Society and business in the 21st Century
Bill Gates is the last of the PC industry pioneers, does his retirement from Microsoft mark the end of the desktop era?
After Steve Ballmer’s announced retirement from Microsoft it was clear that the changing of guard was going to happen at Microsoft as Bill Gate’s last trusted lieutenant left a management position.
If that happens it would probably be the formal end of the PC era as Gates is the last of the pioneers of the desktop computer industry to still have a major role following Ballmer’s retirement and Steve Jobs’ passing.
All Things D reported over the weekend that Microsoft executives are fretting over a major restructure being planned by CEO Steve Ballmer. This is part of the fundamental changes challenging the entire PC industry.
Ballmer is dealing with massive changes in Microsoft’s core business as PC sales decline with customers moving to smartphones, tablet computers and cloud computing so finding new markets is a priority for the company’s board and senior management.
The same problems are facing all the major players in the PC industry and it’s the main reason why Dell is in the throes of a battle to take their business private, what’s fascinating is the different ways these companies are responding to these changes.
In Dell’s case the company’s looking at becoming “an Enterprise Solutions and Services (ESS) focused business” – essentially copying what IBM did a decade ago in moving from hardware and focusing on consulting and services to large corporations.
Microsoft on the other hand sees the future in devices and cloud computing with Ballmer telling shareholders last year that becoming a “devices and services company” is the future.
It’s important to recognize a fundamental shift underway in our business and the areas of technology that we believe will drive the greatest opportunity in the future.
In Ballmer’s view those opportunities lie in cloud computing services and devices like the Windows Surface tablet computer and the smartphones, products which Dell struggled with during the 2000s.
These are two very different directions and it illustrates just how the major players in the PC industry are searching for new business models as the old one collapses.
How many of them successfully make the transition will be for history to examine; it’s easy to see Microsoft surviving given its massive financial reserves and market power, although nothing can be taken for granted as we could have said the same about Kodak twenty years ago.
Dell on the other hand is far weaker being smaller with a narrower product base and currently has the management distraction of competing buyout offers. Dell’s survival is far from certain.
Others, like HP, seem to be slipping into obscurity as management flip-flops from one scheme to another. The takeover of EDS as part of HP’s move into enterprise consulting does not seem to have gone well and the company is wallowing.
What we’re seeing is the rapid disruption of an industry that itself was the disruptor not so long ago. It reminds us that even the corporated giants of today are as vulnerable as the stagecoach companies of yesteryear in the face of rapid change.
Now Michael Dell and a team of private equity investors are going ahead with taking the company he founded private, the question is will this make any difference to the technology company.
Turning around Dell is going to be a massive task as the company has lost the advantages that made it the world’s biggest PC manufacturer. At the same time, the industry itself is shrinking as corporate and consumer customers move from personal computers and servers to tablets and cloud services.
Dell’s real success lay in logistics. In the early 1990s the company – along with its competitor Gateway – developed a global just-in-time assembly network which took advantage of cheap Asian suppliers, efficient air courier networks and call centres.
Bringing these together meant Dell and Gateway could deliver a custom made computer to a customer in just over a week without the hassle of holding warehouses of stock, employing sales staff or renting stores.
Price was the ultimate advantage and these companies could undercut competitors with their efficient networks, lack of inventory and no retail overheads.
Unfortunately for Dell, competitors caught up and by the early 2000s most PC manufacturers were using similar manufacturing methods and were able to match their price points.
By 2006, HP overtook Dell as the world’s biggest PC manufacturer.
Worse yet, Apple adapted Dell’s logistic systems to corner the high end of the PC market and then expand into consumer devices.
Dell’s reaction was to compete solely on price and to do so they cut component costs and outsourced support to lowest cost providers.
This backfired horribly and the poor quality products coupled with execrable after sales support deeply damaged Dell’s brand with the Dell Hell debacle being the public face of widespread customer unhappiness.
Making matters worse for Dell is that the market has shifted away from personal computers.
Dell has a tragic track record of diversifying out of the PC markets, all of its attempts to move into consumer electronics with PDAs, smartphones, tablet computers and entertainment devices have been, at best, embarrassing.
Enterprise computing has been more successful but even here Dell has shown little innovation and most of their entries into the corporate markets has been through acquiring specialist companies rather than doing anything different.
Part of this to failure to diversify has been because of Dell’s relationship with Microsoft. The various versions of Windows intended to be used on PDAs and tablet computers turned out to be wholly unsatisfactory and left the market open to Apple with the iPhone and iPad.
That Microsoft is going to have a financial interest in the privatised Dell is not encouraging for the company’s prospects.
Neither is the continued presence of Michael Dell. His return as the company’s CEO in 2007 has not solved the company’s problems.
It’s difficult to see where the problem was being a public company, Dell’s woes were not because of troublesome board members or activist shareholders.
Going private might allow Michael Dell and his team to experiment without the accountability of quarterly reporting, but that barely seems worth 26 billion dollars.
Dell could surprise us all by reinventing its business and claiming a role in the post-PC world, but right now its hard to see how.
