I was contemplating last week's ouster of Carly Fiorina as chairman and chief executive of Hewlett-Packard Co., while my HP desktop personal computer booted up and my HP laptop recharged from the wall socket, and the following thought occurred to me: Why is HP still in the PC business?
This is not an idle question. The profit margin on HP's personal computers is close to zero despite its ranking as No. 2 in sales, after Dell Inc. The main reason is that its PCs are, inside the box, virtually identical to everyone else's. Consumers today choose a PC by price, the same way they pick a private-label cola. (I certainly did.)
The commoditization of computing has only picked up speed with the spread of broadband Internet connections because much more of what we do with computers is driven by the network, not by the resources inside the desktop box.
That's largely why the boom in computing power, which
fueled the industry's growth in the late 1990s, has stagnated. With the exception of hard-core gamers, anyone can get all the computer he or she needs for a few hundred bucks; two of the PCs in my home were hand-built by my kids, and for 99.9% of what we use them for, their performance is indistinguishable from that of the HP on my desk.
Fiorina was intent on building up (or rather, shoring up) HP's personal computer business because she felt that consumers and businesses would be miserable unless each piece of their information technology network bore the same nameplate. As modern strategies go, this one-stop shopping is very 1960s. Back then, every component of a technology system had to be the same brand because every individual provider designed their hardware and software as a closed system, incompatible with anyone else's products.
But broadly speaking, that hasn't been the case for at least two decades, ever since the integrated circuit and IBM Corp.'s PC brought standardization to computing. Huge corporate clients may still prefer to deal with a single vendor because they value consistent servicing, but most other enterprises and consumers are looking for price and performance, the nameplate be damned.
One would think that this lesson had become ingrained in HP's DNA, for it inherited two companies that had been overrun by the trend. Digital Equipment Corp., which once dominated the minicomputer business, couldn't adjust to the PC age and got acquired for its technology by Compaq Computer Corp. in 1998. Compaq, which sold its PCs through retailers, couldn't adjust to the build-to-suit, mail-order sales model pioneered by Dell. Left spavined by competition as it was forced to sell mostly me-too personal computers and even high-end servers, it merged with HP in 2002.
