The Big 3 in Consumer Computing for the next 3-8 years have declared themselves. With Microsoft and Google now committing to hardware as well as software they have joined Apple as all-in in Consumer Computing. In effect the Apple Model, compete in any and all hardware and software segments while holding the critical OS keys to Computing – this is the model that Google and Microsoft have embraced fully this last two weeks. And given the trends in Computing in general, these Big 3 could become dominant in IT and computing across the board – see arguments for this notion below.
So just as in the auto industry from 100 years ago, the consolidation in computing has begun and the OS software makers have emerged as the top 3. Apple at $123B in annual sales and $41 in earnings per share, Microsoft at $72B in annual sales but only $2.75 in earnings per share, and Google at $29B in annual sales and $33 in earnings per share. Each has approached the hardware side of computing from different angles because of history, the fact that the profit margins are distinctly smaller than their core businesses, or, in the case of Microsoft and Google, their hardware suppliers sensibilities had to be taken into account.
Google’s Galaxy Nexus 7 Tablet – read a typical review
But last week with the announcement of Surface Pro, Microsoft indicated it was “all-in” in the hardware business. And this week at Google I/O Nick Bolton of the NYTimes describes very well Google’s committment to its hardware business:
It was an event that included sky divers, stunt bikers and people rappelling down the side of a building. Then came another spectacle: watching Google, the Web search giant, reimagine itself as a hardware maker.
On Wednesday at Google I/O, the company’s annual conference for developers, Google unveiled a new 7-inch tablet computer, called Nexus 7, and a sphere-shaped device for streaming music and video that it is calling Nexus Q.
Both debuts paled in comparison to the company’s amped-up demonstration of Project Glass, a device that puts a camera and a tiny video screen into a kind of eyeglass frame. This involved Sergey Brin, Google’s co-founder, jumping on stage wearing the device and engaging in a live video chat on Google’s social network with a couple of wing-suited sky divers as they jumped out of a plane. They were followed by stunt bikers and rappellers who dropped down the face of the Moscone West convention center, all the while sharing what they were seeing through experimental versions of the glasses…. “Google is a hardware company now,” said Colin Gillis, an Internet analyst with BGC Partners. “Hardware is becoming the doorway to products and services. If you’re going to use the Internet, you are going to have to use a device. Whoever makes that device controls what services and products are offered to you, and those nickels and dimes add up over time.”
In effect Google is saying with Apple cutting out Google Maps immediately and targeting Google Search and You Tube while Microsoft continues to help Facebook and others compete in the Search business – Google has seen the writing on the wall – compete in hardware and other gateways to computing or be eliminated by Apple and Microsoft.
Much the same story is offered by Microsoft for getting in the PC business directly. First and foremost, Redmond is saying it needs to do a reference tablet and laptop, much like Google`s Nexus smartphone two years ago, to get its PC and tablet vendors to step up to the plate in hardware offerings that can match the Apple and Google competition. But also Microsoft argues that hardware devices act as gateways to services which have to be `preserved`.
And of course from the very outset 30 years ago, Apple has been in both the hardware and OS software businesses. And over the last decade Apple has set the model for how software, media and even hardware will be sold, delivered and back-up supported in the Consumer Computer marketplace. Both Google and Microsoft have followed suit. Also Apple is entering significant chunks of the software business to its software vendors distress, think Adobe in particular. But this is Apple following the Microsoft model. In sum, for their various reasons, the Big 3 are fast emerging in the Consumer Computing market as players to be reckoned with in OS software, broader software delivery, and general hardware markets.
Will Business Computing Consolidate Likewise
Before answering the Business Computing question, consider the possibility that a)Microsoft will only do a reference PCs and b)Google will only do as much as need be to protect its Search and Services revenue streams. First, Microsoft would only have to pay $6B to buy RIM and its vaunted network which would fit in well with Microsoft Business customers ând there are rumors to that effects already¸ Also Microsoft is about to do a “reference”phone for its latest Phone 8 OS. So it appears that beyond XBox, mice and Zunes – Microsoft has a strong commitment to hardware sales for the near future. Likewise, Google has already done a defensive buy for patent reasons of Motorola Mobile Holdings. But others argue that was the beach-head as Google gets into a wider array of Consumer Computing markets.
However, Business Computing is different. First, Business is much more conservative than consumers. All of the major computing innovations have been consumer lead for the past 20-25 years. First, PCs, then LANs, next GUIs, followed by Web usage, though large organization were quick to follow, next PDAs plus cellphones and now smartphones/tablets on touch screen and long battery-life devices. Windows XP survives in two places – China and business shops. But the second factor is that in business software dependence is spread over database software, organizational operations software – think SAP, Oracle, Microsoft and the like – plus network connection software and services. All of these business segments are well represented by major hardware and software players and not the Big 3.
At present, Microsoft is the only one of the Big 3 that is a major player in any of the key business software connections. But both Apple and Google have placed bets in the Business segment. Google with Docs and Cloud services while Apple has been doing much of the same with its somewhat belated iCloud and iWork suite of office applications. But the truly intimidating factor is the huge cash hoards and the large quarterly earning streams all three vendors can marshal very quickly – no less than $30B each. In short, if the opportunity presents or the situation demands as in the case of Google buying Motorola Mobility as defense against Apple`s patent attacks – all of the Big 3 have the capacity to move quickly and in a big way into Business Computing. So over the immediate 2-3 years, do not expect a consolidation with the likes of IBM, Oracle and SAP to offer resistance. But over the long haul all bets are possible.
So the Big 3 in Consumer Computing have emerged. And because Consumer Computing drives the trends in Computing in general – this is is an enormous advantage to Apple, Google and Microsoft. Apple and Google have killed Ericcson, Nokia and RIM in phones and tablets. Apple has killed Adobe Flash on a Steve Jobs reality distortion whim. The Computing Powers to be reckoned with have become self evident with these three in Consumer Computing Both the EU and US Antitrust and other regulators have been largely ineffective in controlling Computing in general and the Big 3 in particular. So do expect the Big 3 to persist for some time and to expand their operations however they see fit and necessary.