Key issues for the home PC

Economics

IT IS always fun for the rest of us when experts disagree. There was a fine example this week when the two titans of the software world, Bill Gates of Microsoft and Larry Ellison of Oracle, clashed as to the future of the personal computer.

Mr Ellison told a Paris computer conference that the PC was about to decline in importance, just as the mainframe has. Instead, we would have simple terminals that combined a TV and a phone. If we wanted anything complicated, we would get it downloaded over the phone. "The personal computer," he opined, "is a ridiculous device."

Mr Gates disagreed, reckoning that people would not want dumb terminals, and he noted the security problems when information was downloaded over the phone - problems evident with the Internet.

His view is unsurprising as Microsoft makes most of its money by selling software for PCs, but there is an element of incongruity about the way software is distributed. Just a couple of weeks ago, Microsoft launched Windows 95. How did people get this new product? They went to a shop, bought a cardboard box with some pieces of plastic inside, paid for it by handing over money or maybe signing a credit-card chit, took it home and then spent half an hour unpacking it and loading it into their machines.

In other words, although the product is a set of electronic signals, something unimaginable to any previous generation, it was bought in exactly the same way as the Romans bought a new scroll.

Mr Ellison objects to the inappropriate nature of the PC: a machine that itself is unnecessarily powerful for the job in hand. Far more sensible, he would say, to get the software you need - and only the software you need - down the line. But for ordinary punters, the principal objection, surely, is less the excessive power (which comes very cheaply), but the fact that PCs do all sorts of wonderful things you don't want them to do, but don't do very well the things you do.

When computer experts cannot agree, call in the economists! Or rather, since theoretical economists are renowned for their ability to disagree, the economic historians. Seen in a long historical perspective, what we have here is a product, the PC, which is still at a very early formative stage. And there are scores of examples from similar periods in the past of how difficult it is to see how a particular invention will ultimately be used. When wireless was invented, people thought its main use would be for contact between ships: no-one realised it would become an entertainment medium, too.

We also find it hard to judge whether a product will be principally a personal one, or whether it will be mainly used commercially. At the beginning of the century, many people assumed cars would remain so complicated to drive that most people would have to use chauffeurs. Then, in the 1920s and 1930s, they made the opposite mistake with planes: that the private plane would follow the private car as a mass consumer item.

Further, there are plenty of examples of technology that exist for years with limited commercial applications but are suddenly transformed into mass consumer items by a fall in the price: the fax is the best recent example.

How does the PC fit in to this historical pattern?

There are three different technologies all seeking to carry the signals from one place to another and competing to be the main method of processing and communicating information - the phone, the television, and the personal computer. The phone can have a screen (although the technology is not yet available to give a decent quality picture), and the phone companies are gearing up to offer all sorts of services down the line. The television is becoming interactive (although in practice the services the cable companies offer, such as home shopping or booking theatre seats could be delivered in many other ways, including the humble phone). And you can now make phone calls, send faxes and watch films or TV on your computer.

So this clash between Messrs Gates and Ellison is over a tiny corner of the battlefield: is the intelligence in the PC or in the network? The economist looking at the whole battlefield would say that there are there are two very simple questions, the answers to which will determine the rate of take-up of the competing technologies. The first: what do people want - or more precisely, what are they prepared to pay for any particular product or service? The second: at what price can that product or service be manufactured and delivered?

The key point here is that the technically possiblity of producing something does not mean it is worth doing so if it costs more than people are prepared to pay. Peter Schwartz, author of The Art of the Long View, pointed out to a London seminar last week that Japan had spent $9bn (pounds 5.8bn) developing a system of analogue high-definition television. But take-up has been tiny, and the system is now being overtaken by digital processes. So all that money, not to mention the opportunity cost - what might have been done with the resources had they been deployed elsewhere - has been entirely wasted.

What do we know from history about people's preferences? Surely the most obvious lesson is that we will pay an enormous amount for mobility and entertainment. People will pay very large proportions of their income to have cars - rationally, another "ridiculous device", for a family car will exceed the speed limit by up to 50 per cent and is typically only used for one hour out of the 24. People will also pay large sums to watch movies and sport or listen to popular music. People also want to communicate while on the move - witness the boom in mobile phones.

And what can we judge about the cost of producing goods and services? Advances in technology, particularly in electronics, mean that goods will carry on becoming relatively cheaper, but rising labour costs mean that many services will become relatively more expensive.

So putting power into PCs is very cheap, and as a result PCs will go on getting more powerful until we reach the stage, in perhaps another 10 years, when there simply is no point in making them more powerful because they will do more than anyone would want them to do. Because writing software takes human time, it will go on becoming more expensive. So instead of buying software that is only used occasionally, the tendency will be for people to rent it when they need it - just as people rent a video - except the software would be delivered down the line.

Conclusion one: both Bill Gates and Larry Ellison are right, for PCs will go on getting more powerful, but they will also become more of a terminal that receives software from a central point.

Conclusion two: the big game is not between two software firms. Rather it is between the phone companies, the media groups, and the computer industry as a whole. And that game is wide open.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
News
Comedian Ted Robbins collapsed on stage during a performance of Phoenix Nights Live at Manchester Arena (Rex)
people
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links