The Emergence of Computing’s New Big 3
Apple, Google and Microsoft have become the dominating Big 3 in the Computing Industry
“For the past 30 years Computing has been Consumer-driven” – Ben Acelman
In case you have not noticed, there is a new Computing Reality – Apple, Google, and Microsoft have become the BIG 3 in Computing. Yes, the Big 3 like in Chrysler, Ford, and GM in the post war automotive industry. It can be seen in the important financial venue where sales, stock market value and cash-on-hand are lead by the Big 3 of Computing. But also all 3 vendors are at the head of the pack in computing in both software and now increasingly hardware. On the software side each has the leading OS in one segment of the fast evolving client computing game. Apple in media consumption devices except smartphones with iOS, Google in smartphones with Android, and Microsoft with Windows in the PC marketplace. And as we shall see below each has positions in the OS Server and/or Cloud Computing spaces.
But the real transformation is that Google and Microsoft have abandoned dabbling in hardware and have taken key positions in client computing devices following the Apple lead. Google owns Motorola for smartphones and tablets plus patent protection. But Google hardware includes a whole flock of “reference hardware builds” through subcontractors in the mobile device space. Likewise Microsoft has had mice, Xbox in gaming, and a gaggle of largely unsuccessful mobile phones and media devices. However, Redmond had left the PC space to 3rd party PC OEMs like Acer, Dell, HP, Lenovo among many others. But with Windows 8, Microsoft has entered the PC Tablet and Hybrid PC game forcefully with Surface RT tablet and Surface Pro hybrid PC. And now there is an Xbox tablet in Surface format and many cross links to Windows 8. Microsoft is taking a much more aggressive and tightly-linked across device position[server, desktop, laptop, tablet, phone and game platform] using a Windows 8 base – ahead of Apple with its Mac OS and iOS split.
Finally, both Google and Microsoft have followed Apple again into the online store markets for selling and supporting their software and media offerings. This provides all 3 OS Vendors with with a cut of large software margins- like runtimes of old. Amazon, seeing the writing on the wall, had to enter the client computing game with their own Kindle offerings in order to survive in the software and media selling business. So the Big 3 have a cash cow – you don’t have to go into building consumer software to make money, just take your 30% whiff for selling third party software on your client OS at your Vendor Store.
Thus, all 3 vendors have adopted remarkably similar strategies to secure their hardware forays into the rapidly evolving client computing arena. All 3 are using feature packed hardware designs loaded with max CPU+memory+fast solid state disk yet still light, thin and eminently longer lived and mobile. All have adopted their leading OS and app software to meet the new touch UI ease of learning and use needs in the mobile world. All three are leaving traditional enterprise vendors like IBM, Oracle and SAP increasingly far behind in being able to deliver Input/Output on mobile devices in novel ways. All 3 are amassing ever greater mobile patent hoards and increasingly exclusive app and media selling rights to bolster and protect their returns in every way. All 3 are starting to dominate traditional computing markets such as PCs, games, smartphones, tablets and others that are changing rapidly. All 3 are poised to be able to have the mobile device advantage in emerging markets such as wallet equivalent payments systems, personal health+aid assistants, or TV+Home controllers . Yes, the emphasis is on big ticket consumer markets; but each vendors has a play in Enterprise Computing as well. And the payoffs to the the 3 vendors has been huge – Apple has become the largest company in the World in market value…. just look at the financial record.
Financial Fortunes of the Big 3
|Computing’s Big 3 Companies|
|Company||Annual Revenues||Market Value||Earnings in the Bank|
|Source: Google Finance|
First and foremost, Apple sales have gone “hockey stick up” in the past five years from $25B to $108B while having no long term debt and $34B cash in the bank. Google has seen its sales more than double from $18B in 2007 to $38B in 2011. Google has just taken on $3B in long term debt but has $44B in cash in the bank. Microsoft has shown the slowest sales growth in the last 5 years, going from $60B in 2008 to $74B in fiscal 2012. So in Computing world, the Big 3 are doing very well financially.
So from this financial point of view, only IBM has a Market Value close to the Big 3 though it does rank 2nd in revenues. And Oracle has a cash hoard of $31B but still trails the big 3 in all the key financial measures. Financially, the Big 3 dominate computing. To put these financial numbers in perspective, Exxon Mobil has the largest sales in US business at $467B which is 3 times Apple’s sales. But Exxon Mobil has $9B in long term debt and only $12B of cash in the bank in comparison to Apples’s no debt and $34B in the bank.
OS-Operating System as a Technology Lock
As noted before, all three vendors have market leading OS systems this is there technology lock in computing.. It is said that software dominance is more important than hardware because the software running the hardware completes and reveals a device’s features and capabilities. Hardware is nothing without a reliable and feature driven Operating System to provide compelling user apps/programs. And following IBM on the mainframe side, Microsoft proved that monopoly dominance led by software and a universally used operating system can be highly profitable following 6 basic rules:
1)deliver a proprietary operating system, API and key development tools which all developers must adopt;
2)allow any hardware and/or software OEMs that consent to use the proprietary tools and meet or exceed reference software and hardware performance standards to develop for your OS;
3)initially encourage 3rd party software developers with good tools and free marketing events and funding with the aim to be first to market in rapidly changing software mix;
4)but discipline the software vendors by releasing vital new OS API changes to in-house developers first, then to selected, “loyal” firms;
5)also “play hardball” against software competititors by low ball-to-zero pricing to gain market share in mature and massive markets. Also bundle complimentary software that competitors do not have access to at lowball prices to drive them from the market;
6)If you can’t beat them then pollute the market with rival near duplicate but proprietary software at low prices as in the case of Sybase Database and Sun Java software.
It worked spectacularly well aside from the Antitrust case in the late 1990’s from which Microsoft had to pay $1B to AOL/Netscape and $2B to Sun Micrososystems. But then Redmond got cocky and let Apple define the new touch-enabled, media consuming mobile client computing.
Apple took the view that Microsoft was targeting with an incorrect bias for complex productivity computing tasks. Simple, media consumption including Internet browsing/communicating on a fast starting, long lived, easily carried,touch simple to use mobile device was what the market was demanding. So Apple adopted the Microsoft strategy [largely already in place at Cupertino] but changed rules 2) and 6):
2)produce all hardware exclusively and allow only software OEMs that consent to use Apple’s proprietary API’s and strictly controlled development tools to produce software for iOS devices;
6)require all software developers to submit their apps for approval by Apple for sale [including even free giveaways] through Apple’s App Store. For that privilege Apple takes a 30% cut for all software sold on the iOS App and now Mac Store.
From this technology perspective Apple, Google, and Microsoft have also become clear leaders in computing with their OS. This is because neither IBM nor Oracle have the golden key in computing – a market leading consumer OS. All enterprise tools must go through Apple, Google, and/or Microsoft client computing OS devices. The Big 3 have control of basic Input and Output in computing flows. So more than ever before OS leadership leads a company to dominance in both consumer and enterprise computing markets. Look what iOS has done for Apple in smartphones, tablets and media devices. Ditto for Google’s Android. And of course Windows on both the consumer and server side of the market for Microsoft for so many years.
OS leadership provides several technology locks for the Big 3. First lock, software development must follow proprietary APIs whose evolution and changes are strictly controlled by the vendors alone. Second lock , cross platform development tools are limited as in the case of Apple iOS rejecting Flash, Java, and other cross mobile tools. Microsoft has slowly turned the screws on Java, Flash, and other development tools. Third, access to the operating system either goes through an approval process as in Apple App Store or must meet reference implementations standards as seen on all 3 vendors OS. Fourth and final lock, software increasingly can only be sold and supported through the vendors App store as in the case of Apple’s App Store and Windows Store for Metro Apps.
Now these locks are further enhanced by having leading market share with the network efficiencies of the market leader in related or newly emerging technologies such as the iPod to iPhone to iPad transitions. Apple and Microsoft have used these OS locks and market that to a “T” – using their proprietary OS to gain commanding and often monopoly positions in mobile devices and PCs. But Google has shown on the smartphone front that a Open Source OS can deliver a winning combination that can displace the early iOS+ iPhone’s early leadership position with Google’s Android [even with its underlying core being Linux]. And Google’s server side Linux forms the basis of its search engine monopoly and Cloud services
But the crucial point is that hardware and apps/programs are dependent on OS software. And users tend to lock themselves into one leading OS for each major device market – Windows for PCs, Android and iOS for smartphone, iOS for media devices, etc. So with ever changing APIs, extensions and included apps, OS vendors can control which innovations and vendors succeed in these market. Look no further than Apple’s unjustified assassination of Flash[Adobe could do nothing from a legal angle because more than half of Adobe’s total market share is Apple-based] and Microsoft’s strangulation of Java on Windows clients but not server applications.
Innovation and Trust
The next Big 3 Computing magic ingredient is a continuing record of innovation with thousands of world-wide patents to protect that IP-Intellectual Property. Apple has a reputation for innovation stretching back to its founding years. Apple just proved with its US jury judgement against Samsung the billion dollar value of patents – and Microsoft has had equal patent duties success against Android phone vendors. One of the reasons Google bought Motorola was an entry for producing reference mobile hardware but also for Motorola’s vital communication and mobile patents Now IBM and Oracle have huge patent troves themselves; but they are are lacking in the key fields of mobiles, OS+ user interfaces, and broadband communications. In contrast, Apple, Google and Microsoft also have large patent holdings but they include many in the key OS and client computing sectors that are vital for the next 5-10 years.
The final key ingredient is Trust. One can call it branding. Google has a reputation for technical excellence yet low cost systems and services. Back in the late 1980’s and early 1990’s Microsoft and Windows had carefully garnered the positive perception among consumers of providing the winning value in client computing with Windows and Office. Sure, Microsoft stumbled but the third time was always charmed. Currently Apple carries that consumer confidence – Apple’ is worth the premium price because its devices are innovative, well designed, and just work well. Sure there are cracks of arrogance such as Mac users cannot have touchscreens because of “arm fatigue” while Apple Maps is a Vista-like blunder. More broadly there is the moral miss that Apple garners massive profits yet can’t build in the USA. So Trust and Brand loyalty, though vital to the Big 3 – has a roller coaster history.
Computings Future Directions
It appears Moore’s Law will prevail across the board in hardware – a doubling in capabilities for the same price every 12 to 18 months. Would that software could keep pace. And that cements the fundamental advantage of the OS software vendors. Because it is so hard to build and make work on the massive scale that is required for a client OS these days, the Big 3 have entrenched market positions which will be hard to attack and overcome by either start-up or among the 3 vendors.
Yet all three vendors are vitally aware of how quickly fortunes and leadership can change especially in client computing. Despite their OS capital innovation points of inflection and change can change among the Big 3. So all 3 vendors have hedged their bets by investing in major software/hardware futures. For example, each has a position in Software as a Cloud Service. All 3 provide substantial Cloud service for software and media backup in the Cloud – one can store media, messaging, and software for free or low cost through all 3 vwendors. Microsoft has it Azure Cloud OS helping to link its PC, phone, Xbox game, and server software together. Windows 8, Windows Phone 8, and Xbox 360 are not only converging together but also being used as launch points for new services. And uniquely among the Big 3, Microsoft has a a major presence in enterprise server OS and major corporate software programs [think SQL Server, Exchange/Outlook, SharePoint Server, Project/Portfolio Manager among others].
All three are still manoeuvring to gain a dominant position in emerging wallet and payment systems. All seek a leadaing position in the Home media and device controller of choice. But neither Apple TV or Google TV have been able to gain a commanding share so far. Will Xbox surface lead the Microsoft charge in that arena? But folllowing a reversal of form, home and client computing is now leading innovation in Computing over the IBM business computing dominance that lasted for 40 years. So expect Computing’s Big 3 to persist for some time and to start to absorb networking and business software vendors over time but to drive computing from their client OS bases.