Are 5 PC vendors too many?

Are 5 PC vendors too many?

Summary: Critics for years derided Apple's strategy of vertical integration. But with Microsoft and Google taking a similar tack, do we still need independent PC manufacturers?

TOPICS: Storage, PCs

The disk drive experience

Back when disk drives were young, dozens of vendors fought for storage dollars. Over 220 companies manufactured disk drives in the last 50 years, but today we are down to three.

Seagate and WD have moved into the low-end subsystem market, as well. Not just internal drives, but drives in USB enclosures and four- to six-drive RAID arrays.

PC as appliance

Likewise, we no longer need a dozen PC vendors. Most people buy notebooks today while the even more appliance-like tablets continue to win converts.

We don't need dozens of different kinds of desktops. We don't even need dozens of different notebooks or all-in-one systems.

The increasing consolidation of the industry — with HP and Lenovo taking market share away from struggling Dell — tells us what we need to know. With two CPU vendors and a few display vendors, there really aren't that many combinations possible.

As appliance PCs proliferate, we also no longer need software that can be adapted to dozens of systems. The Windows OEM model is broken. Microsoft's tablets won't be the last hardware from Redmond, Washington.

Good news

Big, deep-pocketed players bring substantial advantages to consumers. Tighter integration will mean higher quality, greater reliability, and better security. Of course, lower hardware margins will reduce Microsoft's and Google's profits, but investors will adjust.

Apple has invested billions of dollars in equipment, forward purchase contracts, and innovative small firms to ensure a large supply of high-quality products. No independent hardware vendor could compete with them, which is why they dominate the high end — $1,000+ — market.

Just think of what Microsoft and Google could afford to do, if they put their minds to it.

The Storage Bits take

Enthusiasts will keep building their own systems. Specialized requirements for gaming, video, CAD, and 3D visualiztion will drive a custom PC market for the next several decades.

But the PC market has stopped growing. That means PCs are no longer an exciting market for investors. Consolidation — such as in the hard drive industry — is the order of the day in PCs.

The good news is that we've still only scratched the surface of what is possible with smart machines. The locus of investment has shifted, but the computer industry's future is still bright.

Comments welcome, as always. Will you miss having dozens of choices in PCs, or will it simplify your life?

Topics: Storage, PCs

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  • Half right ... the other half will cost you dearly

    When it comes to components e.g. disk drives and PC's (your DELL example) then you are correct.


    When it comes to software; integration with services ... and the cloud.
    "Big, deep-pocketed players bring substantial advantages to consumers."
    You are completely, utterly, fatally, blindly, stupidly WRONG.

    APPL keep their margins high. There is never a reduction.
    MSFT are following the APPL model, heck I am destroying the MSFT supporters by telling them that SURFACE COSTS MORE THAN the iPad. MSFT OFFICE SUBSCRIPTION RATES are more expensive than the old boxed product. The music industry (for one) has kept prices HIGH, despite technology advances. That's what the incumbent players do.

    As we move to the cloud ... MSFT will try to sell us expensive Surface tablets, expensive Office subscriptions. ADOBE have already started with expensive subscription model. APPL were always expensive. These greedy players will try to KEEP THE MONEY. Are you blind ? (Hint: yes, and then some).

    When the big players design their own 'datacentres', why do they use commodity components? To cut the costs. Do they pass it on? No.
    "Enthusiasts will keep building their own systems."
    What we need is a non-greedy entrepreneur who designs an architecture undercutting the big players.

    When we enter the 'post PC' 'cloud' world we need costs TO COME DOWN BY AN ORDER OF MAGNITUDE due to technology and sharing improvements in usage.

    The computer industry's future might be bright ... but one cannot say the same for the consumers' :-(
  • Competition is always good.

    "Are 5 PC vendors too many?"


    Competition is always good.

    I've never seen a good monopoly or oligopoly.

    "Of course lower hardware margins"

    Hardware margins will be driven higher as competition decreases. If you're the only game in town, and there's no competition, then what force on Earth will stop you from making your prices as high as you want?

    One thing I CAN guarantee you: Lack of competition could easily spell the end of cheap PCs.
    • So from your flawed logic...

      Kodak is doing gang busters in the film business and 15 other companies should get into it. I am amazed at the complete lack of basic business acumen by people in IT.
      • what?

        "So from your flawed logic...
        Kodak is doing gang busters in the film business"

        I don't see the parallel to the PC business here.

        "and 15 other companies should get into it."

        If they want to, sure.

        "I am amazed at the complete lack of basic business acumen by people in IT."

        What kind of "business acumen" can be found by comparing Kodak to the PC business?
      • IT isn't the first place I'd look for business acumen, but Cobra's correct.

        While it might be wonderful for Microsoft to vertically integrate all but in name only by eliminating PC manufacturers until only one or two remain and are completely captive, it does nothing for and is indeed harmful to the business and people that depend on PCs for work or play. Competition opened the telecommunications industry when Ma Bell was broken up. Going back to US President Teddy Roosevelt busting up the monopolies that had a strangle hold on both government and the economy, there can never be too much competition. Closing the doors to new ideas/competitors in the form of raising the cost of competition to levels that can not easily be funded is classic monopolistic behaviour. Your implied assertion that PCs are going the way of the film camera is foolish speculation. People who do work usually need a PC with multiple monitors and all sorts of appendages hanging off of them. That's not going away any time soon, despite all the nonsense that's been printed about a post PC world.
      • Wow. Did you actually miss that?

        Kodak WAS doing gangbusters and 15 other companies DID get into the film business. Film was cheap, quality and variety constantly improved. It whittled down to 3 big players (Kodak, Agfa, Fuji). Then digital killed the film business. Despite creating digital photography, Kodak never adapted, so they died.

        Computers are doing exactly the same thing. It's down to a handful of players. HP and Dell are fighting over a dying business. PCs are being replaced by phones/tablets. Once corporations can figure out how to integrate tablets/phones into the business, PCs are extinct. If you're not already in the game, you're dead.

        As a former IT pro with two advanced degrees, including an MBA, I'm amazed at the complete lack of intellect of people who know even less about business than they do IT, yet still try to lecture IT how to run their part of the business.
        • I can't agree...

          with all that you wrote. I agree with the first part.

          But I don't see tablets and phones replacing ALL PCs any time in the near future. I certainly wouldn't be able to do my job with only a smartphone or consumer tablet in their current form. I am doing reasonably well with a Windows 8 tablet as a desktop replacement, but there again, that is a PC in tablet form and I have it connected up to a second monitor, keyboard and mouse for a majority of the day.

          If I couldn't do that, I wouldn't bother with a tablet at all, as multiple screens and "real" applications, with multiple visible windows are a must.

          Likewise, 98% of our workers are desk bound. Even if you took away their dual 24" displays and PC and gave them a tablet, they would still be desk bound, their productivity would drop and they would bitch like hell, that they can't execute their job properly.

          For mobile workers, tablets and smartphones are a boon, for the majority of workers who are either tied to a desk, production line, building site etc. a tablet is a nice to have optional extra, not a necessity and not something that can comfortably replace a PC.

          We need to evolve beyond touch and reading results from a screen, before the PC can be replaced wholesale. Tablets and smartphones aren't a replacement for a desktop PC for a desk bound job.
          • Getting actual work done.

            No way could I even see all the data I need to do my job on anything smaller than a laptop screen, even a phone or tablet with a "retina" or similar high resolution display will only go so far with aging eyes. (I sure would like such a display in PC-screen size, though.)
            rocket ride
        • Former IT pro?

          Well gee golly wiz. I'm so thankful that such a god as yourself will bestow on us your universal wisdom. Too bad its full of crap. I am CURRENTLY an IT pro, 30+ years, and the PC is not dead, not dying, and isn't going away in our lifetime for sure. Perhaps you should get over yourself some and then your comments might be taken a bit more, 'seriously'.
        • Supplemented, not replaced.

          "PCs are being replaced by phones/tablets."

          Eh, no.

          Even in 2013, over 90% of households still have PCs. The numbers even went up over Christmas, so people are obviously still buying them.

          There's no replacement going on - people are simply buying phones/tablets in addition to PCs. Multiple devices and form factors is becoming the norm, and yes the laptop or desktop is still considered an acceptable (even necessary) form factor to own.

          PCs are a maturing market, not a dying market. PCs are lasting longer and not being upgraded as frequently, so yes, sales are slumping. That does not mean, however, that people are actually throwing away their PCs as soon as they get a tablet.

          I'm amazed at how much "business" people still believe the debunked articles about PCs "dying."
    • Economic Fallacies

      What stops them from raising prices is the threat of competitors emerging. In a truly free market only government can make it non-competitive for new players to emerge through onerous regulations and taxes.

      The incredible irony is everyone who pushes for regulations are the same people who don't like the big corporations the regulations give a competitive advantage to.
      • Get together with Cobra. It'll be hilarious!

        In a "truly free market" the end result is a monopoly. Period. It's the only way it can end. It's the "onerous regulations and taxes" that prevents monopolies or breaks them up. Your fairy tale world of free markets results in one, and only one company the inevitable dominant player, using their market power to starve out all competition, and they use their pricing power to keep any emergent competition out. Every economic model shows that the end result is HIGHER prices, not lower. Go to your high school and take a course in kiddie-economics and you might understand how 'free markets' actually work.
        • JoeBob

          spoken like a true socialist.
          • Nope, like a capitalist

            The goals of markets are to drive innovation and choice and to lower costs. It can be easily proven that unregulated markets are inherently very bad at doing these things. All sorts of factors, especially (but not exclusively) externalization of costs, creation of barriers to entry, and price fixing, will unfailingly occur in any free market and result in negative outcomes. However, regulated markets can be very good at doing these things. The regulators need to be flexible, responsive, and ruthless in preserving competition; it is an irony, but free competition cannot flourish without strict rules.
            x I'm tc
        • Monopolies

          Wrong! Monopolies never last without government support, especially if they try to impose artificially high prices for their products. They are inherently unstable in uncoerced market conditions.

          Assuming that a company succeeds in driving its competitors out of business and then jacks up prices, the mechanism works like this:

          If there is a coercive regime (a.k.a, a dirigiste government) in place, the monopolistic corp., having its business model and production methods tweaked to a fare-thee-well, is humming along in a nice, comfortable steady state. It has the luxury of not passing on any cost-reductions it may realize from increased efficiency.
          The only thing remaining for it to do is to donate money to politicians to lock in its stable profits. (A large corporation's board tends to the same kind of mental laziness that a communist politburo does- the desire to just have the profits keep rolling in without having to do too much additional thinking-- and in either case, competition shoots that poor excuse for a business model straight to hell.) So the monopolists buy themselves some politicians. What they get are benefits; i.e., price controls, regulations precisely tuned to fit the monopoly's current business model (sometimes giving special benefits to particular company(ies), which are described in such excruciating detail that the legislature might as wall have named it/them by name-- except that such explicit naming is generally illegal-- we wouldn't want it to be too easy for the proles to see one dirty hand washing the other, would we), in some countries where the aforementioned isn't illegal, actual laws granting the monopoly de jure status, etc.) which place an upstart at a (probably fatal) disadvantage.

          In the absence of such fascist one-dirty-hand-washing-the-other type crookery, the startup/upstart is not at any such artificial disadvantage. And, therefore, has improved opportunity to survive and help keep prices for its commodity/service down.

          They may still have problems stemming from things like
          Having to reinvent the wheel (and possibly license or work around patents, etc.) to create a useably efficient production methodology, and with the lesser ability of a (presumably starting out smaller) company to take advantage of economies of scale. But those, at least are "natural" and impartial disadvantages.
          rocket ride
          • Nonsense

            "In the absence of such fascist one-dirty-hand-washing-the-other type crookery, the startup/upstart is not at any such artificial disadvantage. And, therefore, has improved opportunity to survive and help keep prices for its commodity/service down."

            In the "totaly free market" f a start up shows any sign of success, the monopolist will simply buy them out. Or pay their needed vendors not to vend to them. Or -- and this is an extreme but is "fair play" in a *totally* free market -- simply walk in with a bunch of guys and literally kill them.
            x I'm tc
        • There are anti-trust regulations

          "In a 'truly free market' the end result is a monopoly. Period."

          There are anti-trust regulations. I don't necessarily agree with a "purely free" market. Mostly free, yes, however in my opinion the government *does* have a role in ensuring the market stays functional.
    • I agree. The author is saying that once you have a couple of strong vendors

      noboday else need jump in. I take it this carriess over to every industry. cars, TV's Music, Radios, Dishwashers, sinks, ect.

      And I had to laugh at this line - "The Windows OEM model is broken." In what way? Microsoft supplies some parts (OS) as do others. He may as well have said that The Intel OEM model is broken, or The Broadcom, National Semiconductor or TI OEM model is broken.

      If there where only 2 PC vendors, then MS would still get the volume they do, instead of revenue from 6 different companies, they would get that same revenue from the 2 remaining companies, so the Windows OEM model would still be functioning 100% as it is today.

      But then again, isn't the market supposed to determine who lives, and who dies in refence to PC OEM's?

      Seems it's been doing that for years
      William Farrel
    • Competition is good, for various reasons, one of which would be

      the variety and differences in quality.

      But, the lack of competition doesn't need to "spell the end of cheap PCs".

      Nothing regulates prices better than the consumer, and when anything gets to be expensive, people tend to purchase less of it, and the one thing that all companies want, is for the consumer to be shopping all the time.

      Take gasoline, for example....

      The higher the cost, the fewer the trips that the consumer will make with the gasoline they do purchase, and the less the demand for gasoline, the less profit there will be for the gasoline/oil companies. So, they need to strike a very careful balance between the quantity of fuel they sell and the amount that people are willing to pay for that fuel.

      Same with PCs, and, there are already billions of PCs in people's hands and in their households. So, making a product expensive will just mean that, people won't be in a hurry to purchase another PC sooner than necessary, and the hoped-for sales of higher-priced PCs won't be helping the one or two PC manufacturers. A monopoly can try to take advantage of the consumer, but the consumer has the final word on how much of anything he/she wants, and can even opt to not have any at all.

      Being the sole provider of a particular product, does not mean that, you're going to be raking in huge profits for a long time from that product, even if initially the sales are through the roof. Once a sale has been made of a high-priced product, the consumer wont be back for another one of those for a long time. Sometimes you can get more by selling something for less, even if at lower quality. For example, Apple's Macs sell for a hefty price, even if they are better quality than most out there. But, the Macs have a very limited audience, and the sales prove it. Apple could lower the prices by a couple hundred dollars, even at the risk of creating the perception that the product is now of lesser quality, but, they could end up selling a lot more of those devices, which result in higher profits from their "PC division". Volume sales does, in a lot of cases, result in a better bottom line for a company.
  • Are five car companies too many?

    How about five restaurants? Where do you draw the line?

    Airlines have been consolidating. This hasn't, in general, been good for the consumer. Media companies have been consolidating. I'm not sure that has been good for the consumer, either.

    There are countless examples of similar industry consolidation, and in most cases the companies involve benefit but their customer base does not. Why do you think PC vendors would be any different?