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Different Visions

By “Nobody Special”, January 12, 2001

Now after the winter of discontent is over and the manufacturer’s misery of unrealized growth has been absorbed the question becomes where does the industry go from here?

Indeed it’s a question everybody involved in computer sales is struggling with as the industry looks at an unprecedented amount of unsold merchandise and a wad of new products looming on the horizon.

Two clear trends appeared during this past Christmas season. One: that people weren’t buying new computers in the numbers they had in previous years. Two: many who were buying computer equipment were merely upgrading or enhancing their existing systems, with CD burners being by far and away the most popular upgrade out there.

That lead various analysts to declare that everybody who wanted a PC has already bought one and that from here on in most people looking for new computers are going to be replacing old and tired systems.

It’s not an unrealistic assessment of things, but it makes the assumption that the computer industry won’t reinvent itself and will continue to push systems with bigger hard drives, faster processors and prettier cases.

The Next Big Thing (or welcome to “brain off” computing)

Unfortunately, those analysts hadn’t taken in a preview of the Consumer Electronics Showcase (CES) in Las Vegas or had the benefit of listening to Steve Job’s MacWorld soliloquy on the digital lifestyle before making their pronouncements.

Jobs’ vision is more straightforward to your typical computer user. The system is the heart of your electronic home and your outlet for your creativity. It’s the place where you create your custom CDs, manipulate your home movies, and now burn your own DVD discs. Add in an X-10 control system, maybe plug in a TV turner, or add in any number of other off-the-shelf technologies already on the market and the vision stands up.

In Las Vegas, they’re pushing a different vision, something Jobs mentioned, but didn’t expand upon to any great length.

The star of the Vegas show was Microsoft’s Xbox, a set-top gaming box with internet connectivity which is aimed at competing against Sony’s PlayStation 2. Sony, by the way, seems to be gearing up to make the PlayStation 2 into the little computer that could by adding a hard drive to the product’s list of accessories.

Hidden among the ranks of other exhibitors are Compaq, with a component stereo sized MP3 jukebox, Dell with a tuner box that connects to a standard component stereo, but gets its tunes from a Windows-based computer, and a web-surfing recliner from La-Z-Boy. There are dozens of other gadgets at the show, all aiming to powered the same kind of product philosophy.

All these devices are about dumbing down computer technology to the point where the user gets the immediate benefit of the product and nothing more. These are devices non tech-savvy people can use, but not grow with. Their mass-market appeal is simplicity and affordability, with a heavy emphasis on price/performance within the device’s limited purview. The manufacturers of these type of devices also foresee these products as adding to their client base as their existing computer users will continue to replace their systems, albeit at a slower rate – while those who don’t want to deal with the complexity of a computer will buy these dumber devices in order to get cool technology they can deal with.

It’s not about expanding the computer market anymore, it’s about expanding the computer manufacturers’ customer base.

There are many with the computer reselling industry who believe devices like Xbox and PlayStation 2 will cut deeply into the sales of high-end systems aimed at gamers. They believe people will be more inclined to buy a moderate PC for standard productivity work and move their gaming to a device that doesn’t require rebuilding their system with multi-megabyte patches every time they install some trivial form of personal amusement.

Meanwhile back in the miles of aisles

One thing is for sure, the Boxing Day blowouts are going to be repeated and repeated until all the old unsold product is gone. If there are any buyers still left on sidelines they’re going to find some pretty prime pickin’s in the old bargain bin over the next three months. After that, they’ll be choosing between the dregs of previously unloved computers and whatever spiffy new product catches their eye.

That’s going cause some New Year’s hangover blues for computer manufacturers as buyers will be picking between last season’s liquidation stock and this year’s more profitable wares. While a Wintel manufacturer can convince themselves that their liquidation prices are stealing clients from their rivals, one would have a tougher time saying the same for Apple.

A Mac buyer usually comes into a store to buy a Mac. Whether they buy a clearance Mac, or one of the newer – more profitable – models they’ve bought their machine and that’s all they’re gonna buy from Apple for a few years. Maybe somewhere in the back of Apple’s marketing department they can kid themselves their liquidation stock is regaining clients lost to Motorola, Power Computing and Umax during the clone years, but even they would have to admit it would have been nicer to regain those customers with a healthier profit margin.

Attention K-Mart shoppers...

The other thing people can expect is that any notion of a $500 PC still being in the market by the end of this year is just not founded in reality. As the trends indicate a lower unit volume across the industry, manufacturers are going to be forced into padding more profit each of their machines. The same will happen to resellers who are already sick and tired of single-digit profit margins.

More and more of these bargain builders are ending their days like this, and when the champion of the “el cheapo” boxes has to deal with issues like this, well the writing is pretty much on the wall.

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