When you sell a personal computer today, the people who make the money are the microprocessor maker and the operating system supplier. IBM Corp president Jack Kuehler told the Wall Street Journal last week (CI No 1,986) – but does that mean that he and IBM – are still preparing to take that argument to its logical conclusion? The company appears to be laboriously positioning itself to do the right thing, to execute the with one bound IBM was free strategy that would put all its personal computer woes behind it once and for all and free itself forever from its lingering and distasteful ties to Microsoft Corp – and to Intel Corp for that matter – but does the company have the vision, the courage and the energy to go through with it?
Unhealthy
Eight or nine years ago there were 25 or so big companies that entered the personal computer business saying that they’d be happy with 10% of the market – each, and 150 small companies that said their target was to win 5% of the market. Pity no-one thought of creating a market 1,000% in size. Today the scores of successors to those companies are saying just another $300 off all our $1,500 machines and all the competition will die and we’ll be left with the market to ourselves and be able to set the prices we want. Fat chance. The suicidal price massacre in the personal computer market may be wonderful for users buying today but it is near-terminally unhealthy not just for the personal computer market but for the whole computer industry. Users that pay $1,000 for an 80486 machine that has the power and the storage of a $200,000 minicomputer of six or seven years ago are not going to take kindly to being asked to pay $500 or even $350 for a single software application, and while there is a case to be made for much mature software being an out-and-out rip-off, as the drug companies constantly remind us, if an adequate cannot be made, there will be no investment in next year’s products, and slow growth will become no growth. The rate at which price-performance is advancing in the Unix workstation and server market is already making the business too tough for all but the leanest companies with the deepest pockets – Digital Equipment Corp, which really should know how to operate in such a market has clearly forgotten, and needs to learn all it can from Helwett-Packard Co and NCR Corp in extremely short order if it is ever to thrive again – and the blood-letting in the personal computer market is certain to spill over into a dozen new rounds of price-slashing in the Unix market. The price of a 33MHz 80486 machine makes the tag on a 3090 mainframe look totally absurd, and the yawning gulf is increasingly being recognised by a rapidly growing number of mainframe users. It is going to take a long time and a lot of ingenuity to put the genie back into the bottle.
Elixir
So what is the elixir of life that will turn IBM’s personal computer business from a bottomless money drain into an asset? We first rehearsed it here full 18 months ago, and IBM seems to be cautiously taking the first step towards it, without showing any sign that it really has the right destination in mind. Turning Personal Systems into a wholly-owned subsidiary is pretty pointless unless the company’s objective – and in the not-to-distant future – is to get rid of the thing. Float it off, sell it: as an IBM subsidiary it has little prospect of being any more attractive an asset than it is today. And, having got rid of it, make an agreed share exchange offer for Apple Computer Inc and invest the proceeds from the Personal Systems sale in pushing the company down the directions it is already headed at a faster pace – with irresistable golden handcuffs to keep present management in place. Set up a separate division in somewhere like Boca Raton or Research Triangle Park, anywhere so long as it’s a long, long way from Cupertino, with the mission of taking whatever Apple produces and fitting it with the software and interfaces that make it the ideal terminal for users of 3090s and AS/400s. The Macintosh System is the onl
y desktop operating system that is extremely popular and totally proprietary. No new proprietary operating system has a chance in the foreseeable future of achieving one hundredth its popularity – and Apple owns every line of code outright. At present, the software runs on chips designed and made by Motorola Inc, but soon the preferred processor on which to run it will be the PowerPC, a chip owned latch, switch and barrel-shifter by IBM. When we first argued that IBM’s strategy should be to ditch the Personal Systems business and buy Apple, it seemed that the breaking of faith with corporate users that had voted the Micro Channel-OS/2 ticket would be a problem for IBM – but why should IBM feel constrained to keep faith with users that have forsaken its PS/2s for much cheaper machines from its tormentors in ever-growing droves?
Sleepless
Anti-trust issues? Swapping what on the most recent figures we’ve seen is a 16% share of the personal computer market for a 14% share shouldn’t give the Justice Department too many sleepless nights, and even the self-aggrandising clowns at the European Commission shouldn’t find it too difficult to nod through. Clearly IBM couldn’t let Personal Systems go without leaving it with a five-year contract to supply PS/2s and OS/2 in large volumes – it wouldn’t fetch very much without such a tide-over contract, and it might bring in a better price if IBM floated it off six months before it announced its agreed bid for Apple. Recovering the situation will be much harder now than it would have been a year ago – the price wars have done too much damage in the interim for their malign ghosts to be exorcised in less than three or four years. But Macintoshes do still command a premium, and if Apple can get the first RISC release right and add sufficient functionality, it should be able to justify a bigger premium. As Jack Kuehler says, When you sell a personal computer today, the people who make the money are the microprocessor maker and the operating system supplier. So make the microprocessor, supply the operating system – go out and buy Apple.
