Shihs Curve Can Bring Smiles

Opinion: The former Acer executive charted the road map for IT success.

You should know three things about Stan Shih. He figured out the PC industry faster and better than any other major executive; he came up with one of the easiest-to-understand descriptions of where to make money in computers; and he knew when to get out.

Shih was co-founder of what became Acer Group in 1976. In 2004, he surprised many in the computer industry by retiring at 60 to go into venture capital.

If it hadnt been for Shih, the Taiwan computer industry might still be slogging away, consisting solely of contract manufacturers always wondering why they worked so hard but never got to enjoy the profits from the years when the PC business was riding high.

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I thought of Shih and his "smiling curve" description of the computer industry following Acers $710 million offer for Gateway. If the deal goes through, Acer will acquire not only the Gateway brand but also the eMachines brand—which it may decide to leave dormant—and, in a somewhat complicated deal, the Packard Bell brand, which remains strong in Europe.

In this Internet era, when companies figure it is cheaper to buy keywords on Google than do the intellectual heavy lifting of building a brand, why would Acer be interested in buying a universe of brands? For that, you need to go back to Shihs smile chart.

I dont know exactly when Shih came up with the curve, but it would seem an appropriate revelation to have late one night over a few beers, after you had just spent the whole day wondering why, as a contract manufacturer, you worked so hard and earned so little. It is also a lesson for Dell, where the ability to be the best manufacturer can mean you are the best at adding the least value.

Concept, branding, marketing and sales, and service after the sale are where Shih identified the greatest value add when he was in charge of Acer and are still the areas, in my opinion, where PC makers can find financial and market success.

In the past, the upper ends of both sides of the curve have been the province of some of the most successful companies. Steve Jobs focus on the curves left-hand attributes of concept, branding and design allows him to charge a premium price and still create an incredibly loyal Apple customer base. Newer computer concepts such as the recently introduced Pano Logic virtual desktop box hold promise by keeping manufacturing costs down and sales and service-after-sale revenues up.

Acer has now become the third-largest PC maker in the world, based largely on following Shihs smiling curve, and that should bring a frown to any vendor not following that curve today.

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