If there is the equivalent of tectonic plates in technology, they have been shifting.
Not long ago, there were a couple of computer industry stories that received some noticeable coverage:
— Dec. 7, 2004: IBM quitting PC hardware business, sells out to Lenovo.
— Jan. 11, 2005: Apple introduces the Mac mini.
One small compensation for an old digital dog like me is scraps of memory that go back in years. In this case, to a time around 1980 when an IBM skunkworks in Boca Raton, Fla., developed an uncharacteristic product called the IBM PC. (The product also boosted the fortunes of a tiny operating system company called Microsoft.) Suddenly, Apple Computer, which was far ahead in the personal computer business, had formidable competition. For a few years, there was an energetic tussle that affected the whole world.
That was then. You know what? If there is the equivalent of tectonic plates in technology, they shifted then and they may be shifting now.
It was not much of a surprise that IBM decided to quit the PC hardware market. IBM grumbled about the sales of its personal computer hardware (desktop and portables) for some time. The figures thrown out seem to indicate that IBM lost millions in that business during the period. More importantly, IBM is going through one of its corporate identity reinventions, moving toward software and services and away from commodity markets such as PC hardware. The reality was that long ago IBM outsourced most of its PC manufacturing, much of it to China. Other than symbolic or historical reverberations, which do not penetrate far in hard-nosed corporate thinking, getting out of the PC hardware business was a sound strategic move. Most analysts applauded it.
What was something of a surprise was selling the business (for $1.75 billion) to a Chinese company, Lenovo Corporation based in Beijing. When the deal is consummated early in 2005, ownership of Lenovo will be 46 percent Chinese government, 35 percent public investors, and 19 percent IBM.
Luckily (if it is luck) for IBM, the demagogues right and left did not find it profitable to put spin on this story. Otherwise, the opportunity for hyping the threat of the red (or yellow) menace was there for the making. The story was reported more or less as a straight business or financial matter. I’m glad this was generally the case, but sometimes it’s important to note what doesn’t happen.
Lenovo, formerly branded as Legend, is China’s largest PC manufacturer with around $3 billion in sales, mostly in China. It now takes on IBM’s PC and ThinkPad logos, distribution to 150 countries, and $9 billion in sales. The putative $12 billion company is automatically a player in global competition. Ah so, but the question is can a corporation entangled in China’s vast state bureaucracy successfully compete at the international level? The Chinese have built up considerable skill in manufacturing and logistics, but can they take the pulse of the world market and translate it into designs and effective merchandising?
One of the most interesting aspects of the IBM-Lenovo deal (and there are many) is that Lenovo is moving its headquarters to Armonk, New York (headquarters of IBM). Why? Because the company is going to be run by a team of Chinese and former IBM executives. Some Chinese executives of Lenovo, many of whom are taking title reductions, will shuttle between Beijing and the U.S. Several thousand IBM employees will shift to Lenovo. This is an enormous experiment in administrative cultures. It is also picture-book globalization if there ever was.
The Chinese are learning. They are eager to learn, even to the point of personally stepping back to let others do a better job. Yet the new chairman of Lenovo, Yang Yuanqing, can say, “Lenovo of China is going to be Lenovo of the world. We won’t be satisfied with the number three position. We will formally challenge the other two major competitors in the global PC market. [Dell, HP]” This does sound like American hubris. Whether Lenovo can live up to the words is certainly questionable and worth watching. To me it sounds like the center of gravity in the computer industry is shifting.
There are other shifts. Over the years, Apple Computer stood with one foot in corporate and one foot in consumer markets. Sometimes it put its weight on one foot or the other, or put both feet on one side, and sometimes it hopped around crossing left with right foot. You get the analogy. Usually it was some insanely great product that the engineers and designers cooked up that determined the footwork. The iPod continued that tradition.
I think the Mac mini is different–it represents broad strategic thinking. It’s not only that the $499 (or $599) Mac mini has finally put Apple into the competition at the low end of the personal computer market, but what kind of box it is-emphasis on box. Its dimensions– 6.5 inches by 6.5 inches by 2 inches and 2.9 lbs –make it a small box indeed, one that fairly screams out component. The fact that it was designed to accept USB mice or keyboards, or monitors of most kinds, invites people to dump their Windows boxes and plug those peripherals into the Mac mini. Or, use the Mac mini as the center of a distributed home network system. Or function as the delivery system for the graphics and video produced on the higher-end Macs. Or function in a home entertainment system featuring Steve Jobs (Mr. Pixar) movies.
Along with the iPod Shuffle, Apple is embracing the commodity market with gusto, or put another way, a lot of weight is shifting to the foot in the consumer electronics business. So label this a shift toward convergence. Nor does it necessarily diminish Apple’s efforts at wooing corporate sales. Apple is already pitching the Mac mini as a device for automobiles. It doesn’t take much imagination to envision Apple using its creativity in software and hardware design as an edge to develop a consumer electronics empire. Dare one accuse Steve Jobs of hubris and does Sony hear footsteps?
It does not take much knowledge of history to see the irony of IBM getting out of the commodity computer business and Apple wading into it with both feet. We need to wait a while to see how significant for Lenovo or Apple this is…or isn’t. There is no compelling reason to be confident either company can pull off their ambitions. On the other hand, as representative of huge shifts in the manufacture, distribution, and application of digital electronics (what used to be called the computer industry), I think the significance is already apparent.