Last week I was interviewed by a reporter at the New York Times, Nick Wingfield, for an article on the decline of the PC Industry. In the past, I was pretty good at coming up with sound bites and was often quoted by newspapers like the New York Times and magazines like Forbes. I must have lost my touch because he quoted seven people in the article, and several more than once, but not me. The good news is Nick does read my blog (thanks Nick).
There were several points I made to Nick which did not make it into the article (Nick if you are reading this, the sound bites are in italics).
The evolution of the PC as a device for consuming content
During our call, Nick took the position that it was an accident that the PC became the primary device for consuming digital content. I said it was no accident and it was not. In 1992 most companies believed that the TV would become the interactive device in the home. There were a number of projects trying to make this happen, and there were many companies formed to serve this market. As Vice President of Business Development, I was responsible for Intel’s project with Microsoft and General Instruments to create an interactive set top box. As I have reported many times, it became clear to me at that time, there was no way the capabilities needed for interactivity could be provided in a set top box for a cost that the cable industry would be willing to pay. Furthermore, the limitations in display resolution in the TV’s that were sold at the time, made them a poor choice for most content. It was also clear to me that the developing Internet would become the platform for content and, it would be an open platform, rather than the closed systems that the cable industry wanted to offer. That is when I started up the activities within Intel to create residential broadband over cable (the Cable Modem). We then began to promote “The PC is it.” That is to say that the PC was the Interactive Device for the Home. Part of the reason I was convinced that the PC would win, was that there were already large numbers of PCs in homes already. As employees in companies began to use PC’s at work, some decided to buy them for their homes. They might have bought Macs but at that time it was easier to copy the software they used at work and they were already trained on how to use it. In the early 90s there were many more PCs at work and often they were connected to the Internet and could reach companies like AOL that way. I remember noticing that people would stay after hours to use their PCs to connect to the Internet. I use to joke that instead of “Work at Home” it was “Home at Work.”
Intel and eventually Microsoft began to target the home market for PCs and were pretty much unchallenged with the exception of the gaming area where specialized game machines connected to TVs were very successful. We would contrast the two foot experience of the desktop which was highly interactive and the ten foot experience of the TV which was pretty passive with the exception of game machines.
Challenges to the PC Industry’s Leadership
The PC industry has been challenged by a number of factors touched upon by the article although I think they could have been articulated better(sorry Nick). First of all, like all new markets, the early growth is fueled by the acquisition of new customers. Over time, this slows down as most potential customers have already purchased products. The business becomes dominated by replacement purchase and in particular, upgrades. In the early years of a new category of products, successive products offer significant improvements which can cause customers to upgrade rapidly. A good example of that is the iPhone 1-3. This eventually slows down as only small incremental improvements can be offered. Consider the iPhone 5 compared to the iPhone 4. This is clearly effecting the PC industry. New products offer only marginal improvements over existing products so the replacement cycle lengthens. Also during such periods, downward pricing pressure effects revenues. The PC industry would be slowing down no matter what.
However, a new category of product, tablets, like the iPad have been introduced. These products are significantly easier to use, cheaper and more suited to many of the activities that were once dominated by the PC. Such devices can be excellent for consuming content like books, video, news and social media. Many if not most people can get by fine with a product like an iPad. By the way, products like the iPad not only challenge the PC but also things TVs. I no longer have a TV in my bedroom. If I want to watch TV in my bedroom, I do it on my iPad.
The PC, and in fact all computing devices, are being challenged by the movement to Cloud Computing. As long as a device is capable of high speed communications and rapid display, almost all functionality can be offered by applications running in the cloud. We will continue to see movement in this direction. This is putting additional and very significant pressure on the PC industry but will have also effect all device manufacturers.
The Application is not the Form Factor
The article did not separate the issue of form factor from device. We have a tendency to associate a capability with a form factor. For instance, in the 80s, word-processors were dedicated machines that performed a single function, word processing just as a calculator was used for calculations. The PC changed all of that. Now we think of Word Processing as an application that can be performed on a variety of devices. We thought of a mobile phone as a device that made phone calls. Now we understand that the mobile phone (I have called it TIP for the Thing in your Pocket or Purse) is actually a platform for applications.
Today the PC is the preferred device for content creation. If you have to do a lot of word-processing, spreadsheet development, video or photo editing, or music creation and editing, the PC/Mac is your device of choice. But why? I would say it is because of the large screen(s), keyboard and mouse and/or trackpad. But there is no reason that the Thing in my Pocket could not display on a large screen using some wireless communication to the monitor. iPads already connect to keyboards. I believe this will happen and perhaps soon. In fact, I think there is only one device that I will need in the future and it may be in my pocket or even on my wrist. Everything else can and will be a peripheral. I will be writing more about this in the future.
What should Intel do?
Frequent readers of this blog will know that I am writing a series of posts on the Resurrection of Wintel (Intel and Microsoft) which deals with the long term actions I believe these companies need to take. But in the short term, there are actions to be taken as well.
Intel should become more vertically integrated and start offering complete desktop, notebook and tablet computers. There is no longer any reason to fear the effect this will have on their relationships with OEM customers like Dell, HP and Lenovo. Those companies have no loyalty to Intel left. Intel still has a great brand and certainly better than those companies. By integrating fully, Intel can reduce product cost, improve form factors and design and offer greater capabilities. Instead, Intel seems to be wasting their resources doing things like pursuing the TV market for the 4th or 5th time.
For most of the my time at Intel (1984-1999), I participated in the strategic long term planing activities (SLRP). We worked on a three year plan which I characterized as “Last Year, This Year and Next Year”. I would listen to the plans that were proposed and characterize them as “Last Years Vision Implemented with Todays Technology Available Tomorrow.” This of course made me immensely popular with my colleagues. History has shown, that I for one, was ineffective in shaping a long term strategic plan for Intel. I once wrote to Andy Grove and called him the Mick Jagger of Technology. I said in this email, that like an aging rockstar, Intel’s strategy for the future was to make today last. My remarks were not taken very well.
What should Microsoft DO?
Microsoft needs a new CEO, one who can lead in the break up of the company into a number of critical businesses which will then either acquire some or merge with some other companies. The current format of Microsoft, even with the recent reorganization, is more a reflection of its history than the needs of the future. With the possible exception of the Xbox, I think Microsoft should get out of the device business and focus more on industrial strength cloud computing.
Clearly, Apple has done a much better job than Intel, Microsoft or any of the other PC companies in making a transition away from Desktop and Notebook computing. But the new device business (iPod, iPhone and iPad) faces many of the same challenges facing the PC industry. Apple is like Holland building dikes to keep out the sea, but the pressure is building up and leaks are beginning to show.