-performance, you’ll see in the classic Windows with HTC. The applications that are less compute-intensive, those things will lean more toward the Microsoft solution.
VB: Is there a different description for the gaming consumer that trails behind the highest-end hardcore? I think of the hardcore gamers as the ones that are going to build their own PCs no matter what.
Coughlin: Let’s take Christmas as a microcosm. You’ll have a bunch of folks who buy VR as an experience for their kids. I have VR in my basement. I’ve probably had 50 kids come through my basement. The favorite one is doing the roller coaster. It’s hilarious, because people are just sitting in your basement and they’re frightened. You’re going to have that passive experience. Then you’re going to have, as content comes in, the harder-core gamers taking advantage of that. For those gamers, they’ll need more compute power.
There’s a slide we use a lot to talk about gaming. It says there are three primary sub-segments in gaming: mainstream, performance, and enthusiasts. What’s interesting is you look at the mix of OEM versus DIY. On some level, when you see the DIY number go up, especially in performance and enthusiast, that’s where we see the opportunity. You shouldn’t have to know how to build a PC to be an enthusiast gamer. We want to democratize that space. You can buy a PC from HP and get the benefits that made someone else build their own in a PC that’s tested and built and backed by a warranty. When we sell a PC with a K-series processor and you overclock it, not a problem. It’s under our warranty.
VB: I suppose you didn’t want to have people carry a huge weight on their backs, but what did you figure out as far as what they could handle with the backpack?
Coughlin: That’s super interesting. That’s where the human factors team is spending a lot of time. Not just on the weight of the device itself, but where the heat comes out. That was a very big deal. Where the straps fell mattered a lot. We moved the batteries around a lot. The design is clearly different from what you saw in the concept a year ago. There’s a gap right here so air can flow between you and the computer. You’re not feeling the heat right against your back. The air needs to flow out away from you, especially when the thing’s running at full performance.
VB: Is there a cover for this? I wonder if someone could come up behind me and grab it. Is that for heating reasons?
Coughlin: It clips in right here. You have to pull these tabs to get it off. The reason that wouldn’t work, though, is this thing is running at super high performance. These vents bring cool air in from the back and shoot the hot air out the sides. If you covered that, or put that in a real backpack, you’d have an oven in the backpack. The machine would automatically clock itself down. If you want the full performance, you have to keep it cool.
VB: VR is hard to figure out right now. The VCs are putting money into esports startups. Those are happening almost every week or two. That’s what was happening with VR a year ago. There seems to be a shift in attitude — “It’s slowed down, it’s not taking off as fast, so we’d better stop piling money into VR startups.” There seems to be this worry that a lot of the VR startups are going fail right now, and when you start seeing them fail, people draw a conclusion about the state of the market. But if there are 500 startups and 50 survive, that’s normal. I don’t think it’s going the way of 3D glasses. It might be another generation of hardware away.
Coughlin: I think it’s been focused on consumer so far, when the sweet spot is actually — you think about Google Glass. The theory was everyone would want this thing, and that’s not going to happen. But there are two sweet spots. There’s a gaming sweet spot, because immersion in gaming is better for a sub-segment of that, and there is a sweet spot in commercial markets.
Let’s take a company in Atlanta that does military training. I happen to live just south of Camp Pendleton, the Marine Corps base. You see these cement structures. How many cement structures can they build, and how many Marines can they get near there? But in Atlanta you’ll go there and see a warehouse four times the size of this and folks will seem to be walking through a big empty space. What they’re seeing, though, is they’re in the desert. There are Humvees around them and helicopters flying over them. They’re in a real environment.
The efficiency of that, the ability to scale that, that’s an undeniable application that will hunt. Or showrooming, where you can bring experiences — those things are going to hunt. Often things are brushed too broadly. The world is not going to walk around wearing goggles. You look stupid. But there are times when you want a game and that’s an awesome experience. When you need to train, that’s an awesome experience.
Say you’re a Frito-Lay salesperson. How many Safeways are going to let you reset their shelves? But that business lives or dies on how that shelf is set. If I can do a virtual shelf set with VR, I’m able to train, and keep my sales force trained, every day. That’s where the magic is going to be on this.
One indicator to look at is, how many gaming physics engines have been bought by commercial VR companies? They’re making those acquisitions because they need that tech to build those experiences. In the gaming space, Unity and Unreal are becoming incredibly powerful and highly valued companies because they’re used by game developers to make the physics work in VR. They’re making a lot of investment in the VR part of their engines.
VB: Is there a year you think we can call the year of VR, then, where the adoption curve gets much better?
Coughlin: Right now they’re saying it’s roughly a $7 billion market, and the prediction it goes over $20 billion roughly around 2020. I’d call 2020, roughly, where we would think it starts hitting some scale.
VB: So it makes sense to prepare now.
Coughlin: That’s what we’re doing. I have the world’s best, arguably, compute teams in my workstation team in Fort Collins. They’re working with 20 customers on how we create VR experiences for the vertical needs. Whether that’s moviemakers, theme parks, and so on, the fruit of that labor — those development cycles tend to be 18-24 months in that business. Consumer PC is probably six months to a year. The heavy-duty stuff, vertical orientation, tends to be 18-24. You think about that, the fruit of all that labor will start coming in around 2020.
We’re also engaging closer with Intel, with Nvidia, with game engine providers, with ISVs to make sure we’re bringing together those moments of technology to get the most out of them. We’re on a path towards iterating and iterating and iterating to get to 2020.
PC grew 12 percent. We retook number one. But at its foundation is innovation coming back. You talked about labs. We have such a legacy of innovation at our company, and it’s innovation driving the success we’re having. Whether it’s innovation like 360 service, which is business model innovation, or VR, which is long term, we’re reinventing this company and it’s driving results. It’s an exciting place to be.