Competition and Collaboration in the Pc Industry: The Evolution of a Value Chain (a)

Abstract

The three cases in this series trace developments in the personal computer industry from its inception through 2006, making it possible to examine the issues of collaboration and competition as the value chain in the industry evolves. The A case looks at these tensions through the lens of the relationship between two for the industries' most successful firms—Compaq and Intel. As the A case describes, by the mid-1990s, Compaq was the world's largest PC manufacturer. Compaq's computers used Microsoft software and Intel processors. Compaq was Intel's largest customer and Intel was Compaq's largest supplier. Not surprisingly, then, it caused quite a stir when executives from Compaq and Intel entered into a heated public spat at a September 1994 European technology conference. See the B case (UVA-BP-0519) and C case (UVA-BP-0520).

Excerpt

UVA-BP-0518

COMPETITION AND COLLABORATION IN THE PC INDUSTRY:

The Evolution of a Value Chain (A)

The invention of the microchip in 1972 sparked the birth of the personal computer (PC) industry. Over the next 15 years, the PC tore apart computer giants such as IBM.

Big Blue [IBM] and other giants grew up as vertically integrated organizations, à la General Motors, because that's how companies worked then—and because there was little choice. They had to build their own chips, circuit boards, disk drives, terminals, printers, tape drives, and even the boxes the stuff went into. They wrote software, too, and fielded teams of salespeople, consultants, and technicians. Tens of thousands of employees, dozens of plants, and huge investments in research and development were involved.

But the PC changed all that. In 1981, when IBM chose an Intel Corp. microchip and Microsoft Corp. software for the IBM PC, it inadvertently sowed the seeds of its own deconstruction. Because anybody could buy the same parts, everybody got into the business. From Taipei to Tampa, from Delhi to Dublin, an infrastructure of suppliers sprang up to feed the right bits and pieces to thousands of assemblers.

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Keywords: PC industry, competition, value chain, communications, conflict