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The PC at the
Crossroads
December 16, 1999 03:00 AM ET
by Bronwyn Fryer
Marty Wolf, a prescient Silicon Valley investment banker who
buys and sells technology product and service companies for a
living, enjoys nothing so much as a good industry shake-up. October
1999, then, proved to be highly amusing. Two weeks after Wolf
predicted such an event, IBM announced that the company was yanking
its consumer-targeted Aptiva line off U.S. store shelves in favor of
a Dell- and Gateway-style online push."I just laughed" says Wolf.
"It's too little, and it's too late. It's like changing the ending
on a B movie so the audience will like it."
And thanks to the Internet, the PC
is - face it - not much more than an overstuffed window on the
Web.
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Good morning, PC makers. It's a brand-new millennium, one filled
with blaring alarm clocks, staring blue-eye bags, antiseptic hotel
rooms and Styrofoam-cupped coffee. Look in the mirror. The PC—that
late '70s–era artifact that was supposed to put power in the hands
of individual users—is a commodity. Worse, it's a cobbled-together
collection of wires, boards, chips and software subject to a
shrinking universe of suppliers and hastily inked "partners." And
thanks to the Internet, the PC is - face it - not much more than an
overstuffed window on the Web.
Cheap PCs have reduced profit margins to zero, and price wars
have left opponents battle-weary and hemorrhaging. Individual brands
- along with two-vendor bundling and pricing strategies (such as
those from computer and printer makers) - are as indistinguishable
as yesterday's motherboards. In fact, the entire industry has been
reduced to one big case of keeping up with the neighbors. Instead of
coming up with provocative styling ideas, as Apple did with the
iMac, "manufacturers in 2000 are all imitating each other, and all
their PCs are the same," says Schelley Olhava, a research analyst
with International Data Corp. (IDC). IBM CEO Lou Gerstner put the
last nails in the coffin in October, when he declared to the
audience at Telecom 99 in Geneva, "The PC era is over" IBM's
decision to pull its Aptiva consumer PC line off store shelves and
sell them direct only followed.
For the PC industry, it's either change or die. But change, as
they say, is good. During the next five years, the making and
selling of computers could evolve into something new and rich. Not
only will you see a wider variety of devices styled to match your
bedroom pillows or outfit du jour, you're also likely to witness
strange bedfellows as hardware makers and service firms partner to
offer unique solutions. In fact, it's not too far-fetched to imagine
that the IBMs, Compaqs, Dells, Gateways and other PC manufacturers
of today will find themselves in businesses that look substantially
different tomorrow - or they may find themselves in a different
business entirely.
Joining Up for Joe's Garage
Having tapped out cash-cow
corporate accounts and saturated the low-margin consumer markets, PC
manufacturers over the next few years will attempt to capture an
enormous, fast-growing and still largely untapped market: the
small-business buyer, who currently purchases a lot of off-white
boxes from the mom-and-pop PC shop down the street.
The opportunity is obvious: The 23 million small businesses in
the United States are not only willing to spend more than consumers,
they're suffering with Windows crashes and they lack IT departments.
Establish a relationship with small-business folks and make them
happy, so the thinking goes, and you can count the money as those
businesses grow.
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