Creative destruction underpins the technology industry. Big names in the sector, former beneficiaries of the phenomenon, are now suffering from it. Microsoft, Intel and Google all reported disappointing quarterly results. The shift from PCs to mobile devices is the root cause of their problems. But Microsoft is in the most parlous position, which explains the $30-billion decline in its market capitalisation since it reported earnings last Thursday.
The software company became a giant as the PC supplanted the microcomputer, which had in turn surpassed the mainframe. Some companies avoided being left behind by changing focus, like IBM, but many - old-school names like Univac and Control Data - became footnotes to tech history.
Now, mobile devices are eroding the ground claimed by PC winners. Even Google, whose Android operating system is used in more than half of all smartphones, isn't immune. Paid advertising clicks increased at a rate of more than 20 per cent in the most recent quarter from a year earlier, but the price paid per click declined six per cent because advertisers won't pay up for mobile ads. So far, that's mathematically a good trade for Google - and explains why the stock has largely recovered from a dip following its results. But there's a longer-term threat if users go direct to focused apps rather than using the company's search tools.
For Microsoft and Intel, the day of reckoning is nearer at hand. The two giants still depend on PCs for most of their profits, and sales at both have now declined for five quarters in a row, with no sign of the trend reversing.
Intel still has an edge making the smallest, most complex chips. If the company continues to struggle to make inroads in mobile itself, it could license out its technology or manufacture chips for other firms. It has already signed a few subcontracting deals. That may not produce the bumper profits of the past, but the firm is still positioned to navigate the shift to mobile.
It's harder to see a good way forward for Microsoft, led by Steve Ballmer. Weak PC sales are squeezing both of the company's cash cows - the Windows operating system and Office software - both of which boast 60 per cent net operating margins. Perhaps tellingly, the company's recent reorganisation may make it harder to track how these businesses are doing. Meanwhile, the company has taken a $900 million writedown on its Surface tablet.
Microsoft's problems getting to grips with consumer devices look set to worsen. Still smaller products like Google's wearable Glass are coming. They will leave users with even fewer reasons to use PCs - and Microsoft's currently ubiquitous software.
