The following text contains a section that was accidentally dropped from the "Industry Update" section in my book, Unauthorized Windows 95. This section (along with "Consolidation of the PC Software Industry") should come before the "Microsoft and the Justice Department" section that starts on p. 17 of the Update.
Note that pp. 24-25 of the "Industry Update" contain several "as noted earlier" phrases that don't make much sense without these two missing sections. On the other hand, some of the following material is now out of date.
Copyright (c) Andrew Schulman 1994-95. All rights reserved.
Regardless of Microsoft's statements that things never looked better for the PC software industry, that every success for Windows trickles down to hundreds of small companies, and that Windows is a veritable job-creating engine, the fact is that the company has been acting on a somewhat different assumption, one that is much more in line what most financial analysts are saying about the industry:
As fiscal 1993 closed, Microsoft executives began uttering the grim word "saturation." Translation: once there was a computer on every desk, and all those computers were loaded up with more software than they really needed, what could you do for an encore, or at least for something that would keep your growth rate on the upside of phenomenal?Indeed, as one response to market saturation, Microsoft has been aggressively targeting what it hopes is a huge, relatively untapped home market. And not just with its CD-ROM reference titles and its growing line of "Microsoft Home" products such as Baseball, Dinosaurs, Ancient Lands, and so on (of which Microsoft is shipping one title per week!) -- Windows 95 itself is largely targeted at the first-time PC user in the home.Upgrades were one answer. One industry columnist claimed that Microsoft wasn't selling software, it was selling subscriptions. But customers were beginning tp rebel against the cost, effort, and often minimal reward of upgrading software....
Gates had been doing his damnedest to get Microsoft into the home, but with surprisingly little success. The potential was definitely there: According to Paine Webber analyst Michael Kwatinetz, each Nintendo machine generated twice as much software revenue as each desktop computer. But although Microsoft's CD-ROM Bookshelf, Cinemania, and Encarta reference titles were among the bestsellers in the field, a CD-ROM bestseller still sold far fewer units than, say, the equivalent book....
Still, Gates publicly stated that he expected Microsoft's consumer products division to be the company's largest within five years."
-- Stephen Manes and Paul Andrews, Gates, paperback edition, pp. 459-460.
In many ways, Windows 95 is an attempt to make the PC a part of the lucrative consumer-electronics mainstream. Fortune magazine (September 19, 1994) picked up on this in a long article which shows the connection between Windows 95, the search for the home market, and the shakeout/consolidation of the industry.
The article, titled "What's Driving the New PC Shakeout," discusses the impact on PC hardware and software companies "as the home market becomes the industry's principle driving force." According to Fortune, the home market is fairly genuine; the magazine points, for example, to the fact that Packard Bell, which sells exclusively in consumer mass market, has surpassed IBM in PC sales, and says that by the end of 1994, homes will have spent more on PC hardware and software than on TVs. This apparent reorientation of the industry to consumers (as opposed to "end-users") will have several big effects:
Brad Silverberg, Microsoft's VP in charge of the Windows 95 (Chicago) project, is not entirely doing a snow-job on Fortune when he talks of a PC that's as easy to use as a toaster. This seems genuinely to be a goal of the Chicago project; whether Windows 95 does or doesn't attain this goal isn't really the point. The point instead is this: Microsoft wants to turn PC software from its current "user"-oriented immaturity into a consumer-electronics business. Windows 95 is an important part of this attempted transformation. Toasters do not have CONFIG.SYS files, user groups, magazines, books describing undocumented features, or any of the other accoutrements surrounding the PC.-- David Kirkpatrick, "What's Driving the New PC Shakeout," Fortune, September 19, 1994
- The big will get bigger. As companies scramble to achieve consumer-scale volumes, the PC business is consolidating....
- Microsoft and Intel, PC-dom's reigning standard-setters, will maintain their roles -- and buttress their hold on the market -- by speeding the development of user-friendly technology. Microsoft will soon unveil a vastly improved successor to its ubiquitous Windows operating system.... The goal, says Brad Silverberg of Microsoft's Windows group: "A PC should be like an appliance. Using one should be as easy as toasting a bagel."
- To appeal to a broader, technologically less sophisticated market, building a strong brand image and developing small but distinctive features will become more critical than ever.... the names of the new generation of PCs -- Spectria, Presario, and Performa -- sound more like cars than computers.
The goal in all this, of course, is not technical excellence, but expanding the market for PCs and PC software beyond its saturated state. The ultimate goal behind Windows 95 (and behind Plug and Play and PCI, both of which Fortune also discusses) is to do something about market saturation. If Microsoft succeeds at all in this "consumerization of the PC" (as the article calls it), the result will likely be further shakeout and consolidation as Microsoft and Intel (or "Wintel," as the article refers to this dynamic duo) are the prime beneficiaries. In other words, even in the unlikely event that the PC does become a toaster, the PC software business could still be toast.
But the notion of the PC as a consumer-electronics gadget seems far fetched. Indeed, the Fortune article cautions that the home market may not grow as quickly as Microsoft, Intel, and others are claiming it will:
Still, it will take more than fancy extras and low prices to lure new buyers from among the roughly 67% of American households that have yet to acquire a PC. In a new survey, Odyssey, a San Francisco research firm, found that only 4% of respondents who don't own a PC plan to buy one in the next six months. More striking, 90% of non-owners said they were "very unlikely" to change their status....Note the idea expressed here that the Mac is simpler to use than the PC because the Mac's hardware and software are "integrated." This general idea that ease of use comes from "integration" is important, because it helps explain an otherwise strange claim Microsoft has been making that Windows 95 is "integrated."Intel and Microsoft are busy innovating because they know that the huge consumer market they're eager to supply won't really open up until PCs get much easier to use. Apple's Macintosh has always been simpler to operate than machines with Intel chips and Microsoft software because Apple designed the hardware and software in tandem, for optimal integration....
Turn on a Windows machine today, and it presents you with a confusing array of choices. But Chicago's first screen displays only a digital clock and three icons.... Chicago still doesn't best the Mac, but it comes pretty close....
Unauthorized Windows: Developers Resource Kit by Andrew Schulman
Price: $39.99 USA/$54.99 Canada
ISBN: 1-56884-305-4; Publication Date: November 1994; Pages: 608
IDG Books are available at all major bookstore chains or direct from the publisher at (800) 762-2974, 8 a.m. to 5 p.m. Central.