With the announcement of Microsoft’s Surface, now all the major OS vendors have moved all-in in betting to take the Consumer Computing Crown.
Microsoft Surface is more than a tablet – Surface Pro is a laptop PC
No more side bets through proxy hardware or software vendors, Apple, Google and Microsoft are now building everything required for contemporary Consumer Computing. From their OS domains, all the vendors deliver the latest UI, the Cloud connections, and most influential – the core OS. From the hardware side all 3 vendors have “reference” hardware products of their own design and build – Apple offers a complete line from iPod through iPhone to iPad and Macs manufactured with near ruthless supply-side efficiency in China. Google has its Android and ChromeOS duo and its Motorola subsidiary is building the refernce smartphones, tablets, and glasses[??]. And now for the first time, Microsoft is building its own PC along with Zune and Xbox consumer devices and when they buy Nokia [after Agent Alsop runs it into the ground - current Nokia share value is $2.50 down 75% from when Agent Alsop took over and at $9.5B in total market value well within Microsoft's $59B cash hoard] Microsoft will have the final smartphone piece.
In sum, the OS vendors are cutting out more and more pieces of the Consumer Computing hardware market for their own. You will hear talk of the need for “reference editions” of consumer products to calibrate the technoloy and OS features sets; but with Apple’s huge 70x growth in market value to $545billion, Google and Microsoft have gotten the message – control the hardware and software to a)defend your position in the market and b)earn the highest possible total returns. The Big 3 are in the hardware and software businesses for good – the rate of IT change and patent wars will not “allow them to leave”.
OS Software Invasion
But the OS vendors are now taking ever larger positions in the software market too. Now Apple and Microsoft have been opposites with regard to hardware and software. Frome its outset in the early 1980’s, Apple has been all in on hardware with proprietary machines, no cloning of its hardware, and proprietary OS development software since the second coming of Jobs in the late 1990’s. But Apple did not invade the application programs space as much as Microsoft. From the late 1980’s Redmond competed vigorously with its software vendors through such program systems Visual Studio Development software, Office desktop suites, Outlook email, etc. Later Redmond invaded top $1billion++ software categories with database software, business systems, gaming programs, project management apps, etc.
Soon Apple started to follow Microsoft’s lead in the creative media software starting in the late 1990s with such program entries as GarageBand for audio creations, Final Cut Pro for video processing, and Aperture in photofinishing among others. However, the major transformation Apple wrought in software has been in the selling and delivery of both media and software. Apple established exclusive selling and delivery monopolies on iOS devices with its iTunes and App Stores. The trade-off for consumers was lower prices in exchange for a polished delivery and backup system and one of the widest selection of artists and apps/programs in the smartphone and tablet markets. Vendors have had to pay Money Mart terms at 20-30% of the price to Apple, but Apple is able to bring so many consumers very fewmedia or software have been able to bypass the Apple iOS and now Mac Store selling platforms.
Meanwhile, Google has been the least invasive on the software side so long as software vendors did not in turn invade Google’s web facing Maps, Search, Video, Mail and other Internet based domains. But like Microoft, Google has had to follow the Apple App Store lead, and setup a selling and delivery operation there. The pricing and services are remarkably the same among all three vendors. The exclusivity is not – with Apple the most proprietary and Microsoft the least so far. But in 2-3 years time they will likely will be equally restrictive – “thou shalt always buy through our stores” unless the EU or DOJ steps in.
Consumer Computing Consolidates Down to the Big 3 OS Vendors
No consumer software vendor comes within 1/10th the value of Apple, Google, or Microsoft in market capital. Not Adobe, AutoCAD, Zynga or the newly minted Facebook. No hardware vendor from the like of Acer, Asus, HP, Lenovo, Nintendo, or Nokia come withing 1/5th of the market value of the Big 3 OS Vendors. The Big 3 OS Vendors have no debt and cash hoards ranging from $42B to $59B. Adobe at $16B could be easily bought by any of the Big 3 OS Vendors. Consumer Computings directions are now in control of the big 3 OS vendors.
Yes, any innovative vendor like Leap with its 3D touch smart device or Zynga in the gaming world can certainly influence direction of the Consumer Computing market but only at the margin and for relatively brief 2-3 year time periods. With the Big 3 Vendors controlling access to their OS platforms and bigger chunks of the apps and programs on those platforms, both hardware and software vendors have to join the broadband telecom giants in serf-like positions in the Consumer Computer market. Yes, Acer’s boss Stan Shih says Microsoft is just building a reference PC for Windows 8 like Google did with the Nexus smartphone and then they will be out of the market. Hmmm …. but now Google owns Motorola.
In contrast, business computing where large organizations have countervailing power, the consolidation – though dramatic is not nearly as complete [though IBM, Google, Oracle, Microsoft, and SAP among othrers are working on that concentration full time]. Credit this relative holdout in Business Computing to Windows XP. For at least 10 years most major businesses have resisted the upgrade first to Vista and then Windows 7. And it looks like Windows 8 is not a hit among businesses either. But I suspect the Business Computing market will follow the Consumer Computing – and the OS vendors will lead the way.
So like the automobile industry before it, the computing industry 50 years after its inception is consolidating down to 3 Big OS vendors. But this time it is worldwide. Because their OS are vital to both hardware and software vendors the OS vendors can dictate prices and terms of usage despite what the EU and DOJ regulators have tried to do. What is most remarkable is that this consolidation is occurring at a point of creative disruption with the emergence of mobile and touch devices. It is at these change junctures when theoretically the market fractures and the original major players get shaken up and often out of their pre-eminant position. Of course some will say just that has occurred as once dominant Microsoft has surrendered market share and value to Apple and Google. So Microsoft is determined to get back on a dominant track. And in sum, the 3 Big Behmoths of Computing for the next 8-10 years have Surfaced.