COMPUTER INDUSTRYTHE CON SIDE
... Towards the end of the last century, it can be argued that no industry redefined and reshaped the world more than the computer industry. ... In the midst of the accomplishments that computers and the computer industry have made there are some weaknesses. In this paper, the spirit of the computer industry will be captured, with a particular focus on the “con” side of the computer industry’s structure, conduct and performance. ... STRUCTURE The computer industry began as an oligopoly, where IBM controlled the market share by approximately 75% . In 1956, the five major firms competing in the computer industry were IBM, Sperry Rand (formerly Remington Rand), Burroughs, RCA, and NCR. ... The computer industry is now broken down into two divisions: software applications, in which Microsoft has a virtual monopoly; and hardware and microprocessors, which are oligopolies. ... The market structure for computer software was originally oligopolistic in nature, yet changed to that of monopoly in the late 1980s, early 1990s. Microsoft and its owner Bill Gates became the forefront company in the computer industry by competing against other companies that produce one major product . ... The computer industry for central processing units (CPUs) and other hardware has remained an oligopoly, with Dell, Gateway, Compaq, Hewlett-Packard, IBM (the leader of mainframe production), Intel (the leader in microprocessor production), Advanced Micro Devices, and National Semiconductors . One of the problems with the computer market structure is the high barrier to entry in this industry. ... In addition, a high barrier to entry makes it harder for smaller companies to gain some market share in the computer industry. If the computer industry has become a virtual monopoly with one powerhouse, like Microsoft, smaller entrepreneurial firms cannot gain a market share and in most cases will either be bought out by Microsoft or deal with contracts that are both long and tedious, keeping them bonded to Microsoft and its licensing agreement . ... Another problem with an oligopoly market structure in the computer industry revolves around the price of products being interdependent upon firms. ... CONDUCT In focusing on the conduct of the computer industry, one simply has to look at the industry leaders of the past and present. ... There were several strategies that IBM initiated to gain substantial market share as the computer industry began to expand. Whereas these strategies worked early in the industry when IBM had a virtual monopoly in the computer hardware industry, many of these strategies are weak in today’s more competitive computer industry. One strategy developed by IBM was to create knowledge and preference for its computer by giving educational institutions deep discounts on its machines. This strategy enabled many generations to be knowledgeable about IBM machines as it also created a preference for IBM among new graduates who were seeking a computer. ... IBM used this strategy to combine the cost of servicing an IBM computer with the cost of buying or leasing the computer. ... If a computer broke down, one simply called IBM. ... In today’s computer hardware market, consumers are charged for each separate component. There is no longer a flat charge for a computer system that includes the hardware, software and service. ... In the past, IBM would simply announce that a new computer was forthcoming, when it reality a new computer was months away. This would prevent buyers from committing to a competitor’s new, possibly superior, computer. The industry conduct of today sees technology advancing at such a fast pace that the announcement of a new computer would not delay a consumer from simply upgrading their computer once the new technology came along. ... Today’s computer hardware industry sees firms that charge virtually the same price for computer systems and for different pieces of equipment. Additionally, the post-IBM industry is filled with many different firms that produce computer components for virtually every type of computer. ... Ironically, with the destruction of IBM’s monopolistic hold of the hardware market, arose another company that began to obtain a monopolistic-like hold of the computer software industry. ... Microsoft was found to be guilty of illegally monopolizing trade and oppressing the competitive process by which the computer industry stimulates innovation and benefits the consumer. ... In general, the conduct of the computer industry has changed dramatically from the onset of IBM’s dominance of the market. ... These policies have the effect of creating an undefined environment in which firms in the computer industry must operate.