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Personal computers - generally called microcomputers

The PC market lifecycle went through its emergence phase during the
late 1970s and early 1980s. At this time the microcomputer was
treated as little more than an oversized calculator. Early innovators
included Apple, Tandy Radio Shack and others. When the value of the
microcomputer was realized, the industry went through a rapid growth
phase through the 1980s and early 1990s. During this phase, the
industry fragmented with extensive entries by a variety of
technological companies such as, IBM, ATT, Zenith, HP, Compaq and
several others with IBM leading the market (Kotler, 1997). Several
computer companies started up and IBM quickly began to dominate
the market with HP, Apple, Compaq and Dell following. Others could
not withstand the market pressures and folded.

Average selling price For Microsoft Windows systems,

the average selling price (ASP) showed a decline in
2008/2009, possibly due to low-cost netbooks, drawing
$569 for desktop computers and $689 forlaptops at U.S.
retail in August 2008. In 2009, ASP had further fallen to
$533 for desktops and to $602 for notebooks by January
and to $540 and $560 in February.[14] According to
research firm NPD, the average selling price of all
Windows portable PCs has fallen from $659 in October
2008 to $519 in October 2009.

Type of PC:
1. Workstation
2. Desktop computer
3. Single unit
4. Nettop
5. Laptop
6. Netbook
7. Tablet PC
8. Home theater PC
9. Pocket PC

Porter’s Five Forces Applied to Computer Industry

1. Threat of New Entrants

• Barriers to Entry:
1) Product Differentiation – In the PC market there is hardly any product
differentiation. Computers are coming up with the same configuration but the only
difference which remains is the price.

2) Switching Cost – In order to switch from one brand to another the switching
cost is high. If we are using Lenovo portable and Dell enters the market with
better features then to switch from Lenovo to Dell will involve high cost

3) Access to Distribution Channels – Every major PC company has their own

distribution channel. It will be difficult for a new entrant to come and create anew
distribution channel.

4) Capital Requirements – In case of PC industry the capital requirement is huge.

5) Government Policies - Service tax was cut from 12% to 10% and excise duty
From 10% to 8%.

• Bargaining Power of Suppliers

Suppliers exert power in the industry by threatening to increase prices or reduce

quality. Power supplier can squeeze industry profitability

In the computer industry –

1)Supplier is dominated by few firms
2)Suppliers’ product is an important input to the buyers product
3)Suppliers’ product has few substitutes
Intel’s microprocessor chips are used in approximately 80% of personal
Microsoft operating systems are used in 90% of computers, giving it substantial
bargaining power.
Given that Microsoft and Intel control the majority of the PC supplier market of
major component parts, the business world has named the two “Wintel”.

• Bargaining Power of Buyers

The strength of the PC buyer has basically evolved from the personal computer
becoming a commodity-like item.
Backward integration is also a factor in the strengthening of the PC buyers
bargaining Power because more and more people are building their own
computer system.

• Threat of New Substitutes

These are products with similar functions. In case of computer industry the
substitutes will be:

1) PDA - A personal digital assistant (PDA) is a mobile device, also known as

a palmtop computer. Newer PDAs commonly have color screens and audio
capabilities, enabling them to be used as mobile phones (smart phones), web
browsers, or portable media players. Many PDAs can access the Internet,
intranets or extranets via Wi-Fi, or Wireless Wide Area Networks (WWANs).
Many PDAs employ touch screen technology.

2) Smart Phone – smart phone is a mobile phone offering advanced

capabilities ,often with PC-like functionality (PC-mobile handset convergence).
There is noindustry standard definition of a smartphone. For some, a smartphone
is a phonethat runs complete operating system software providing a standardized
interfaceand platform for application developers. For others, a smartphone is
simply aphone with advanced features like e-mail, Internet and e-book reader
capabilities,and/or a built-in full keyboard or external USB keyboard and VGA
connector. Inother words, it is a miniature computer that has phone capability.

3) Palm Tops - A Handheld PC, orH/PC for short, is a term for a computer
builtaround a form factor which is smaller than any standard laptop computer. It
issometimes referred to as aPalmtop. The first handheld device compatible
withdesktop IBM personal computers of the time was the Atari Portfolio of
1989.Another early model was the Pocket PC of 1989 and the Hewlett Packard
HP95LX of 1991. Other MS DOS compatible hand-held computers also existed.

• Rivalry among existing customers

Intense rivalry often plays out in the following ways:
1)Jockeying for strategic position
2)Using price competition
3)Staging advertising battles
4)Increasing consumer warranties or service
5)Making new product introductions

Cutthroat competition is likely to occur when:

1)Market share – Every big company or new entrant is aiming for the market
share. A fight is going on between the major players and everyone wants to
be the market leader.

2) Lack of Differentiation – There is hardly any lack of differentiation in the

Product. Everyone in the PC market is fighting for price.

3) Price Competition – Since there is lack of differentiation in the product

major players are fighting on price.

4)Diverse Competitors – New entrants like Nokia and Croma are there. And
in existing players we have Aamaar PC, Samsung, LG.
5) Staging Advertising Battle – There is an advertising battle also going on inthe
industry. For example Acer has Hrithik, Compaq has Shahrukh and Lenovo has
Saif Ali Khan