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Tech Industry

PC makers seek gadget Valhalla

Microsoft, Intel and sundry PC companies are entering the market for consumer electronics devices for one reason: because they're bored.

Because they're bored.

In a nutshell, that is the real driving force behind the decision by Microsoft, Intel and sundry PC companies to enter the market for consumer electronics devices. After helping transform the world by spearheading the proliferation of digital technology, they aren't at all willing to hand things over to some gadget guys.

Did the Mongols have outplacement programs? No. You get the picture.

There are, of course, economic incentives. The shift--on full glorious display at the Consumer Electronics Show in Las Vegas this past weekend--comes at a time when the PC market is saturated.

These companies are also eager to exploit an opportunity created by the rise of digital entertainment. When movies and music went digital with DVDs and MP3s, the PC players suddenly found that they had manufactured the perfect building blocks for the home entertainment center of the future.

Still, their gung-ho enthusiasm is way out of whack with the potential risks and rewards.

Is Intel really so worried that it needs to get into the market for MP3 players? These devices cost $299, generate low profits, and are made by companies such as Sonicblue and Creative Labs--companies Intel could buy with spare couch change.

No. The grim reality is that selling PCs has become incredibly dull. In the '80s, the PC industry meant easy wealth and sudden power. It was like working on a pirate ship with meeting rooms. In the '90s, though, manufacturers effectively distilled a near-perfect formula for what consumers really need when it comes to a box. Since then, the only thing left has been to continually shave the price or tweak a bit of the technology.

"This is where the fun is at," confided one former chip/now gadget exec.

The trough began in 1997. Then, Sun Microsystems and Oracle threatened to take over the world with NCs--inexpensive, easily controlled computing terminals. This prompted PC makers to come out with the Net PC, or stripped-down PCs.

The interviews went something like this:

"Can I tell you about the upcoming improvements to the TopTools Manageability Suite 2.2 that lets corporate IT managers remotely monitor software usage?"

"Actually, I prefer you didn't."

"Oh, come on! We'll bring some sandwiches in."

Everyone involved seemed in need of a jolt from heart paddles. Increasingly, the hot topics in the PC industry related to, but weren't really about, computers. The intense scrutiny of Dell Computer, for instance, largely focused on one factor: how the company kept inventory low. Articles on IBM concentrated on when or if the company would ditch PCs.

In one of the more telling ironies, Compaq Computer made strides with corporate customers in late 1998 when it promised it would not change its lines of computers for over a year. So much for innovation.

Creating devices effectively represents a new lease on life. Of course, this second life won't be painless. A major, and likely, initial crisis that nearly all of these companies will face comes in the fact that consumer electronics is a distinctly different culture that operates by different rules.

The PC market depends on pushing the laws of physics: Chips get smaller, networks speed up, and hard drives get larger. By contrast, consumer electronics revolves around aesthetics: Should cell phones come with an elegant, metallic gold cover or with decals of Chewbacca?

Consumer electronics giant Sony largely failed in its first attempt to break into the U.S. PC market. Dell, meanwhile, pulled its first fancy PC, the WebPC, off the market after six months. Apple Computer succeeded with the iMac, but followed it up with a computer that looks like a tissue box in an old lady's house. Microsoft may be battling the world's remaining superpower in court with relative success, but it couldn't get people to buy Bob.

If anything, the race won't be dull.