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• W331457579 abstract "Consumer IT is unprofitable - or so it is popularly believed. While there are few among current competitors that are not considering exit, many non-participants, paradoxically, are considering entry. Big names such as NEC, Siemens, IBM, Compaq, and Sony have struggled to make money in the consumer market, but there are plenty of success stories too. The truth is that the IT consumer market as a whole is profitable, and creates value for participants. Only in PC assembly, the largest segment, is value destroyed. Lured by market growth The appeal of the consumer IT industry has been its remarkable growth. In the early 1990s, it was little more than a niche market for consumer electronics players and an afterthought for commercial IT competitors, which used spare capacity in their core businesses to manufacture PCs, peripherals, software, online services, and even dedicated games machines for early adopters. Today, it is a worldwide business with revenues of more than $50 billion and a double-digit growth rate. In the United States alone, sales are rising by 17 percent a year and could be close to $70 billion come the end of the century, by which time consumer IT may constitute 22 percent of the total US IT market [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. Extraordinary growth can also be expected outside the United States, with the global market likely to climb to $200 billion by 2000. Such prospects have attracted competitors from commercial IT, consumer electronics, and the media. These newcomers are seeking to defend their core businesses (as commercial IT and electronics companies such as Sony and Hewlett-Packard have done), or to use consumer IT as a platform from which to attack commercial IT markets (as Netscape and Intuit are doing in software). But though the market may be profitable overall, many competitors are starting to tell stories of cut-throat price competition and dwindling margins now that the initial feeding frenzy is abating. High-profile branding, marketing knowhow, and superior technology do not guarantee success, it seems. What really matters, according to our research, is where companies choose to compete, and how. Where to compete Using 1995 figures from 15 companies(*) to represent the market as a whole, we disaggregated the value chain for each of the three main product categories, namely PCs, peripherals, and games machines (Exhibit 2), and then assessed the distribution of profits and added value along the chain (Exhibit 3). [TABULAR DATA FOR EXHIBIT 2 OMITTED] The figures showed that in the PC category, software publishers and component manufacturers captured most of the value and profits. Companies such as Microsoft and Intel which have established an industry standard and therefore control positions in the PC value chain have captured exceptional value. In peripherals, both component suppliers and device assemblers managed to extract [TABULAR DATA FOR EXHIBIT 3 OMITTED] substantial value. In games machines, the bulk of value and profits came from software publishing. The least attractive market segment is PC assembly. On average, companies here only broke even, although some may have done slightly better (precise figures are hard to come by because consumer businesses are typically combined with other, more profitable areas). Nevertheless, when the companies' weighted average cost of capital is taken into account, it is clear that PC assembly as a whole actually destroys value (see text panel on p. 204). The only exception is Gateway. By selling direct to customers and manufacturing to order only, Gateway managed to earn a return of 30 percent on its cost of capital in 1995. How to compete Knowing how to compete is crucial. The fields of consumer IT are littered with good intentions gone awry, even in attractive segments. Casualties include Apple in operating software (compared with Microsoft), CompuServe in online services (compared with America Online), and IBM in printers (compared with the relative success of Hewlett-Packard). …" @default.
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• W331457579 date "1997-09-22" @default.
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• W331457579 title "Consumer IT: To Play or Not to Play?" @default.
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