Article

Kiosks and the changing PC market

Will mergers such as the one proposed between IBM and Lenovo affect the kiosk market? Industry insiders weigh in on the topic.

December 19, 2004

You've probably heard the news by now that the China-based Lenovo Group Limited is prepared to purchase IBM's Personal Computing Division for the tidy sum of $1.25 billion. That's some sale. According to an IBM news release, the sale would make Lenovo the third-largest PC business in the world.

How would such a sale impact the kiosk industry? It seems as though price and service issues would be primary concerns. To get an idea if the kiosk industry would indeed feel an impact, I asked industry professionals to share their thoughts.

I spoke to Kiosks.org Association President Cort Johnson who is also the manager, national kiosk/ATM practice, IBM Global Services. He reminded me that the agreement between IBM and Lenovo is still being defined and that no official sale has taken place. If such a sale does occur, Johnson feels it will have a positive impact on the kiosk industry.

IBM assistant marketing manager Sarah Wind said there will be "no impact" on the kiosk market. IBM operates its kiosk business through IGS (Global Services) and Retail Store Solutions. Neither division has been affected by the recent announcement.

Francie Mendelsohn is president of Summit Research Associates. She's monitored the kiosk industry for the past 10 years and said she's "not all that concerned" about the potential sale. Mendelsohn added that a lot of kiosk manufacturers haven't been using IBM PCs, but rather PCs from Dell or off-shore products.

Diebold, Incorporated spokesperson Carrie Ann Kandes explained that while Diebold and IBM had a joint venture in the past, the sale of IBM's PC Division would not have an immediate, appreciable impact on Diebold's business.

KOA reaction

Greg Swistak, executive director of the Kiosks.org Association had the most to say about the ramifications of an IBM/Lenovo alliance. He commented that computers are becoming more like microwaves and toasters made overseas. But unlike simple appliances, computers require much more technical support.

"Can we expect that Lenovo will provide the same level of tech support that IBM did?" queried Swistak. He also questioned the quality of future manuals and documentation that will be produced. "Down stream, individuals without computer knowledge will probably need to arrange for - and pay for - support from third parties."

Swistak also wondered if other computer manufacturers will follow IBM's lead and sell their manufacturing divisions to overseas companies. His prediction is that they would, citing a visit to Compaq's former manufacturing facilities.

If the trend continues, PCs will become more and more like microwaves and toasters. The kiosk market will be affected because systems integrators and resellers will not be able to mark up and resell PCs, Swistak explained. "In the old days, you could establish value because the system was complex, broke often, sometimes didn't work the way you expected, and people didn't understand it," Swistak said. "Customers won't pay a mark up for you to resell them a toaster."

Competition heats up

Gartner analyst Mark Margevicius had this to say about the proposed IBM sale. "It (the merger) is going to be a less-than-simple task to complete." Mergers are hard work, requiring a great deal of time and resources on the part of the companies involved. IBM and Lenovo will be "distracted trying to make this work," Margevicius added. "Customers can see this as a higher risk."

How will IBM's competition react? Margevicius predicts they will be aggressive and go after existing IBM accounts. "The market is going to remain as intense as ever," he noted. With stiff competition, he added, PC margins will remain in the single digits.

The general feeling at this point seems to be that the kiosk industry will remain largely unaffected by IBM's sale of its PC division to Lenovo. Maybe it's too soon to tell what, if any, the long-term affects will be on the industry. If other PC manufacturers follow suit, can we expect a steady decline in PC margins and more third-party service?