DALLAS -- When Rod Canion, co-founder and president, was shown the door at Compaq Computer Corp. a few weeks ago, the era of entrepreneurial exuberance in the personal computer industry ended abruptly.
The young industry has grown up with stunning swiftness. Its focus has changed: While fortunes were once built on getting great ideas to market, they now rest on the efficiency with which small advances can be marketed at low cost to the widest audience.
And some say the game has gotten ruthless. Watch out for the pat on the back, because a knife may be in the hand of such pioneering competitors as Michael Dell, the highly publicized 26-year-old Texan who proved computers could be sold effectively over the phone.
"I think it's entered a stage [that] you can characterize it as down and dirty, shoot 'em out competitiveness," said JoeAnn Stahel, president of Stahel & Co., a Dallas consultant who has advised Compaq Computer and other leading industry players. "It's not the business it used to be, where everybody could enter the business and have a nice business real quickly. There are a lot of businesses not doing well."
Dell Computer Corp. is an example of the rough give-and-take that pervades the industry. In 1990 and 1991, its highly effective advertising took direct stabs at Compaq's prices. One classic Dell ad touted one of its $15,000 systems as "turbocharged," while a competing $27,700 Compaq system is labeled as "overcharged."
A "down and dirty" battle ensued.
Compaq fired back in courts in the United States and the United Kingdom. So far, Compaq has won the court case, at least overseas. But Dell appears to have won the case in the marketplace. Under pressure from Dell and other companies like it, Compaq has been forced to slash its prices and shake up its entire organization. The layoffs and loss announced last month by Compaq are fallout from such "down and dirty" wars.
But guns can be fired from any quarter. For instance, Texas Instruments Inc. has trained its sights on Dell Computer. Its lawyers vow they will shut Dell down when a January trial begins, if Dell doesn't agree to pay appropriate royalties on a batch of microcomputer patents TI holds. Dell denies infringement, but an injunction could theoretically halt its business.
TI wants to set a precedent that will allow it to receive, say, a 1 percent royalty on any personal computer sold. That would produce tens of millions of dollars in payments annually on U.S. sales alone, producing a stream of revenue that rivals what it receives from its patents on microchips.
This year, about $55 billion worth of personal computer products will be sold worldwide, estimates Dataquest Inc. That means the industry has doubled in size in the past five years -- and has come from essentially nowhere a dozen or so years ago.
Its growth attracted not just Wunderkinds such as Steve Jobs, Bill Gates and Michael Dell, but such behemoths as International Business Machines Corp. and Japan's NEC Corp. And the number of players has continued to pile up, even as the growth has slowed.
During the past five years, the industry's growth was enviable by any standards, at 21.4 percent a year. During the next five years, it still will be enviable in a world of stagnant industries and economies, at 11 percent.
Finding it the hardest to adjust to the slower growth have been the biggest players -- Compaq, IBM and Apple Computer Inc. Like Compaq, Apple's profits have plunged as it has slashed prices on its core product, the Macintosh, to meet the competition from a hostile world that is otherwise entirely based on IBM-set standards.
Yet market share numbers persistently show IBM has lost its way as well. Where it once dominated the industry with its original "PC," IBM now sells just 15 percent of personal computers in the world, according to Dataquest.
The decline in its market position can be traced to April 1987, when it brought out its second generation of personal computers. Stung by the inroads made by clonemakers, IBM appeared to believe it had enough clout to set a new standard that couldn't be openly copied by others. Its Micro Channel Architecture and its second master control program, Operating System-2, though, have failed to make a dent in the market, except among existing IBM customers.
AST Research Inc., which still bases its business on machines that adhere to the first IBM-inspired architecture, is one of the companies that makes up the competitor that dominates the industry. That is the competitor Dataquest lists as "others." The slices owned by the ASTs and Dells of the world now total three-fifths of the entire personal computer pie.
Which explains a lot of how a company such as Compaq could fall so precipitously, after nine years of prominence as the "fastest-growing company in U.S. business history."