IN the late 1970s, hardware was prince and software was pauper.
Hobbyists flocked to the best-built machines. They struggled to
make them work with limited software called Basic.
Today, those roles are reversed. Software has grabbed the
preeminent position in the computer world. And manufacturers of
hardware have fallen on hard times.
That shift of market power has profound implications for the
United States and its competitors around the world. In the near
term, the US stands to gain a strategic advantage because of its
strength in software engineering and design of high-value hardware.
In the long term, however, these American industries likely will
face intense foreign competition - the kind of struggle that older
US companies have already fought and often lost.
"The future belongs to the computerless computer company,"
consultants Andrew Rappaport and Shmuel Halevi wrote in the
July/August edition of the Harvard Business Review. "The strategic
goal of US companies should not be to build computers. It should be
to create persistent value in computing."
"In most cases ... software is what wins," says Shearson Lehman
Brothers vice president David Nelson. "It generates the profits."
The most dramatic example of this shift is Microsoft Corporation.
In 10 years this small, little-known upstart in Redmond, Wash., has
become arguably the most powerful computer company in the US. Its
secret? Microsoft was chosen to create the operating system that
powered IBM's original personal computer. Sales of that computer
soared, causing other domestic and foreign companies to start
IBM lost sales as the competition intensified. But Microsoft
profited because all the clones ran on its software. The company has
made further advances with a new operating system, called Windows,
that threatens another key computermaker, Apple Computer Inc.
Interestingly, IBM and Apple joined forces earlier this summer to
build the next generation of computer - presumably with an operating
system not made by Microsoft.
The shift to software permeates the entire industry. Even
manufacturers of computer parts are increasingly relying on software
rather than hardware to control their systems.
For example, most personal computers use magnetic hard disks to
store data. In 1986, a company called Conner Peripherals Inc.
decided to make hard disks that relied more heavily on software. In
one instance, Conner used a software program to determine the speed
and direction of its spinning disk rather than the magnetic sensor
that other manufacturers used. Conner became a leader in disk-drive