1995-96: REVIEW AND OUTLOOK : The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : Surveying the Cyberscape : Despite Setbacks, It Was Still a Banner Year for PCs
In the world according to Microsoft, 1995 was supposed to be the year that personal computing was made easy for the masses. Its Windows 95 software, launched in August with unparalleled hoopla, was aimed at making PCs work with appliance-like simplicity and efficiency, opening up a whole new world of multimedia entertainment and education and business software to the previously uninitiated.
As it turned out, Windows 95 was something of a disappointment, both in terms of sales and performance. The software had glitches, the hardware upgrades needed to run it were expensive and the advantages were less than advertised.
Fortunately for the personal computer business, though, the remarkable power and performance of the PCs using Intel’s Pentium chips was still alluring to many. And falling prices, new software offerings and the explosive growth of the Internet could yet make 1996 the year the PC emerges as a basic utility in the home as well as the office.
As utilities go, the personal computer is still outrageously expensive. You can get a nice 25-inch screen television set for $199 and a deluxe refrigerator for $599, but a fully configured computer system will set you back about $2,000.
The extra power required to run Windows 95 helped push up the cost of the average computer by 25% from about $1,650 last year--and that scared away some customers, according to Channel Marketing, a market research company. Although 1995 was a banner year for the industry, holiday-season sales were not what many had hoped.
“Manufacturers have been cutting prices in the past 60 days to adjust to the [slower-than-expected] demand,” says David Goldstein, analyst at Channel Marketing.
Growth in sales of personal computers could fall to 20% in the last three months of this year, down sharply from nearly 40% growth last year, says Scott Miller analyst at market researcher Dataquest. U.S. sales growth may slip to 15% next year, he says, though strong overseas sales may help compensate.
PC makers that had conservative estimates for sales said they are safe.
More aggressive PC companies such as Packard Bell could be in trouble.
“All the PC makers thought Christmas was going to be huge,” says Dataquest’s Miller. Industry sources say PC makers are unloading excess supplies of memory chips, driving down prices of those key devices.
All this means consumers can expect lower prices in 1996. And another new industry dynamic--longer product cycles--could break the industry’s tendency to add more features and keep the standard PC packages into the $2,000 price range, rather than letting improved technology lower the cost.
Intel would like to keep pushing consumers toward buying computers controlled by the latest, most high-priced microprocessor chip. It was consumers rather than corporations that sped the transition to the Pentium from the previous generation 486 chip, for example.
Cyrix, which makes Intel clones, was recently forced to write off its huge investment in the 486-type chip because of the rapid switch in the industry to Pentiums.
But that won’t work next time around. Intel’s next generation microprocessor, the Pentium Pro, is not the ideal chip for running the applications most consumers have on their computers. And corporations seem content with Pentium technology.
That means Pentium computers will be around for a long time, giving clone makers time to come out with cheaper copies of the chip. Asian consumer products makers such as Sony, which plans a plunge into the PC business next year, may also find more time to design low-priced PCs aimed at the same consumers that buy their other electronic gear.
Oracle, Sun, Apple and several other companies that have been discussing stripped-down, $500 machines optimized to function as Internet terminals may find their idea made obsolete as fully configured computers drop in price.
These price declines will be accompanied by a relative decline in the importance of the PC--and of Intel and Microsoft as the key standard bearers of the industry. If the “network is the computer,” as the new mantra goes, then it is the companies providing Internet and other network services as well as content over that network that will gain in importance at the expense of the “wintel” alliance.
There are already signs Microsoft’s role as the dominant force in the industry is waning. Although regulators threatened to stop delivery of Windows 95 because it used the software for Microsoft’s new online service, for example, the issue became moot when both Windows 95 and the online service got off to a slow start.
There will also be more consolidation in the multimedia software business in 1996 as small companies find it difficult--if not impossible--to gain access to space on retailers’ crowded shelves.
Ironically, the shift in power from the machine to the network will continue to give new life to several of the older players in the computer business.
IBM, with its acquisition of Lotus, has a shot of overhauling its old emphasis on “iron” and becoming a powerful marketer of network services, playing on Lotus’ popular Notes program and IBM’s close ties to large corporations.
Conspicuously absent from the PC wars in recent years have been the Asian companies that have dominated past generations of mass produced electronic merchandise. That could change as companies such as Acer and Sony emerge. Their challenge? Making PCs easier and cheaper for the millions of people who have neither the time nor the money for the PCs of today.
