Microsoft sees the beginning of the end for PCs

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Sometimes it takes an outsider to speak the unpalatable truth that everyone knows but is unwilling to acknowledge outright. That task fell this week to Ray Ozzie, the man who last month took on Bill Gates’ mantle as leading visionary at the world’s most powerful technology company.

Microsoft’s rise – like that of Intel, whose chips are found in more than 80 per cent of all laptops and desktop computers, and Dell, the biggest computer hardware maker – marked the emergence of the PC over the past decade as the main engine of growth in the technology industry.

That time, according to Mr Ozzie, is now history. A low-key software veteran long viewed almost with reverence by fellow programmers, he is not averse to rocking the boat. His arrival at Microsoft last year has been followed by a rapid ascent that recently saw him named the company’s chief software architect in succession to Mr Gates, a position from which he can set the company’s future technology strategy.

Speaking on Thursday at Microsoft’s annual analyst meeting, he sketched out a vision that dared to push the company’s main business to the sidelines.

“In a previous era – the PC era – Microsoft would naturally begin with a PC mindset,” he declared. For good measure, he added: “We’re in a new era, an era in which the internet is at the centre.”

Such talk, uttered in the halls of Microsoft’s headquarters in the Seattle suburb of Redmond, might once have seemed sacrilege. Mr Gates himself has always bridled at any suggestion that the PC’s central role in the IT world was passing.

The Microsoft founder, however, was on vacation in Africa this week, the first time he has missed the company’s main annual meeting with Wall Street. While the company said his trip had been long planned and was not designed to give over the limelight to Mr Ozzie and other executives, it seemed a fitting absence, given Mr Gates’ recent announcement that he will leave the company in two years.

To be sure, the PC is far from dead.

With an estimated 850m in use around the world, it is the device that has brought computing to the masses. Some 225m will be sold next year, more than four times as many as in 1995, when the ballyhoo around the launch of Windows 95 and the arrival of the internet browser ushered in the golden age of the PC.

Yet the PC’s centrality to the tech world is passing.

“It’s not that they’re not selling PCs any more – what has passed is the growth era,” says Roger Kay, an analyst at Endpoint Technology Associates. “They can’t show growth in their core business.”

A broader array of digital devices represents the technology world’s growth market – all of them requiring software and silicon, though often not supplied by Microsoft and Intel.

Mobile phones, games consoles, digital media players and TV set-top boxes are already starting to shape the next wave of computing.

Microsoft itself has dabbled in all of these areas, though with limited success. Some 30m of its Xbox games consoles have been sold, along with 6m mobile phones based on the Windows operating system and 14m PCs designed to act as “media centres” when attached to televisions.

Yet others have moved faster and had greater mass-market success. Apple has sold more than 50m iPods, while sales of Sony’s PlayStation 2 console have topped 100m. Microsoft this week said it planned to spend “hundreds of millions of dollars” over the next few years to create an iPod-type device called Zune, representing another venture into the hardware business alongside the Xbox.

It is also looking ahead to a future in which the mobile phone, rather than the PC, becomes the predominant way that most of the world experiences computing. This week the software company showed off a mobile phone that could be connected to a television: add a small wireless keyboard and mouse, and the combination could one day become a sort of ad hoc computer for many in the developing world who will never buy a PC.

More than any single device, though, it is the internet that is becoming the driving force for the technology industry and represents the main challenge to Microsoft.

As described by Mr Ozzie, customers buy technology for the experience it makes possible – listening to music on a portable device, for instance – and it is often an internet service that makes this possible, whether it is Apple’s iTunes service or Google’s search engine.

“This new internet model is not just a new technology model, but also a radically new business model,” says Mark Benioff, chief executive officer of Salesforce.com, part of the new wave of internet-based service companies. “Google has done it, Salesforce.com has done it, but can Microsoft do it and make money?”

Additional reporting by Chris Nuttall

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