Software Called Key to US Competitiveness

Article excerpt

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 building clones.

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 technologies. …

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