Consumer IT is unprofitable—or so it is popularly believed. While there are few among current competitors that are not considering exit, many non-participants, paradoxically, are considering entry. Big names such as NEC, Siemens, IBM, Compaq, and Sony have struggled to make money in the consumer market, but there are plenty of success stories too. The truth is that the IT consumer market as a whole is profitable, and creates value for participants. Only in PC assembly, the largest segment, is value destroyed.

Lured by market growth

The appeal of the consumer IT industry has been its remarkable growth. In the early 1990s, it was little more than a niche market for consumer electronics players and an afterthought for commercial IT competitors, which used spare capacity in their core businesses to manufacture PCs, peripherals, software, online services, and even dedicated games machines for early adopters. Today, it is a worldwide business with revenues of more than $50 billion and a double-digit growth rate. In the United States alone, sales are rising by 17 percent a year and could be close to $70 billion come the end of the century, by which time consumer IT may constitute 22 percent of the...