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When Vendors Turn Vicious

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Posted October 25, 2001 By Vince Freeman     Feedback

Company after company seems to be reacting to hard times by squeezing its customers and ignoring the synergy that's always linked different sectors of the PC industry. Which will come first: the traditional upgrade wave (due next year) or angry consumer revolt?

Suffering Companies Take It Out on Consumers

Each morning I check the technology news, and every day I ask the same question: Why are so many companies actively trying to hurt the computer industry?

With PC sales and overall profits down, many firms are looking to "maintain market share," "explore secondary markets," or any number of corporate catchphrases -- which seem to translate into taking stances that strike me as penny-wise and pound-lethal. You see, I view the computer business not as a selection of smaller fiefdoms, but as an ecosystem or sum of its parts, with each piece contributing to the common good.

Sure, sometimes a big fish eats some little fish or decrepit players die off, but there's still a synergy between competitors. If one sector starts a true revolution, as Nvidia and 3Dfx did with 3D video, the whole computer market benefits greatly. Conversely, if one sector stumbles, as with Intel's Pentium FPU recall, the entire industry gets thrown for a loop.

This interdependent relationship among hardware and software vendors is common knowledge -- and a standard business model in virtually every market. Every company in the chain plays a vital role in getting the finished PC to the end user; when this process is firing on all cylinders, everybody benefits. So why, today, are so many companies looking to throw a wrench into this well-oiled machine?

Putting the Customer Last

Let's start with Microsoft, shall we? It's become very popular of late to slam the software monopoly for its new Windows XP operating system and drive to tie Windows and Office to corporate subscription (not purchase) licensing. I've been using Microsoft software since its first banana-yellow boxes rolled off the presses; since then, I've taken a few jabs at the giant, but I always recognized that Windows offered incredible benefits in terms of multitasking and application and driver standardization.

Leaving the politics to politicians and legal fights to lawyers, I ask just one question: Does the software meet my needs? In all but a few cases, such as the misbegotten Windows Me, the answer has been a resounding yes.

In all that time, I've never witnessed the potential for industry disaster that Windows XP represents. Everywhere I look, I see blistering articles condemning the bizarre Product Activation feature; the blatant, strong-arm licensing techniques; the omission of MP3 recording support; or, most recently, XP's strident demand that users sign up for Microsoft's Passport service (it asks five times before giving up). The amount of anti-Microsoft sentiment among consumers, corporations, and the press is at an all-time high -- and the main reason is that, for the first time, there are very real downsides associated with upgrading to the newest Microsoft products.

Product Activation scares the hell out of me, not for any privacy or copyright issues, but because it gives potential control of my system to Microsoft and its servers. The potential for technical problems is high, and the prospect of allowing Microsoft to arbitrarily raise subscription fees is a frightening one. The dubious profitability of its ill-conceived .Net MyServices strategy makes me even more hesitant to write Redmond a blank check.

When I take a long look at Microsoft's recent actions, they simply smell of hunger, panic over flattening PC sales and upgrades, and greed. I don't need to tell you that these are not corporate vibes that breed consumer confidence. If Microsoft was a bachelor, he'd be sitting in a bar with a look of desperation in his eyes, hitting on every woman in sight -- five times before taking no for an answer.

Rising U.S. and European protests aside, Microsoft's cash grab may not be a bad short-term move, as the company will probably make some immediate money from strong-armed subscriptions and forced upgrades. What is surprising is that more hardware players haven't raised more of a stink. In fact, AMD has hitched its cart to the Microsoft bandwagon by releasing the Athlon XP, and companies like Nvidia are trumpeting their wares as ideal for the new OS.

Shrinking coattails may be better than none, but deep down, hardware vendors must be fearful of the consumer distrust Win XP is engendering -- and concerned that any profits Microsoft siphons into subscription services merely reduce consumers' and IT managers' budgets for other stuff.

Greed Is Not Good

Sadly, it's not just Microsoft throwing monkey wrenches. Some entertainment bigwigs, with Disney and the record companies at the helm, want to see all computer hardware and consumer electronics outfitted with built-in copy protection -- to not only shove the Napster or MP3 genie back in the bottle, but undo the "fair use" doctrine that for decades has allowed album buyers to make a copy on cassette for the car. When consumers read about the Recording Industry Association of America's incredible attempt to hitch a ride on antiterrorist legislation with language that would have given copyright holders carte blanche to attack song-swappers' PCs, erase their MP3s, or even spread viruses, they can't help but feel more resentment and suspicion.

And let's not forget the infamous copy protection now being added to CDs and other digital media. After my recent problems regarding CD and DVD media not working on multiple devices, I haven't bought a new disc in over a month. A single bad experience can go a long way, including putting a halt to a series of proposed DVD-ROM and decoder upgrades and plans to dedicate one PC on my home network as an entertainment center.

While these and other anti-consumer antics infect the high-tech ecosystem, the market seems to be fragmenting at an alarming rate. Profits are down, sales are low, and CEOs are forced to read yet more profit warnings in front of unhappy investors. The knee-jerk solution seems to be protecting your own turf, squeezing profits from current customers, and enacting Draconian business models without any regard for the industry as a whole.

When things start to go bad, this is an easy way to make them a whole lot worse. And most experts agree that the quadrennial computer-upgrade cycle is ready to hit again sometime next year, making this a very strange time to risk alienating buyers and losing revenue.

Just for fun, contrast the situation we have in the PC industry with the success that game console makers are enjoying. An astonishingly high percentage of my previously PC-centric friends (especially in the IT sector) have joined the PlayStation revolution, and now disdain the PC for anything but basic business or Internet use.

The reasons for this are pretty basic: simplicity, easy access, and hassle-free operation. You can walk into the local Blockbuster, buy or rent (!) a game, and rest assured that it will work -- no reading the fine print, no subscription fees or activation, no worrying that a game will sense your home theater setup and stop working, and no roadblocks to consumers seeking some quick entertainment. And contrary to the conventional PC wisdom, game companies are making buckets of money under this far more open business model. Even Microsoft, busily building roadblocks in front of PC consumers, seems to recognize a good thing and has dived into the market with the Xbox.

Could Microsoft be preparing to leave a sinking PC ship, or will sanity return to the industry? I don't know the answer, but I do know this: the computer industry had better get its act in gear, or the prospect of dumping one of my PCs and buying a PS2 as an entertainment/DVD unit will move from an option to a virtual certainty. Somebody add that up for the bean counters.

Reprinted from HardwareCentral.

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