In last month's Last Byte, we looked with a skeptical eye at those who are pursuing Microsoft with an often greedy or politically-based vengeance. Some gentle readers might have suspected us of being secret shareholders of Microsoft, or biased towards worship of The Mighty Bill.
Nothing could be further from the truth. Rather, although Microsoft is spectacularly profitable and influential, its ever-rising level of wealth and power is part of a general trend in the computer industry: a trend towards fewer and bigger companies dominating the mainstream of information technology. This corporate concentration is a common, and unpleasant, feature of a "mature" industry in the capitalist system.
There were hundreds of carmakers in Canada and the United States in the first quarter of the 20th century; now there are only a few. A recent Scientific American article examined Microsoft's growth in terms of a theory of "natural monopoly." For a bunch of reasons, not least the frustration of consumers with the chaos and lack of standardization that comes with a multitude of proprietary, incompatible products, there is often a tendency for the market to bet on one vendor or technology, making it a de facto standard.
This happened in the PC sound card market, with Creative Labs' Sound Blaster line. A standard may not be the "best" technology (think of the Beta versus VHS videocassette war in the 1970s and 1980s), but once a majority of the market has committed to one supplier, or one operating system or one computing platform (PC versus Mac), it is increasingly difficult for other brands to compete. The slogan of the personal computer industry is increasingly "get big or die."
How to get big
In February, the computer industry buzzed with the news that Digital Equipment Corp., one of the most respected names in large scale corporate computing, had been bought by one of the Windows PC upstarts, Houston-based Compaq.
For US$9.6 billion, Compaq bought out Digital's shareholders, and announced that it intended to absorb Digital's product lines and other assets into the Compaq organization and brand name. This buyout followed other Compaq acquisitions, including the purchase of Tandem Computers seven months ago, and the purchase of a range of networking and computer component makers over the past two years. Compaq is now the second largest computer firm in the world, after IBM.
How to die even if you are big
Ironically, Digital dug its own grave as an independent player when it made a far-sighted strategic alliance with Microsoft over two years ago. At that time, Digital's biggest moneymaking products were servers and workstations based on its proprietary VMS technology, and on a certain flavor of the UNIX operating system.
Digital's senior management foresaw that Windows NT had a chance to become a big part of the enterprise computing market by the end of the decade. So, the company decided to get good at NT, and to offer NT solutions along with VMS and UNIX solutions to its Fortune 1,000 clients. This vote of confidence from Digital was a huge boost to Microsoft's credibility in the corporate market, worth literally billions of dollars to Microsoft's chief executive officer Bill Gates. If a famously smart, cool and reliable company like Digital was willing to bet big time on NT, that was good enough for many corporate information officers. NT was in.
Digital became the biggest vendor of NT server licences, and trained thousands of technicians and sales people to support Windows NT in corporate computing operations. To Compaq, the combination of Digital's UNIX expertise and the best Windows NT sales machine in the world was irresistible. For under US$10 billion, Compaq has bought a highway into the heart of corporate computing around the world. Over the next decade, Compaq will work on its Digital customer base, aiming to switch it from UNIX and VMS to Windows NT.
I had a chance to ask Bill Gates about the effect of the Compaq/Digital merger on Windows NT and UNIX a few days after the merger occurred. He said that UNIX would be around for quite awhile, but Windows NT would definitely get a boost from this particular consolidation. When I talked to Peter Ciceri, the new head of Compaq Canada (a man bringing plenty of mainframe computing experience from years with Sperry/Univac, Hewlett-Packard and Tandem Computers), he was very straightforward about Compaq's goal. Compaq, he said, is now poised to compete aggressively in the entire spectrum of computing from mainframes through servers, workstations, business PCs and networks, home computing, notebooks, and handheld devices.
And the beat goes on...
Consolidation is rapidly occurring in other sectors of computing. Adobe, the graphics software giant, is gobbling up market share from long time competitors such as Ottawa's Corel Corp., and desktop publishing rival Quark Inc. Adobe has switched its major focus from the traditional Mac graphics market to Windows and to the Internet, the two sectors experiencing the most new growth in graphics software.
In the notebook PC market, the top three notebook vendors, Toshiba, Compaq and IBM, command about 65 percent of sales. The next five, Dell, NEC, Eurocom, Apple, and Acer, account for over 20 percent. All the other notebook makers are scrambling over the remaining 12 to 14 percent of the market.
The number of Internet service providers (ISPs) has dwindled in many North American markets, due either to buyouts (such as the purchase of parts of CompuServe by WorldCom, or the purchase of iStar by PSINet), bankruptcies, and the entry of major corporations into the market (such as the Sympatico, or Rogers WAVE services, fronted by telco and cable TV consortiums, respectively).
Hard drive makers are consolidating, along with modem manufacturers, graphics card makers, and CD-ROM manufacturers. What is new about the current wave of consolidation is that in many cases it is the relatively new brand name PC companies that are growing, at the expense of both ends of the market. On the one hand, older companies at the high end (former mainframe and workstation makers like IBM, Sun and Silicon Graphics) have a lot to lose. As well, growth of brand name PC companies is at the expense of very low-end, low-priced "clone" PC makers.
Putting their brand on the market
End users' desire for security is part of what drives the trend towards monopoly. During the late '80s and early '90s, it appeared that clone PC makers had the "first tier" PC makers (such as Compaq and IBM) on the run. The cloners could slap together a boxful of "parts of the week," and beat the brand names in price/performance with ease.
However, as the concern over total cost of ownership (TCO) of PCs increased, large corporate customers insisted on buying security by buying from big brand name companies with good support and warranty programs, and reputations for quality. The little guys in the PC field are increasingly squeezed into the low-price, low-margin entry-level consumer PC ghetto.
The monopoly tax
We all pay a price whenever an industry matures and becomes concentrated into a few gigantic firms. Huge firms often lose sight of customer needs, and try to force products on the market, rather than listening to what people want. Past a certain point, customers' real choices may become very limited, reduced to a few brand names, at inflated prices. Most significantly, innovation can be strangled by monopoly.
IBM, Apple and Xerox for example, all had marvelous research and development facilities, but attempts to bring revolutionary new products to market were often shot down or bungled by internal political wrangling. Managers and stockholders in each company who benefited from the existing cash cow product lines wouldn't allow cheaper, better, competing products to emerge from internal research and development. IBM was well on the way to monopolizing the computing industry when its cart was upset by the uncontrollable rise of the PC.
The dead hand of the state
One alternative to computing's free market turning into a very unfree monopoly or oligopoly (a de facto monopoly by a handful of companies) is a government-regulated market that prevents any player from becoming too large. Sometimes, careful and sensible government intervention is a good thing. However, the history of government management of economies is characterized by all the evils of capitalist monopolies, plus many more that are unique to governments (which can easily become economic and political monopolies, indifferent to either the market or the electorate).
The best remaining hope for preventing a fossilized, user-unfriendly PC industry controlled by a handful of greedy, doddering corporate giants is rapid, continuous change. As long as there is a flood of unexpected technology appearing out of tiny startup companies, research labs, basements and garages across the globe, none of computing's new giants can ever afford to sleep soundly.
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