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Hardware and Software–The Lines Are Blurring

Over the years, it has been smart business strategy in the computer and consumer electronics industries to specialize in either hardware or software. But that’s changing.

Microsoft created one of the greatest business successes in history by fiercely sticking to software, dabbling only in minor hardware products, such as mice and keyboards, which were designed to propel its core software business. I have even been told by very senior Microsoft officials, in private, that hardware was a sucker’s business, a combination of low margins and big headaches.

Sony was perhaps the opposite case, turning out world-class, head-turning hardware, but paying little or no attention to software–and no, I don’t count “Spider-Man 3,” by the company’s Hollywood studio, as software, at least not in this context.

The only company that seemed to combine both skills was Apple, but it was widely regarded as a niche player that was slowly fading from the scene, partly because it didn’t fit very well into either world. By the late 1990s, it seemed clear that Apple couldn’t build hardware it could sell in large enough quantities, or license its operating system widely enough, to thrive, or even survive.

iPods

My, how times have changed. Now, with computers, the Web and consumer electronics all merging and blurring, Apple is looking more like a role model than an object of pity. The iPod has been a huge combined hardware/software success and Macintosh sales are surging, partly due to a great operating system and built-in software that Apple writes in-house and refuses to license.

Without announcing any big change in strategy, both Microsoft and Sony, as well as other companies, are racing to become combined hardware/software powers.

And everyone is also trying to add a third leg: tightly linked companion Web services–another thing that Apple has been skillful at doing, with its booming iTunes store and its smart, but badly underdeveloped, “.Mac” online service for Macintosh owners.

Robbie Bach

Microsoft has essentially set up a small Apple, called the Entertainment & Devices Division, run by savvy, strategic company veteran Robbie Bach, who was running Excel when I first met him many years ago. The division not only designs both the hardware and core software for the Xbox game consoles and Zune music players, but also operates online marketplaces and communities for both. And the company is considering other such end-to-end products, which would include Microsoft-designed hardware.

Sony, meanwhile, also taking lessons from both Apple and its own PlayStation game console business, has set up a software development group in California, run by a former Apple executive. Its mission is to develop distinctive Sony software that can run on most of the company’s products. And Sony is also trying to compete online, to match Microsoft’s great success with Xbox Live and Apple’s iTunes.

Other hardware companies are making similar efforts. Hewlett-Packard is designing some of its own programs for its consumer computers and engaging interfaces for its televisions. Nokia is trying to ramp up its software efforts for its nontraditional offerings, like the N800 Internet tablet, partly by tapping the open-source software community. Palm, which sold its operating system some years back, is getting back into that game.

This is good for consumers. Third-party software, hardware and Web sites are still vital. But nicely matched hardware and software platforms make things easier on average users than unwieldy efforts to combine different platforms, such as Microsoft’s failed PlaysForSure portable music system. Some of these combo products may flop (like the first Zune, or the Apple Cube). But the trend is a welcome one.


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