American History

1. Entry of competitors.

Entrants of the computer industry had distinct standards and unique technical features. Every computer manufacturer had different hardware and software configurations. This made application sharing and communication among the various machines virtually impossible. The first PCs introduced by Commodore and Apple were basic machines with limited capability. However, the end users were able to perform spreadsheet analysis and word processing for fewer than five thousand dollars as opposed to the multi-user mini and mainframe computers that were far more expensive and these tasks were very time-consuming to perform.

2. Threat of substitutes.

Mainframes, minicomputers, and Apple PCs were "closed" and proprietary systems and could not be copied or cloned because of patents and copyrights. However, IBM entered the computer market in 1981, and changed the computer industry by offering an "open" system. The specifications of the IBM PC were easily obtainable which allowed independent software vendors to write programs that would run on different brands of PCs. Open systems had an advantage for customers because they were no longer limited to a particular vendor for compatibility, but could now use other vendor's hardware and software to get the lowest system cost.

3. Bargaining power of buyers.

Many computer manufacturers fostered imitations of the IBM "open" system. However, few firms were capable of competing with IBM. IBM's brand and product quality captured 70 percent of the fortune 1000 business market during its first four years. New personal computers were relatively new and many users were uncertain about quality, compatibility, service and reliability. IBM's brand identity was associated with quality and performance.