1. How attractive is the PC industry? Conduct an industry analysis on the PC industry (A) in its early stages, and (B) in its later stages. Comment on how the industry has evolved.
In personal computer industry, we considered two different time periods. The early stage includes development from 1980s to the early 2000s, and the later stages starts from early 2000s to now.
Threat of Entry
PC industry has low entry barrier which is brought by IBM’s entry to the market. In 1980s, IBM adopts open architecture strategy which outsources its operating system (OS) and microprocessors to Microsoft and Intel respectively. This strategy also has several implications: (1) product ...view middle of the document...
As price decreases, it leads to huge boost in consumer demand and potentially profitability.
There are five segments in PC industry, which are (1) home, (2) small and medium-sized business (SMB), (3) corporate, (4) education, and (5) government. Buyer power across all consumer segments are not the same be due to varying degree of consolidation. For example, home consumers possess relatively low buyer power because they could only purchase a small amount of PCs from the retailers and sub-segments within home consumers do not possess enough purchasing power to suppress prices and profit margin of companies. On the other hand, buyers in segments such as corporate, education, and government possess larger buying power because they make large fraction of purchases compared to individual home consumers. If any of these consumers switch their purchases to competitors or substitutes, it may incur a huge loss of profit to PC.
Customer segmentations remain the same in late periods, emergence of distribution channels lower the switching costs of home and SMB consumers. In early 1990s, more knowledgeable PC customers do not purchase from dealers which primarily sold branded products to business customers. Instead, they purchased through “white box” channel, which is a distribution channel for generic brands with lower prices. Home and SMB consumers virtually do not have any switching costs. Increase in buyer power may possess a threat to companies which primarily target at these two segments.
Suppliers are primarily divided into two categories: minor product (e.g. keyboards, memory chips, disk drives) suppliers and core product (e.g. microprocessors and OS) suppliers. There are many minor product suppliers. Suppliers in this category has low power because of low switching cost for PC companies and its industry structure remains the same for early and late period. In contrasts, core product suppliers’ power is more dynamic in early and late period. The following sections will discuss the change of core products supplier throughout early and late period.
Suppliers have high power because they are a few players in suppliers’ industry. The number of players in core product (microprocessors and OS) industry which limits price sensitivity of PC manufacturers. Besides, microprocessors and OS are important inputs for PC as they are described as “hardware “brains” of a PC” and “the software that managed a PC’s resources and supported its applications”. The importance of suppliers heightens switching costs which empowers suppliers bargaining ability.
Supplier power for both microprocessors and OS have changed starting from 1990s and 1980s due to reshaping industry structure. There is an increase in competitors for microprocessors in 1990s. Although Intel remains the market leader in the industry, there is a huge number of competitors which can also microprocessors with low...