COMMENTARY -- We're Number One! We're Number One!
Now please lift this burden from us.
That should be the mantra of the PC industry, where being the largest vendor rarely leads to anything good.
Apple Computer (Nasdaq: AAPL) and IBM (NYSE: IBM) used to vie regularly for the desktop computer crown, and what did it get them? Big Blue crashed and burned in the early ྖs, while Apple embarked on a gradually accelerating decline that culminated in an IBM-style hemorrhage in the latter portion of the decade.
Compaq Computer (NYSE: CPQ) seized the top spot in 1994, after an aggressive push by then-CEO Eckhard Pfeiffer.
"If we are No. 2 today or No. 1 tomorrow in terms of volume leadership, there is no reason why we shouldn't have the lowest material costs, which are an 85 percent to 90 percent factor of total cost," Pfeiffer told Computerworld in March 1993. "We have significant leverage there. If you [then] control labor, overhead and global logistics, you have the formula for total cost leadership."
Compaq grew consistently for awhile, but less than three years after Pfeiffer's interview, it was obvious that the company had anything but "total cost leadership." Direct-sales rivals owned that department.
Compaq's management saw that being top dog wasn't helping the bottom line as much as expected, so the company expanded through acquisitions of Digital Equipment and Tandem. Less than a year after those deals closed, Pfeiffer was out as Compaq reported quarterly losses.
Given the dismal record of past PC kings, I hope Dell (Nasdaq: DELL) doesn't make the mistake of associating market share with worth. Dell is set to seize the top spot this year, according to market observers.
Compaq yielded its leading position because it wanted to make money, instead of engaging in a Dell-initiated price war. Meanwhile, Dell hopes to balance its falling margins on PCs with sales of more profitable items like enterprise hardware.
Dell manages its operations well. The company really is the most efficient in the Wintel box industry and enjoys a good reputation for PC reliability, service and support, at least compared to its main competitors.
But we're still talking about boxes.
PC vendors have long been enamored with the idea that they can use strong market share to peddle other items. If you can sell a desktop computer to corporate buyers, you have an edge when it comes to selling servers, storage arrays and other nifty items, right?
Plausible theory, but not necessarily a correct one.
Market share could be a sales lever in any industry -- if your share is commanding, on the scale of Microsoft (Nasdaq: MSFT). When you monopolize desktop operating systems, it's pretty easy to build huge businesses in office applications and Web browsers.
But no one in PCs has ever had that kind of dominance, not even IBM in its heyday during the 1980s. There have always been plenty of alternatives. Hardware is more or less interoperable.
You don't need to use Dell servers with Dell PCs. Everything is based on widespread standards, whether you're talking IP networking or proprietary operating systems.
Achieving market leadership in PCs means little. It never meant much, and it means even less in today's world of wireless devices, Web appliances and other network-centric hardware.
Look no further than Sun Microsystems (Nasdaq: SUNW) to find an enterprise company that has become a giant without PCs of any kind. If anything, Sun's vehement stance against desktop PCs has helped the company push its products.
Sitting atop the PC hill guarantees nothing other than a huge, maturing business with shrinking margins. It's hardly worth defending these days, which explains why Compaq is abdicating the throne.
Dell seems happy to take it. Employees can enjoy the title, put out a news release, hang a plaque on the wall.
Just don't take the title too seriously. It's not worth the trouble. 22GO>