P Cs: What The Future HoldsDeidre A. Depke and Richard Brandt
It was the end of an era. On July 3, after weeks of rumor and speculation, IBM Corp. and Apple Computer Inc. matter-of-factly announced a plan to team up in the personal-computer business. Apple and IBM? To industry insiders, it was a little like Jesse Helms and Jesse Jackson announcing that they were on the same ticket.
Concluded just a month before the 10th birthday of IBM's first PC, the sudden glasnost between the world's No. 1 and No. 2 personal-computer makers serves as a neat end point to the first stage of personal computing. Throughout that era, Big Blue and Apple were almost always on opposite sides. From its inception in Steve Jobs's garage, Apple was the quintessential Silicon Valley upstart. Youthful and self-consciously irreverent, the company announced that its audacious mission was to liberate computing power from the mainframe Establishment that had kept the mind-expanding technology locked up in air-conditioned glass rooms. IBM, of course, was the Establishment--East Coast, buttoned-down, and tradition-bound.
That IBM and Apple are now embracing says a lot about how the PC business is changing and something about how desperate both companies are to hold on to their positions in Round Two. In the 1990s, leading in PCs means leading in computers. Period. In their myriad forms--from $500 clones to $2,000 laptops and $25,000 network hubs--PCs already dominate the computer industry. With annual worldwide sales of about $93 billion (chart), PCs now dwarf all other computer markets. Mainframes, for example, bring in only $50 billion annually--including sales of software, disk drives, and other peripherals.
HIGHER HORSEPOWER. In the coming decade, PCs will do far more. Chipmakers say there's no reason they can't continue to double microprocessor power every two years, as they have done throughout the 1980s. That will make possible desktop computers by the late 1990s with power surpassing today's supercomputers. And, industry executives promise, that means there will be no letup in PC innovation. "We have been racing to get to the starting line," says John Sculley, Apple's chairman. "The really interesting stuff begins in the 1990s."
What's in store? For one thing, PC technology will be everywhere--in desktops, laptops, palmtops, and, the pundits say, in all sorts of consumer items. As the cost of microprocessors and com-puter memory drops--and as breakthroughs in speech-recognition software occur--the amenities TV writers in the 1960s dreamed up for the fanciful Jetson home may become a reality. Imagine all sorts of appliances that know when to turn themselves on and off, toasters that respond to a spoken command, or phones that automatically search electronic Yellow Pages for a pizza parlor--then place your order.
In the living room, PCs, high-definition televisions, stereos, VCRs, and laser disks will converge in a new multimedia information and entertainment system. "I see no reason that all those can't be part of one package," says Scott McNealy, chief executive officerof workstation maker Sun Microsystems Inc. Personal computers with user-friendly software will even make it possible for adults to program the VCR--or to send and receive facsimiles and download stock quotes into a personal-finance program that calculates the value of the family portfolio. And PCs will entertain and educate the kids--but not with today's simplistic, two-dimensional video games. Entertainment on these super-PCs will include programs such as interactive fiction, in which the player assumes the identity of one of the characters in a novel, chooses plot twists, then watches the action unfold on the screen. Nightly homework may involve tapping into remote data bases of text, video, and audio information, then filing completed assignments electronically.
And PCs will go wherever we do. The current boom in laptop and notebook PCs will continue as battery-powered machines take on all the powers of desktop models, including the ability to display color graphics. The next hot development, just under way, will be "pentop" machines that understand handwriting. By the end of 1991, IBM, NCR, Tandy's Grid Systems subsidiary, and a clutch of startups are all expected to be selling the tablet-size machines. Researcher BIS Strategic Decisions predicts that in 1995, when tablet computers have been refined, sales will hit $1.5 billion.
'PERVASIVE AS PHONES.' By mid-decade, a new breed of midget PCs is likely, too. Today's shirt-pocket-size computers will be updated to understand spoken commands. They'll talk back, too, remind-ing you of your spouse's birthday, for instance.
"In 10 years, PCs will become as pervasive as phones are today, and in sizes and shapes we can't envision now," says Richard D. Sanford, chairman of the 1,058-store Intelligent Electronics Inc. computer retail chain. "Everyone will have one. It is going to change the face of our very society."
At the office, desktop machines will become enormously powerful--and far easier to use. Much of the computer's processing power will be devoted to making interactions between humans and computers relatively painless. Handwriting will be an alternative to the keyboard. And instead of learning a series of computer commands to calculate the effect of a 1% drop in the prime rate, you may be able to simply tell the computer to do the work. Its voice-recognition software will interpret your words and its expert-system programming will manipulate the other programs needed to get the job done. Business communications will be jazzed up with a multimedia mix of audio, graphics, video, and text. Video-conferencing will become commonplace.
BRAND X. All this and more is possible, even likely. But before it happens, the PC industry has to reinvent itself. The glue that has held the business together for the last 10 years--the standard that IBM laid down with the introduction of its first PC--is coming unstuck. From the minute it was introduced on Aug. 12, 1981, the $1,565 IBM Personal Computer established the rules of the game. Following IBM's lead, clonemakers made the PC standard ubiquitous from Texas to Timbuktu. Apple succeeded--starting with its Lisa in 1983, and then with the Macintosh in 1984--by defining itself as the alternative to the IBM standard.
Now, the industry needs a new model. To read handwriting, understand the human voice, manage digitized images and sounds--and take on the big computing jobs that mainframes and minicomputers still do--tomorrow's PCs need a more up-to-date foundation. Neither the IBM PC standard nor the more user-friendly Apple Macintosh design are really up to all that. That's why, together, Apple and IBM are looking to develop a new PC design that, in the mid-to-late-1990s, can neatly supplant the original IBM standard as well as Apple's current design. Their agreement, if it pans out, will produce new computers using powerful RISC (reduced instruction-set computing) chips and a radically new form of operating-system software.
And this time around, IBM wants to do more than put a Big Blue imprint on the next generation of PCs. By making the technology more proprietary, it wants to shake the pack of clonemakers that have plagued it in the first PC era. "At the end of 10 years, IBM is no longer happy with its rules," says William H. Gates III, chairman of software powerhouse Microsoft Corp. "They created something they can't live with."
Clones were the unintended outcome when IBM Chairman John R. Opel approved a crash program to get into personal computers. He dispatched a team of 13 engineers to Boca Raton, Fla., to come up with a computer that could halt the advance of companies such as Apple, Commodore, and Tandy. Starting in 1977, those companies had taken the personal-computer concept--pioneered by techie entrepreneurs who sold microcomputer kits to hobbyists--and begun making a real business out of it.
KINGMAKER. Opel was particularly alarmed by the stunning progress of Apple. By 1980, Steve Jobs's startup had grown to a $117 million company. And Apple's rainbow logos were beginning to pop up in the big corporations where Big Blue's mainframes ruled.
Led by longtime IBM executive William C. Lowe, the team at Boca Raton was given one year to come up with an answer to the Apple II. To meet the deadline on their "Acorn" project, they broke the IBM rules. Don Estridge, who took over when Lowe was shifted to another IBM division, turned to outside suppliers for key hardware and software and signed up computer stores to sell the new machines.
In the process, IBM inadvertently played kingmaker. Intel Corp. got the microchip order. Tiny Microsoft, then a five-year-old startup run by a 25-year-old Gates, was selected to provide the machine's programming language and operating system. Sears, Roebuck & Co. and ComputerLand Corp. were chosen to sell the PC. By the mid-1980s, the new kings were taking control of the personal-computer castle. Intel and Microsoft--more than IBM or any of its clones--began to determine how PC technology progressed and, to a large degree, how much PCs would cost.
IBM lost control. Instead of taking their pricing cues from Big Blue, as minicomputer and mainframe makers had always done, the unruly mob of PC clonemakers slashed prices to as much as 30% below IBM's. To try to shore up sales, the computer giant in 1987 went after the copycats with the PS/2, a more clone-proof design that uses the proprietary Micro Channel Architecture.
The new IBM machines made a big splash. But by then the original PC standard--in the slightly updated PC AT format--had become a force that even IBM couldn't stop. The clonemakers continued to build sales and market share by improving on the older standard. As IBM's share dropped, from 27% in 1985 to 16.5% last year, according toInternational Data Corp., the company began to compete on price. In the first half of 1991, IBM lopped as much as 25% off its PS/2s in three rounds of price cuts. "IBM has billions of dollars in profits missing" because its PC design is so easily cloned, says Gates.
Apple is feeling the pinch, too. It has successfully repulsed all efforts to clone the proprietary Macintosh design. That helped the company pile up earnings but left it isolated in a market that preferred a standard such as the IBM design--and limited its share of that market to about 12% in 1990. Late last year, Apple shifted gears. To build market share, it came up with a cheap computer, the $999 Macintosh Classic. "If we were going to be a strong player at the end of the decade, we had to have more than a 12% share," says Bob Puette, president of Apple USA.
The strategy worked--in a way. Puette thinks Apple will finish 1991 with a 19% share of PC shipments. But profits have nosedived: Not only are the Classics themselves less profitable, but they also have stolen sales from Apple's higher-margin computers. So Apple recently announced its biggest layoff ever--about 1,500 employees--and in the June quarter posted a $53.1 million loss.
'THIS IS GEOPOLITICS.' These developments are what pushed IBM and Apple to hammer out their startling alliance. If they can lay out a new standard--on their own terms--they hope to regain industry leadership and restore the type of profit margins that go to the players that control the standards. Their vision for PCs? Computers based on IBM's own RISC microprocessor, and on Apple's ground-breaking work in software. The result: desktop computers that are speedier, more colorful, more reliable, and that come with far better software than the PCs of the 1980s.
But influential as they are--between them, Apple and IBM control more than 30% of the market--the new teammates are by no means guaranteed the leadership slot in the coming PC era. Because the desktop computer market has become so vast, all sorts of computer makers are fighting for the role. Workstation makers such as Sun Microsystems and Hewlett-Packard Co. already sell high-powered machines much like the PCs that IBM and Apple envision. Suppliers such as Digital Equipment Corp., which blew it in the first PC era, are looking for a second chance. And companies such as Compaq Computer Corp., which blossomed by cloning the PC, are determined to stay on top by helping to forge the next industry standard. "We're entering a period of more change than ever before," says Rod Canion, Compaq's chief executive.
And it won't be a smooth transition. "There is a new battle royal forming," says Robert Metcalfe, who developed Ethernet, the industry's networking standard. Computer and software makers began choosing sides for the battle well before the IBM-Apple linkup was announced. IBM itself has teamed up with a host of software makers, including PC networking leader Novell Inc. Compaq has allied with DEC and some 60 other companies to support a proposed RISC-based PC standard.
What's more, nearly every U. S. PC maker has lined up a Japanese ally to supply critical technologies for making laptop and notebook computers. "Everyone has so much trepidation about their place in the future that they're tryingto lower their risks by lining up support," says Peter J. Rogers, an analyst at San Francisco investment bank Robertson Stephens & Co. Echoes Jim P. Manzi, Lotus Development Corp.'s CEO: "This is not just technology. This isgeopolitics."
BUILDING BLOCKS. Much of the battle is being fought over software. Future operating systems--which provide PCs with their basic instructions--must be able to manage handwriting, video, graphics, voice, and text, all of which will be flowing over computer networks. What's not clear is which company will provide that operating system (table, page 64). Microsoft is trying to engineer those capabilities into its existing Windows graphics program. Windows now is sold as an add-on to give PCs and clones running Microsoft's 10-year-old MS-DOS operating system a look and feel similar to Apple's Macintosh. In 1992, Microsoft says it will supplant MS-DOS with NT, for New Technology, a new operating system that will let PC owners do many things at once, and make use of RISC microprocessors.
The Microsoft approach is evolutionary--Windows and the application programs written for it will remain the same, but the underlying operating system will be upgraded. IBM and Apple are taking a far bolder tack. Instead of upgrading old operating system technology, as Microsoft is doing with NT, they're betting on a whole new approach. Known as object-oriented programming, this method involves building programs from interchangeable blocks of prefabricated computer code called objects. Object programming will help computers accommodate new multimedia technology and could allow ordinary office workers to create custom programs.
Such advances can't come soon enough. Lately, the PC business has been showing its age. Just four years ago, the industry's annual growth rate was tearing ahead at a 37% annual clip, according to InfoCorp. Now, the market researcher figures, worldwide sales will grow just 15% in 1991. In the U. S., growth will be more like 8%. Other analysts aren't predicting any growth at all.
The recession gets some blame for the slowdown. But after consuming 75 million IBM-compatible PCs, the U. S. market is approaching saturation. Big businesses gorged on PCs in the mid-1980s, and by the end of the decade most small businesses were using PCs, too. Without new customers--or compelling new uses that require updated hardware--the PC industry risks becoming largely a low-margin replacement business. "We just do not see the requirement to go out and spend a lot more money," says Dennis Kavanaugh, a technical director for Pacific Bell, which already has about 40,000 PCs installed for its 60,000 employees. Indeed, of the $55 billion in new machines that will be purchased in the U. S. this year, about 62% will be replacing or enhancing older models, says market researcher Inteco Corp.
One obvious solution is to drum up new buyers. And one great undercultivated market remains: ordinary consumers. The goal, says Intel Senior Vice-President David L. House, is to turn PCs into "the calculator of the `90s." Some of the products to do that are already appearing. Last April, Hewlett-Packard introduced a $699 pocket-size PC clone that comes with Lotus 1-2-3 built in and that, with a $400 option, will be able to relay data by cellular phone. And although the first pentop PCs are geared to blue-collar workers and other business uses, they may also expand the consumer market.
PIZZAZZ. Perhaps the most promising possibility is the combination of computers and home-entertainment technology in multimedia systems. Already, suppliers such as Commodore, Philips, and Tandy are marketing systems combining personal computers with compact-disk players that can fetch digitized snippets of sound and video.
These are the kinds of products that could finally give humble PCs the piz-zazz they need to conquer the home front. However, they are also the machines that could open up a new contest between PC makers and consumer-electronics companies--in a battle that could make the bruising clone wars of the 1980s look like a minor skirmish.By pushing into consumer electronics, computer makers will be taking on Japanese giants such as Toshiba, Sony, Matsushita, and Hitachi. Many of these companies have already made inroads in the computer market with laptops, which favor their skills in building miniature machines and flat-panel screens. Multimedia could give them another leg up. If multimedia turns PCs into consumer electronics, says analyst Rogers of Robertson Stephens, the Japanese could edge out traditional PC leaders. "With consumers, Sony is the preferred brand name. IBM isn't," he says.
Even in well-established markets, PC makers will have far more difficult marketing problems to contend with in the coming decade. The most formidable is finding a way to move beyond the old IBM standard. As the continuing strength of IBM's 30-year-old mainframe design proves, old standards don't die easily.
The problem is inertia. Intel estimates that customers have sunk $340 billion into Intel-based computers--mostly PCs and clones--and related software. While the workstation market has switched over to lightning-fast RISC microprocessors, PCs remain stubbornly rooted in the original Intel design. By cramming more and more circuits onto new versions of its 8086-family chips, Intel has constantly improved PC performance. Now a $3.9 billion company, it has the money to keep pushing the limits of the older chip technology. That will make it tough--even for the IBM-Apple team--to displace Intel with RISC technology.
But IBM and Apple--and any other would-be standards-setters--face an even bigger barrier: Microsoft's MS-DOS. After 10 years, Microsoft has sold 70 million copies of the basic PC software--and countless others have been pirated. Tiny Microsoft has grown into the world's largest software company, and its founder, Bill Gates, has become a billionaire--more than four times over. By now, according to some estimates, PC owners have bought nearly 200 million applications programs to run on the MS-DOS operating system. That may put Microsoft in the catbird seat of all time.
Microsoft's clout--and the in-your-face way with which Gates wields it--has already created a tremendous rift in the industry. For nearly a year, IBM and Microsoft have been fighting over what technology should succeed MS-DOS. The two companies jointly developed the OS/2 operating system, which they announced in 1987 and said would replace MS-DOS. After three years of massively disappointing OS/2 sales--only 600,000 copies have been sold--Microsoft began pushing its Windows graphics program instead of OS/2. Since then, more than 4 million copies of Windows have been purchased.
PAINLESS PROGRESS. The OS/2 debacle did drive home an important lesson for the PC industry. It showed IBM and the rest that customers won't switch if it's too costly. They balked at OS/2 because it would not easily run the programs that they were using on their MS-DOS computers. That meant for big customers to upgrade their PCs with OS/2, they would have had to buy millions of dollars worth of new applications programs such as spreadsheets and word processing programs, transfer old data into new forms, and then retrain their employees to use the stuff. Few were willing to do so.
This time around, IBM, Apple, and the gang are promising a painless transition. They insist that the operating systems they are designing for their 1990s-style PCs will be "portable," so that they can work on many types of computers and accommodate existing software and data. "If you look out over the next five years," says Robert L. Carberry, assistant general manager of IBM's personal-systems division, "change will become less and less visible to the user."
That will surely help. Right now, however, PC buyers aren't rushing to any of the vaunted new technologies. Until they see that they aren't giving up more than they get, the majority are likely to stick with what they've got. Indeed, say some influential buyers, what they want isn't more bells and whistles. They want the plain old PC made more usable. John D. Loewenberg, chief information officer at Aetna Life & Casualty Co., where 85% of the 50,000 workers have a PC on their desk, says today's typical PC "is a case study in user hostility." He wants suppliers to make PCs easier to use and software simpler to learn. Lawrence E. Bacon, chief information officer at Travelers Corp., says his personal computers won't be truly useful until they're simple enough for impatient top executives to master. As things stand now, "if executives can only get 25% to 50% of what they need from the PC, and the rest has to come from other sources, they're not going to use it," Bacon says.
That's the ultimate challenge. No new technology--not even if it's dreamed up by the industry's top two suppliers--will make a difference in the new era if it doesn't make personal computers easier to live with. The IBM PC and the ornery software that made it so difficult to master became cheap commodities long ago. Ten years later, the thrill is gone.
SOFTWARE WARS: THE BATTLE FOR THE NEXT GENERATION
The current generation of operating systems, or basic control programs, is still in its infancy. But computer and software makers are already promising the next great leap forward.
Now Its popular Windows 3.0 graphics program has given new life to the venerable MS-DOS. But MS-DOS now works only on Intel chips and does one task at a time.
Mid-1990s NT, for New Technology, will incorporate Windows, work on RISC computers, and do many jobs at once. It is also expected to have multimedia capabilities
Now A multitasking system called OS/2 2.0 is due out this year. It will run MS-DOS and Windows programs as well as new OS/2 software.
Mid-1990s Starting last year, when it formed a joint venture with Metaphor Computer Systems, IBM has been working on object-oriented programming to smooth over differences among operating systems
Now Recently released System 7, an important update of the Macintosh operating system that allows applications to share data easily.
Mid-1990s The Pink project promises to be Apple's first operating system to work on non-Macintosh computers. It should run Mac, OS/2, and certain Unix programs. The work will likely be combined with IBM's
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