SAN FRANCISCO--Microsoft and Intel have leveraged their symbiotic relationship to dominate the PC industry, but that mutually beneficial relationship may be at a crossroads, according to an International Data Corporation analyst.
Speaking at IDC's Directions 98 conference, analyst Dave Vellante today outlined how the "Wintel" dominance came about as a result of a series of misfires and miscues from competitive forces, specifically IBM, Apple, Lotus, and the Unix camp.
"Competitive miscues--there's an understatement," he snorted. "I, for one, am pretty tired of many companies lashing out at Microsoft who happened to be the same companies who laid down for Microsoft over the last decade."
In the end, both companies have emerged as de facto monopolies because they control commodities so as to be able to manipulate pricing, he said.
Intel's abbreviated product cycle, coupled with its almost 80 percent market share, allows the company to effectively control chip pricing.
Meanwhile, due to the relatively abstract nature of software, Microsoft benefits from what Vellante calls "infinite economies of scale," which have resulted in rising prices for Windows 95 even as its market share grows. As a result, normal cost reductions that would occur as a product evolves, as well as potential innovation, have been hampered to a certain degree.
Further, the two companies are expanding into additional markets where their economic heft carries the potential of creating similar market conditions.
Vellante's solution to this situation is simple, though highly impractical. The companies should be able to move into new markets, but the new divisions within these companies should have to survive on their own as if they were offering independent products. For example, Microsoft should be allowed to integrate Internet Explorer into Windows but it should have to charge additionally for the browser.
Interestingly enough, the two allies seem to have embarked upon expansive business strategies that may place their respective interests at odds. In its effort to move into high-end corporate enterprise computers, Intel has begun to work with Unix vendors such as Sun Microsystems and the Santa Cruz Operation. These companies will compete for corporate customers and relationships with large computer vendors against Microsoft's Windows NT when Intel's 64-bit Merced chip comes out.
"The best thing that can happen to Intel is every operating system runs great on Merced. That's the worst thing that can happen for Microsoft," he said. "Intel is basically hardware agnostic."
By contrast, Microsoft is working with a plethora of chip vendors on its Windows CE and WebTV efforts. Thus far, Intel's efforts in small devices markets have not panned out.
Still, the historical alliance will likely continue working to the benefit of both. Vellante suggested that both companies will gain from their stated goals of moving into enterprise, or corporate, computing.
"Intel's current share in enterprise is 15 percent, growing to 60 percent by 2002," he said. By comparison, Microsoft will jump from 5 percent market share to almost one-third of the market by 2002. "By all accounts, enterprise will be a very successful endeavor for 'Wintel,'" he said.