The PC Market's New Big Three

by: Dana Blankenhorn

A decade ago you knew who the “big three” PC makers were, didn't you?

They were HP (NYSE:HPQ), Dell (NASDAQ:DELL) and maybe Apple (OTC:APPL).

But that's 20th century thinking.

First, because no one “makes” computers any more. It's designed, it's ordered, it's distributed, it's exploited. Made? That's for Chinese OEMs.

Second, the nature of “making” has changed. Once it was the brand that stood behind the hardware. Or the software's operating system. Now the brand must stand for the design, the distribution, and (perhaps most crucial) the ecosystem that exploits it.

Apple AAPL, of course, pioneered this new business model. They don't make the iPhone. Nor do they make the iPad. A complex network of Chinese OEMs make these products. But Apple designs it, Apple has the financial strength to order it in millions of units. Apple also has the distribution channels, and (just as important) it has the ecosystem needed to fully exploit it, in the iTunes store.

This is the new model, and we're starting to see it followed.

Consider (NASDAQ:AMZN). The company is now expected to sell 3-5 million Amazon-branded tablets this year. The company hasn't even announced a product yet, but Forrester Research says they expect a hit because of Amazon's ability to exploit such a device through its cloud infrastructure.

Why? When Amazon announced its Kindle, people thought it would fail, because it was “just” an ebook reader and Amazon was “just” a network for selling books. But Amazon was more than that. It was infrastructure, it was branding, it was distribution. Now that the world is waking up to that, Amazon is about to become a big-name computer brand.

That's why I now believe Google (NASDAQ:GOOG) bought Motorola Mobility. Google is a brand, they have the infrastructure to exploit a brand like Android, but there were elements missing. They needed Motorola's design expertise. They needed Motorola's ability to order in quantity. They needed Motorola's distribution channels.

Now this new world is as confusing to the Chinese as it is to Americans. I remember being at CompuTex two years when MSI was announcing their new “branded” laptop line. They were good boxes. I have one now.

But the marketing was laughable – models in skimpy outfits parading across the stage while the CEO stood by with a grin that would make Hugh Hefner blush. It was right out of 1983, the brand standing only for the production capability and Microsoft software.

That's why I now believe the last month has seen literally dozens of fake “Apple stores” pop up all over China? It's because their industry is frustrated. Despite their dominance of the means of production, they're still in the back of the bus.

Speaking of which. Microsoft (NASDAQ:MSFT) is getting killed by this new reality. Microsoft is not designed to be the brand, to stand behind the hardware, and to fully exploit the ecosystem. It has always done all this through partners – hardware brands, software developers. That doesn't matter anymore.

Microsoft could still recover but its time is limited. It needs to come to the hardware market under its own brand, it has to deliver something new in form factors people like, and it has to think of the PC in new ways – not as a TV, typewriter and tape recorder but as interfaces that control resources.

Otherwise, the big PC makers will be Apple, Google and Amazon. The irony, of course, is they won't be making anything. Except money.

Disclosure: I am long GOOG.