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Friday, December 10, 2004Making Sense of IBM's Departure from the PC Industry - and Network EconomicsJonathan Schwartz writes that IBM's exit from PC business is an appropriate move and based on a correct reading of the downturn of the PC markets moving forward. Excerpts:How much did your cellphone cost you? What's the average price of a handset? What's the average operating margin for a carrier's handset business? The devices are sold to consumers as part of subscription calling plans, whose long term value is sufficient to drive some relatively crazy discounting in the carrier's retail outlets (go check them out, now that carrier's kiosks are popping up everywhere). The same handset from multiple carriers can range from free to $799. And as mobile data services increase in value I'll make a big bet, you're going to see the same thing begin to happen in the PC industry. Will the average selling price (ASP) of a PC continue to meander south? Yes. Unrelated to component cost. Will it go to free, like handsets? Absolutely. In exchange, consumers will sign up for network plans, DSL, cable, you name it. On PC's, or more likely equivalent dedicated devices branded by carriers - just as in the handset industry, where carriers are increasingly deploying 'branded' handsets. It's been a tad tougher on PC's when they didn't control the software load, but it's just a matter of time. This is the foundation of the pricing distortion that occurs when networks, time and value blend. So what's happening to the PC industry? It's moving from the old world, in which one buys a PC and cares a great deal about its comparitive hardware features (does it have a DVD player?), to one in which the hardware is nearly identical, and the value's moved to services available through the device. Over the network. Battery life matters more than processor speed. Size of display more than disk. Access to Yahoo! Personals matters more than all of the above. The sale of IBM's PC business proves the point - the company that invented the category (me, I like to believe they cloned Apple's business), is now exiting due to poor financials. And attempting to sell it to a company whose principle competitive differentiator is cost (and geographic/political proximity to a growth market). It's my view that operating a PC only business doesn't really make a lot of sense - at least in the long run (which is why Dell's adding digital consumer products to its portfolio.But we've been in the post-PC era for a few years now - ask a teenager, which would you rather have, a mobile phone, or a laptop, you'll get a pretty crisp answer (the former). That's partially why handsets outship PC's, about 10:1. Yes, 10:1, and the gap is widening. | |
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