How IBM, Dell managed to build crushing tech dominance
sports circles, the argument du jour is whether female golfer Annika
Sorenstam should play this week in a PGA tournament against men.
Among technology people, the argument du jour is
whether the industry is stuck in its prolonged, depressing slump
because information technology — IT for short — has permanently become
a mundane, slow-growth business, like electricity, toothpaste or paint.
Some analysts and academics say it has. Tech
people say that's ridiculous and get more offended than if you
questioned their mothers' decency. This is why tech people don't get
invited to parties.
Anyway, it seems that most are missing an
intriguing part of the argument. It might explain one of the current
mysteries in the technology industry. To whit: Why are Dell Computer
and IBM out there kicking booty in the computer business while just
about everybody else is sucking wind?
This Dell-IBM thing has become an accepted fact
of life in 2003, like the rebirth of movie musicals or the
effectiveness of the Atkins diet. Wall Street analysts, most
prominently Steve Milunovich of Merrill Lynch, talk of a "bifurcation"
of the market into Dell at the low-priced commodity end and IBM at the
high end, with every other computer company — Hewlett-Packard, Sun
Microsystems, Gateway — caught in a profit-draining no man's land.
"Who makes money? Dell makes money, and IBM
makes money," brags Dell President Kevin Rollins. Yet no one has really
The answer might lie in a controversial article by Nicholas Carr in the May Harvard Business Review, titled "IT Doesn't Matter." Carr doesn't specifically tie his findings to the Dell-IBM split, but the logic involved fits.
To understand his argument, think of IT as cars
and companies as teenagers. When I was in high school, hardly any boys
had cars. So the ones who did own cars had a huge strategic girl-luring
advantage over those who didn't. Those boys were mobile. They could get
to every party. They could make out in their cars. My friend Ed had a
car that had gaping holes in the floor and belched smoke like an Iraqi
oil well fire, and even that was a strategic advantage.
Today, in my neighborhood of the spoiled, every
high school boy has a car. So having a car is no longer a strategic
advantage. Having a Lexus might give you a bit of an edge over a
classmate with a Hyundai, but it's not even close to the gulf between a
boy with a car and a boy with no car.
Bottom line: As a strategic advantage for teenage boys, cars no longer matter.
This is exactly what has happened with IT. Carr
says that IT used to be a strategic advantage for companies because not
every company had it. So Wal-Mart could jump ahead of Kmart, in part,
by investing heavily in IT and making better and faster decisions.
But these days, great technology is cheap and
plentiful, and every company has its share. So IT doesn't matter
because it's no longer a strategic advantage. It's essentially a cost
of doing business.
And if that's the case, who wants to spend a lot
on IT? It's like phone service or office stationery — you want quality
stuff for a low price, in bulk. Who does that better than anybody?
Right now it's Dell. And Dell is hotter than just about any technology
But — and this is a big ol' BUT — IT is
different from most other products in one big way: The technology keeps
changing and improving, often in great leaps.
If a tech company can keep coming out with
really high-end, super-cool new technology, it can go to customers and
offer something that will give them a strategic advantage over all the
other mopes buying the commodity bulk stuff from Dell.
That's the road IBM has taken. It pumps billions
of dollars a year into its massive scientific research labs and builds
big honkin' machines like T-Rex, which it unveiled earlier this month.
T-Rex is three times more powerful than previous commercial mainframes,
and it starts at $1 million apiece.
In the market, IBM is increasingly winning the
customers willing to take a risk on technology that might bring a
strategic advantage, and Dell gets all the rest, who are just trying to
keep from getting toasted by competitors.
As Milunovich and other analysts note, H-P, Sun
and similar tech companies aren't making products cheaply enough to
compete for the keeping-up buyers, and aren't high-end enough to offer
a true strategic advantage. Those companies seem to be getting squeezed
at both ends.
So IT does matter, and it doesn't. It matters at
the high end. In every other part of the market, it doesn't. But if
you're a tech company trying to sell into this market, the fact that IT
does matter and doesn't matter matters a lot.
Right. Now, can we get back to arguing about golf?
Kevin Maney has covered technology for USA TODAY since 1985. His column
appears Wednesdays. Click
here for an index of Technology columns. E-mail him at: email@example.com.