Digital media are stuck with bad economics resulting in relentless deflation. It’s time to wake-up and make 2015 the year of radical—and concerted—solutions.
IDG News Service
Ttis week Microsoft unveils Windows 10, JPMorgan Chase says a cyberattack this summer affected 83 million customers and we check out a hardware hackathon for women.
IDG News Service
Coming up on WTU Instagram brings Hyperlapse to the iPhone, Microsoft cuts Surface 2 prices and Google reveals its secret drone delivery program.
When iPads first came out, they were hailed as the undoing of the PC. Finally, a cheap and reliable computing device for the average user instead of the complicated, quirky PC. After a few years of strong growth for iOS and Android tablets and a corresponding decrease in PC sales, the inverse is suddenly true: PC sales are up and tablet sales are “crashing.” What happened?
The tablet slowdown shouldn’t be a surprise given that tablets have hardly improved beyond relatively superficial changes in size, screen resolution, and processor speed. The initial market for tablets is now saturated: grandparents and kids have them, people bought them as Sonos controllers and such, and numerous households have them around for reading. People that want tablets have them, and there’s just no need to upgrade because they more than adequately perform their assigned tasks.
Businesses and consumers alike are again purchasing PCs, and Mac sales are on the riseyear-over-year. Businesses in particular are forced to upgrade older PCs now that Windows XP is no longer supported. When purchasing a new PC, the main driver to choose a PC versus a tablet is fairly obvious: If you are creating any type of content regularly, you need a keyboard, a larger screen, and (for most businesses) Microsoft Office.
For the tablet category to continue to grow, tablets need to move beyond what Chris Dixon calls the “toy phase” and become more like PCs. The features required for a tablet to evolve into a super tablet are straight from the PC playbook: at least a 13” screen, 64 bit processor, 2GB of RAM, 256GB drive, a real keyboard, an actual file system, and an improved operating system with windowing and true multitasking capability. Super tablets form factors could range from notebooks to all-in-one desktops like the iMac. Small 7” and 9” super tablets could dock into larger screens and keyboards.
The computer industry is littered with the detritus of failed attempts to simplify PCs ranging from Sun Micrososytems’ Sun Ray to Oracle’s Network Computer to Microsoft’s Windows CE. But this time, it’s actually different. The power of mass-produced, 64-bit ARM chips, economies of scale from smartphone and tablet production, and — most importantly — the vast ecosystem of iOS and Android apps have finally made such a “network computer” feasible.
As the former CIO at CBS Interactive, I would have bought such super tablets in droves for our employees, the vast majority of whom primarily use only a web browser and Microsoft Office. There will of course always be power users such as developers and video editors that require a full-fledged PC. A souped-up tablet would indeed garner corporate sales, as Tim Cook would like for the iPad … but only at the expense of MacBooks.
The cost of managing PCs in an enterprise are enormous, with Gartner estimating that the total cost of ownership for a notebook computer can be as high as $9,000. PCs are expensive, prone to failure, easy to break and magnets for viruses and malware. After just a bit of use, many PCs are susceptible to constant freezes and crashes.
PCs are so prone to failure that ServiceNow — a company devoted to helping IT organizations track help desk tickets — is worth over $8 billion. Some organizations are so fed up with problematic PCs that they are using expensive and cumbersome desktop virtualization, where the PC environment is strongly controlled on servers and streamed to a client.
And while Macs are somewhat better than Windows, I suggest you stand next to any corporate help desk or the Apple genius bar and watch and learn if you think they are not problematic.
IDG News Service
Microsoft’s Devices Group has unveiled the Nokia 130, a mobile phone that costs just $25 but lacks an Internet connection and apps.
The focus of Microsoft’s mobile device strategy is on building both high-end and low-cost smartphones running Windows Phone, but there is still a need for “ultra-affordable” mobile phones, the company said on Monday.
With the 130, Microsoft is going after people in emerging markets who are buying their first phone. It’s also a good fit for people who want a backup to complement their existing smartphones, according to the company.
The $25 price tag (before taxes and subsidies) is about $90 cheaper than the Lumia 530, which is the lowest cost Windows Phone Microsoft has introduced so far. The price difference with the cheapest Android-based Nokia X — which was recently killed in favor of Windows Phone — is about the same.
For many people in the emerging markets that Microsoft is targeting, a price tag over $100 is simply too much. The company hence feels it needs to offer them a more affordable alternative to prevent them from going to another vendor from whom to buy a phone today and possibly a smartphone in the future.
The 130 has a 1.8-inch color display and will be available with one or two SIM cards. Microsoft also brags about a month-long standby-time, which is a boon for users that live in parts of the world where access to electricity isn’t always a certainty.
The phone also has a built-in video player, music player, an FM radio and a flashlight. It’s expected to begin shipping in the third quarter, and will be available in countries such as India, China and Indonesia.
The choice of this trio is far from a coincidence; they added the largest number of new mobile phone subscribers in the world during the first three months of the year, according to a survey conducted by telecom vendor Ericsson.
There might be a market for products like the 130 today, but the window of opportunity is closing quickly thanks to a continuing decline in smartphone pricing.
For example, Mozilla Foundation and chip maker Spreadtrum have developed a reference platform and partnered with Indian vendors Intex and Spice to launch ultra-low-cost Firefox OS smartphones in the next few months, they said in June. Spreadtrum has said the phones will cost about $25.
That means Microsoft has to continue to work on making Windows Phone available on smartphones that cost well below $100, which is what Google is doing with Android.
The 130 will also go on sale in Egypt, Kenya, Nigeria, Pakistan, the Philippines and Vietnam.
Venture capitalist Brad Feld recently wrote an interesting post predicting the end of Amazon’s dominance of the cloud computing market, and concluded, “it’s suddenly a good time to be Microsoft or Google in the cloud computing wars.”
I’d go one step farther. Using Feld’s arguments, I’d say that Microsoft is in the driver’s seat.
First, the price war. Microsoft and Google are on approximately equal ground when it comes to cutting prices — both have highly profitable core businesses that they can use to subsidize a price war in cloud infrastructure, even to the point of sustaining losses for a while to gain market share. Amazon does not.
Second, the quality argument. Like Feld, we’ve also pointed out that there are niche cloud providers that do a better job than the big guys at providing infrastructure-as-a-service for specific verticals, but when you move all the way up the stack to full software-as-a-service applications, Microsoft has an edge among the big three with Office 365. Google has been making inroads into smaller businesses with Google Apps for almost a decade now, Microsoft remains the standard in the biggest and most profitable business customers — as this recent investigation from Dan Frommer at Quartz showed, only one company in the Fortune 50 uses Google Apps. (That company happens to be Google itself.)
The third argument, support, is mostly a wash. While Amazon’s support may be terrible (I have no evidence of this, but I’m taking Feld’s word for it), Microsoft and Google and their respective ecosystem partners do a decent job of supporting customers on their stacks. This hasn’t always been the case — Google used to treat support as an expensive afterthought — but in the case of Google Apps, at least, the company and its partners have stepped up significantly.
But then comes the fourth argument. Feld points out that once companies get to $200,000 per month of cloud-infrastructure spend, it’s actually significantly cheaper to build their own data centers.
Microsoft is the only one of the big three players with an on-premise offering — Windows Server and the rest of the Microsoft infrastructure family. Maybe the exact break-even point will change as the cloud price wars continue, but Microsoft has the most pieces customers would need to move from all-cloud to a hybrid or on-premise solution. Or, for that matter, for existing on-premise customers to begin experimenting moving some workloads to the cloud.
There’s one more point favoring Microsoft. Google’s core business is selling online advertising. That business makes up about 90% of Google’s revenue, and it has enviably high operating margins — around 30%, based on Google’s 2011 financial report. (I picked 2011 because that was before Google bought Motorola Mobility, which changed the margin structure.)
It’s unclear how the Google Cloud Engine helps that business. Are customers using Google’s cloud somehow more likely to advertise with Google? I don’t see it. Are Google advertising customers demanding to run other workloads on Google technology? I don’t see it.
Amazon Web Services remains the biggest of the big cloud providers, but it’s seeing competitors gaining in its rear-view mirror. Nomura Securities analyst Rick Sherlund now expects Microsoft to field the largest cloud business by December — at least in terms of annual revenue run rate which he estimated will be $5.77 billion.
In a research note, Sherlund, who has covered Microsoft on and off for years, said that revenue estimate would represent 89 percent year-over-year growth for that business. In terms of run rate, he ranked Salesforce.com as the second largest provider at $5.5 billion and 28 percent growth year over year.
This is a tricky calculation for a few reasons, not least because AWS, the world’s largest cloud infrastructure provider, does not break out its numbers. Actually, none of the cloud providers make it easy to assess the size of their businesses. Microsoft, for example, seems to lump Azure, Office 365 Software-as-a-Service (SaaS) business all together. Still, given that rather large caveat, Sherlund estimates that Amazon’s cloud business run rate would be comparable to Salesforce.com’s.
Another wrinkle is that this is not an apples-to-apples comparison. Salesforce.com’s business is mostly SaaS with some Platform as a Service (PaaS) sales from Force.com and Heroku. AWS, on the other hand, is typically defined as Infrastructure as a Service (IaaS). Microsoft Azure started out four years ago as a PaaS but last yearadded AWS-like IaaS capabilities.
Purists prefer to break out all those categories separately, but for non techies those roles are muddled. For example, Synergy Research Group’s recent figures which combine IaaS, PaaS and SaaS into one big blob, show Microsoft and IBM growth rates in the second quarter of 2014 (164 percent and 86 percent respectively) outstripping AWS growth (49 percent), Google (47 percent) and Salesforce.com (38 percent).
For context, note that AWS remains the largest cloud provider per Synergy, but it is no longer bigger than all four of its nearest competitors combined (see chart.)
For Amazon’s recent second quarter, net sales for the category including AWS grew 38 percent year over year, to $844 million but were off 3 percent sequentially. And the growth rate declined from 60 percent for the previous quarter.
Tech blogger and former Microsoft employee Robert Scoble drew some attention today for suggesting that Microsoft should abandon Windows Phone.
Scoble is an easy target — he’ll never live down the Google Glass shower thing — but in this case he’s making a pretty rational point.
It didn’t work. Microsoft’s share of the smartphone market is still well under 5%– as it’s been since Windows Phone launched in November 2010. Windows Phone shipments are growing overall, and it’s the number-two platform in some countries like Italy, but overall, worldwide, its market share makes it insignificant to most developers, users, and companies.
(I don’t always subscribe to the church of market share, as installed base is more important for drawing developers, but every year that Windows Phone stays a bit player means it will have to take even more market share in the future to make a dent in the installed base. Also, I know that Android isn’t really a single platform but has multiple versions and forks and runs on all kinds of devices with different screen sizes and specs, but in general the various Android platforms are closer together than Android and Windows Phone are — and in most cases, an app maker starting from scratch will get more users with an Android app than a Windows Phone app.)
Microsoft’s dreams of achieving 10 or 15 or 20 percent market share with Windows Phone look to be just that — dreams. It could happen, but based on all evidence so far, there’s zero reason to assume it will.
So if it’s doomed to be a perennial also-ran, what is the point of Windows Phone? Why should Microsoft keep investing in it? If Microsoft under Satya Nadella is really serious about making the cloud the platform for the next generation of the company, why not just build cloud services and clients that work equally well on competing client operating system platforms?
Here are a few possible reasons.
The developer argument. PC sales are flat. Most of the growth in computing platforms over the last few years has been in mobile devices, particularly smartphones. As Microsoft pursues its “One Windows” vision, in which the various versions of Windows — desktop, tablet, and phone — get closer to the “write once, reuse most of the code and tweak slightly to run everywhere” ideal, it must have a feature-competitive mobile platform to keep developers engaged. If Microsoft were only to focus on the PC and tablet, it would lose all those developers who believe the future of apps is mobile-first.
Yeah, but: With insignificant market share, Microsoft is basically irrelevant in smartphones anyway. It’s hard to imagine a mobile-first developer investing in Microsoft before iOS and Android, unless they already have a big Windows app business or a ton of Microsoft-platform experience anyway and want to leverage that into mobile platforms, perhaps via Xamarin.
The lock-out argument. Microsoft’s biggest business today is selling productivity and back-end infrastructure servers and the client apps that go with them. Its most promising business is selling cloud services that replace or augment those servers — and still work with the same client apps. If Microsoft allows Apple and Google to control the smartphone market, those companies could make arbitrary, secret, and/or difficult-to-reverse-engineer changes to their platforms that block these Microsoft apps and services from working properly. Having Windows Phone gives Microsoft a trump card — at least for enterprises who rely on Microsoft’s productivity servers, services, and software and want to enable a mobile workforce. (Consumers may not care as much, or at all, given the well-developed ecosystem of apps and services on iOS and Android for every imaginable personal productivity function.)