Cycles

In 1982 I joined IBM. Our training was largely done in COBOL on System /370 blinky mainframes where you loaded the operating systems from tape. My first ever embarrassment in front of a client was when a senior system engineer asked me to load a tape and I struggled to take the tape cover off, not knowing that on a 3420 drive the cover is peeled by the machine.

The following year I heard about the IBM Personal Computer, but since it came to Italy only through gray imports at first, the little critter was our enemy: we didn’t want our clients to think they could do proper office tasks on such puny machines, but in a few months the world proved us wrong, the IBM PC swarmed in and I became a convert; I was there as PCs gradually took over tasks such as desktop publishing, video writing (you may not remember but this was how typewriters-cum-video were called back then), infected bank branches and factory floors, kicking out most other devices.

My years in software made me realize that the increasing similarities between PC designs  were turning them into commodities and the only industry players making money were Microsoft and Intel, the latter pricked, but not really challenged by much smaller competitors like AMD.

The announcement by HP that their PSG ivision may go the way IBM’s own did – bought by a competitor who can leverage a lower labor cost base – means that the PC cycle is largely over: when even the largest player can’t squeeze profits and one wrong purchase at the wrong time of any commodity component is enough to wipe out a quarter if not a fiscal year’ profits, it’s hard to see this as an attractive business.

Giga OM’ Erica Ogg states this is a big win for Microsoft: while in the short term killing a potential competitor like webOS may seem so, in the long run I think this will hurt Microsoft more than help it. Microsoft needs a thriving, profitable PC industry to continue charging its steep license fees; it needs healthy competitors too busy cutting each other’ throats to figure out they should be exiting the business altogther to relinquish it to the oriental masters of hyper-mass productions.

And once there’s only a few of them left, they may form a cartel and decide that continuing to funnel their profits to someone else is not in their best interest, taking a page from Apple’s book who tightly controls its own stack; in short, the world may go the way the smartphone business (already larger than the PC business in terms of units sold) went: vertically integrated vendors with diverse operating systems.

A PC-less HP will continue to be a large and profitable company. Not sure about a PC-less Microsoft.

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