Hollow Point

This posting pulls together some thoughts prodded into life by a news story and Linspire’s Michaels Minute email newsletter, both highlight the self imposed challenges faced by companies with too much commercial power used in an unwise way.

First of all Wal-Mart has been slated for a number of years about the disturbing side effects of the retailing superpower.

Accusations against Wal-Mart include:

  • That their stores are a blot on the landscape
  • The company is alleged to have a policy of anti-union practices (which is par for the course here in the UK)
  • The company’s actions is alleged to have forced suppliers out of business by distorting supply and demand and encouraging globalisation

There is a good article that outline these arguments in more depth: Fast Company – The Wal-Mart You Don’t Know (page 68, December 2003). There is a viewpoint out there that goes along the lines of Wal-Marts dogged pursuit of growth at any cost had caused and untold amount of economic destruction and ruined the social fabric of communities across the US. Wal-Mart has had enough of this pinko communist rubbish and decided to launch a PR blitzkrieg to counteract negative perceptions that consumers and skakeholders may have about the retailing behemoth. A key component in this charm offensive is the dreadfully dull Walmart Facts website. Somehow I don’t think that this website and copy will make it into the web designer’s or PR agency’s portfolio. As a measure of the effectiveness of the campaign, it has picked up a slating from industry analysts who think that it will make little difference to consumer attitudes or Wall Street’s valuation of the company.

Michael Robertson in his Michael’s Minute email newsletter had two interesting Microsoft-related comments. The first one was the Microsoft had moved from being a growth company to being a value company and despite trying to diversify the company had failed to get sufficent returns from entering new markets such as PDAs, mobile phones, TV, games consoles and music. Part of this could be because players in these markets are reluctant to have their margins hollowed out in the devastating commoditised markets that have wrecked the once thriving PC business. Robertson further considers that this devastation of the industry will encourage IBM PC partner Lenovo to lean more towards Linux.

 

 

China-based Lenovo just received US government clearance to purchase IBM’s PC business. IBM executives have assured the IT world that the quality and service will remain, and I hope it does because I’m a big Thinkpad fan and own several of the X series laptops. But something must change or Lenovo will have paid $1.75 billion for the right to lose money on every IBM PC they sell. Over the last 3.5 years, IBM has sold about 30 million computers and lost $965 million dollars – or approximately $33 per computer. To reverse their fortune, Lenovo needs to find a way to have $50 better economics on every PC so will they not only break even, but they will generate some profits. IBM already uses Chinese labor in their plant in Shenzen to manufacture their PCs – so there won’t be much savings there. Lenovo may be able to buy hard disks, memory or other parts slightly cheaper than IBM because of greater economies of scales, but at best this will be less than $10 per machine. The only place where significant savings can be generated to turn their PC business around is the operating system and office suite. Instead of paying Microsoft $100-$300 per machine for Microsoft Windows XP and Microsoft Office, they will ship Linux with an office suite and pay just $5-$10 on some of their product line. This will give them distinction from the well-entrenched Dell and HP computers they must compete with.