Commentary: PC turns 20--but now what?

Wait, that's not quite right. While correct to say it's been 20 years since IBM introduced its PC, Apple, Altair, Atari, Fortune, Commodore and a whole bunch of other companies were there first with machines that easily qualified as PCs.

Trouble was they didn't have enough clout or a business model to make their machines commercially successful. What's more, they didn't have a clue about how to turn their PCs into a successful business.

But neither did IBM when it stepped in with its PC in 1981.

Just like all the other PC players, IBM thought the little microcomputers were merely playthings for home hobbyists to use. Big Blue obviously later figured out how to make its PCs--and a whole industry full of them--successful. Still, it wasn't as if some genius at the company's Boca Raton PC division headquarters all of a sudden realized what it would take.

What it took was a long series of screaming phone calls from irate IT managers wondering what the hell IBM was doing letting computing power loose among the corporate computer users they were supposed to be supporting.

Oh, and by the way, if IBM was going to commit this heinous act, why didn't it at least provide compatibility, connectivity to corporate networks, data security, and a few other things that would make it possible to enable desktop computing in corporate America to become integrated with corporate systems?

From the time of the first irate phone call, it took about 10 years for things to gel. It also took the commitment of a lot of players outside of IBM and its erstwhile close partner Microsoft to do the job. But by the early 90's, the PC was firmly ensconced in everyday corporate computing applications, with networking, data security, and wide-area connectivity. PCs now came in the form of reliable, connectible laptop formats, enabling a new breed of traveling executives to be fully productive on the road.

The PC industry had found a market big enough to make its businesses successful. Not surprisingly, it was the same corporate market that made mainframes, minicomputers, and networks successful in previous computing generations. But by the early 1990's, PC makers searching out new markets for their wares, decided to revisit strategies formed in the early 80's and return to the consumer market where the business had started.

By now, PCs had fast processors, lots of memory, large hard drives, CD-ROM drives, and a multitasking Windows operating system. Industry gurus were enthralled into believing that putting coffee table books and educational games on the PC platform would make for a new market in the consumer space.

They were of course wrong.

The educational games didn't teach much, the coffee table books were boring, and it was all rather expensive and complicated to use--especially when compared to other educational and entertainment opportunities available to consumers. But just as everyone was about to shut the doors on their newly formed consumer divisions, the Internet came along with its brave new world of PC-peddling opportunities.

Trouble was the Internet was intimidating to consumers. First of all, it was complicated for them to use (I have to note that it was always worth a chuckle to hear a user interface guru defend the ease of using windowing systems and the ease of using command line-style URL's in the same breath.)

Worse, here was yet another place to deal with credit card fraud, bait-and-switch marketing tactics, high blink-rate buying opportunities, and the exposure of children to things that parents would rather they did not experience. And that's not to mention the cost of buying a home PC, which was a very expensive proposition at the outset of the Internet era.

But savvy PC marketers were not about to let down the savvy Wall Street players who were telling the world that the Internet was the future. So they invented all sorts of schemes to peddle PCs into homes. The most obvious way was to build the cheapest possible boxes overseas and go to war against all comers with low-cost, low-margin PCs that cost half as much as anybody thought they should, a route chosen by everyone from the Hewlett-Packards of this business to the smallest players around.

Then came rebate packages from the Internet Service Providers, notably Microsoft Network and AOL, which gave consumers most of the money they spent on a cheap PC back in return for three years of ISP loyalty. Then came war between direct vendors and retail vendors as well as among retailer discounters, and the margin squeeze became all but fatal to the PC players.

By this year, nobody was winning the business battle of getting PCs into homes. You'd think the ISPs would be winning with their guaranteed revenue streams, but they’ve actually lost money--even before the crash in the Internet advertising market that was supposed to pay for those rebates.

The retailers may have made a few dollars on their margins, but there is so much competition among the discounters that it certainly was not very much. And the PC vendors are taking a dousing-just look at what's going on at Hewlett-Packard, Compaq, Dell and Gateway if you have any doubts.

Please note that IBM stayed out of this round of the consumer fray and is doing just fine. And so are those consumers who actually put the PCs to use. After all, they got very powerful computers at very low prices. The segments of the consumer PC market that were there in the early 80's and never went away--gamers and hackers--are ecstatic with their new gear.

Meanwhile, a new generation of very PC-savvy teenagers is making its Boomer-generation parents nuts with what it can do with these powerful new PCs.

In just a few years, the next generation of teens, now becoming computer-savvy in grade school, will demand their parents buy them multi-gigahertz PCs. All of which means that the original consumer target for PCs really is finally here today, and is solidly there for the future of the PC industry.

Only one lingering question: If there are no profits in the PC business, where is that next generation of consumer PCs going to come from?

John Dickinson has worked in the computer industry for more than 30 years in positions ranging from systems analyst and software engineer to editor, writer, critic and industry analyst. His most recent engagement was at eMachines, where he managed the company's Internet and software business units.