PriceSCAN Blog

This brought a short period of time when pundits and seers would openly wonder if IBM was going to so dominate the world of computation that there would be no serious rivals left. We would have an essential monopoly of supply, and while some small specialist firms might still sell a few machines, the bulk of the business would belong to IBM.

It didn't work out that way.

Two funny things happend on the way to that scenario. First, the PC market began to grow at an astonishing rate. What were hobbyst toys and workbench technology in the late 1970s became, no small thanks to IBM, serious business machines by the early 1980s. Their use was still pretty much limited to assistants and secretaries (Debate about whether 'managers' would ever have computers on their desks was still a common item in the press) but nevertheless usage grew and gained momentum.

Second, as the quality level of some of the then off-brand suppliers began to rise, the mystique of 'blue boxes' gradually wore away, and by the middle 1980s the PCs produced by what had been the off-brand suppliers often became better known for quality than the IBM PCs that they started to replace. I had many an early Dell Computer which I would have rated as 'technologically superior' to the parallel IBM products.

And as the software that drove the machines moved from a thinly disguised version of Kildahl's CP/M into DOS, Bill Gates first began to prick the skin of IBM, and then continued by taking huge bites of the meat of its profitability. And as time passed more and more of that profitability moved from the building of the hardware --- increasingly left to Asian manufacturers and assemblers --- to the software where it was lawyers, not designers, that were the most important instruments in assuring profitability.

In addition, the hardware had increasingly been concentrated in two major architectures: Motorola chips supported Apples and Intel chips supported PCs. Apple, with a fractional market share (5% and tending toward less) concentrated on particular markets largely associated with 'the arts' (image and sound processing) while PC architectures covered 'the rest of the world.' There were a few other players, but they tended to be highly specialized and had little impact on the overall marketplace.

All of this has made the production and marketing of PCs more of a commodity-like market as each day passed. And the more commodity-like the market became, the less profitability there was to be shared among the producers. Most machines with US labels were actually built in Taiwan or Singapore or in other places that had highly skilled labor forces that were available for a fraction of what their cost would have been in the US.

So all of this leads up to a decision by IBM, in no small measure the very firm responsible for the `PC revolution' to now make a decision to sell that business. Whether this is a wise decision or not isn't going to be debated here. Instead, I think it might be interesting to contemplate the different kinds of buyers who are --- or at least should be --- thinking about buying that business.

There are too many companies who might be interested to look at each of the possibilities in detail. However, I think we can concentrate our focus on four broad groups of potential buyers. For each of these groups buying IBM's PC business would or might perform a different function. Depending on economic forces, the value to some of the firms might be rather dramatically different than that to others. Let's take a look:

Buy Market Share
The most straightforward, and therefore the most boring, ploy would be to have Sony, HP, or Dell buy the business. This seems unlikely, but with reputations at stake, I don't think it should be ruled out of hand without at least giving passing consideration. Fiorina at HP, for example, may find herself in dire need of taking some dramatic step, and this might be one such step.

However, it is no longer clear that in 'buying the business' you buy much loyalty. HP has already found this out with Compaq. At the moment their commercial line is reasonably confused by overlap between HP products and some legacy Compaq devices, and adding a line of legacy IBM products would probably not help clear up any of these confusions.

The same might be said, though less strongly, for Michael Dell. He might like to 'have IBM for lunch', and his product line is certainly stodgy, even if effective. IBMs productline might be a better complement to his line than to HPs.

Finally, Sony has become a 'design oriented' PC supplier, but I see less reason for them to be interested, unless there are some 'ego' considerations at play in Tokyo. If so, I wouldn't know about them, but I rather suspect that Sony would be unlikely to want to tie up their capital with this investment at this time.

Go International
Current speculation focuses on 'China' being a possible buyer. This would make some sense. First, cost-concious engineering considerations are very much a part of the normal production process in China. Second, labor costs are very low, and would allow China to make a reasonable source of international currency earnings out of some of this labor if they became a major player in this marketplace. In this view, China would be buying jobs rather than a marketplace.

One further consideration should not be neglected. China might like to become its own sole-source for computer hardware. One of the most difficult tasks in an open PC and Internet world is keeping any semblance of control on what PCs are used for, and how they manage the flow of information. Were China to do something as simple as put 'label' chips in each PC, software might easily make use of such capabilites to manage much tighter control over information flow.

Western firms have been largely prevented from doing this because of competition. But a single supplier as large as China might decide to make use of this, and other more elaborate kinds, of related technology. True, westerners wouldn't have to buy the machines that were equipped with such controls, but if your choice is between a $2,000 machine without such controls and a $1,000 machine with controls that you didn't much care about anyway, I can well imagine cuting costs to overwhelm ideological arguments.

Take a Bite
An amusing prospect would be to have Apple take a bite of IBM. Apple's market share has been stagnant at about 3% for years now. While the company has done very well, particularly with the iPod, its PC-level sales have hardly budged. And with the growth of the iPod business and its potential follow-ons, more and more of the profitability of Apple seems to be coming from the 96% of the world that are not primary Apple users than from the 4% who are.

Whether there would be any real advantage to owning IBMs PC line remains to be seen. Aside from the fact that IBM's 'basic black' contrasts nicely with Apple's 'pure white' motif, IBM has almost a high enough design component to fit into an Apple portfolio.

And then there's ego. One would just have to guess that Steve Jobs might enjoy owning IBMs PC business. With his cash, and cash flow, there might be no small amount of pleasure in having that little two-man operation started in that infamous garage end up owning a major business component of one of the world's largest companies.

It might also give Bill Gates a small pause for thought. As Apple has absorbed Unix technology, it has become increasingly viable as a supplier to core businesses. Its penetration into that marketplace is still quite insignificant, but adding the IBM architecture to this picture might provide a sufficient corpus of strength to even tackle Gates' dominance of the software market place, and thus really give Windows a run for the money.

Support Currently Growing Markets
Finally, we are still looking for the 'killer application' that will become the spread-sheet of the next generation. It is not unreasonable to suggest that spreadsheets really created the hard core center of the PC market. Lotus 1-2-3 probably sold more early computers than anything else that the hardware did. That huge success has never been followed by another, no matter how hard we have been looking for it.

Now there are at least two contenders for that role. One is the PC as a core communications device, and the other is the PC in its role as the possible focus of the personal entertainment world.

Both of these are important marketplaces, each worthy of analysis in its own right. We don't have the time or the space to do that right here and right now, but it is at least worth thinking about in terms of a possible IBM sale. Both Sony and HP have started to make commitments in both of these spaces, and Dell is following on in what seems to be a halting way --- perhaps in need of just what IBM might be able to provide.

Once the sale takes place, we'll be able to focus more time and energy on its specific influences. For this time, however, while we await the direction dictated by the actual sale, it is at least interesting to contemplate some of the paths that might be taken.