August 12, 2008
The mobile handset market tipping point has arrived, and it is a wonderful thing to watch.
In very short order (relatively speaking) the mobile market has seen:
In short, the mobile market has opened up and this trend will accelerate (which is seemingly impossible, but I never bet against an avalanche). Two dominate forces are causing this to happen: competition and customer resentment.
In a rare moment of governmental lucidity, regulatory agencies in charge of frequency allocations made sure that no company could monopolize the cellular industry. This came as a huge surprise to AT&T who is unaccustomed to real competition, and it showed in their perpetual inability to focus on their market mission.
Congress — in an even rarer show of caffeinated consciousness — made your telephone number your property, forcing cellular carriers to release your number if you ever decided to switch to another network. This removed vendor lock-in based on the obvious need human and business continuity through numerical IDs.
Competition required each cellular providers to keep trying new things in order keep their customers happy, and thus keep their customers. Better and simpler service pricing, faster data networks, fancier and heavily subsidized handsets. The technology and markets have evolved so rapidly and brought so much new end-user convenience that many people would rather do without television than their mobile handset.
But there was a weakness in the market induced when the carriers tried to keep customers locked-in. The choice of handsets for any carrier was limited to what they sold and supported. The back room economics of this had to do with the terms of your service contract. The logic (so to speak) went like this:
- To encourage you to subscribe to our services, we’ll sell you a $500 handset for $1.95 (we, the network carrier, eat the $498.05)
- In turn you agree to subscribe to our services for no less than two years, and pay massive fees for an early cancellation
- Don’t worry, we’ll earn enough off of you in two years to more than make-up for this initial loss (unless of course you don’t use your hands free kit, fly your car off a bridge, drown and thus fail to pay your cellular bill on time)
- And if you use some foreign device on our network, don’t expect to get any help from us
The carriers then would write sole-source deals with handset manufacturers for the latest and niftiest new handsets. So if you wanted a SuperCell X400L then you could only get it by subscribing with Honest Earl’s Cheapo Celluar. This limited the number of X400Ls, the number of applications and accessories that worked with it, and thus your choices.
This model is about to break and break hard. As more and more people start carrying these portable computers we call cell phones, they want more functionality which means more applications. Carrier network are not software companies and cannot possibly design every type of application for their set of phones. Thus, customers are a bit disgruntled by the limitations of what handsets run on what networks. What do you mean I have to subscribe to Sprint is I want to play Mega Reversi?
Led by the techie caste, people have started using “unlocked” devices — unsupported devices on carrier networks. The carriers may offer support for unlocked devices, but the end-user success rate has been high enough to spawn a thriving market in unlocked devices. This is in part because the handset manufacturers earn a better margin by selling more directly to the customer and also broaden their markets in the process. Want an AT&T Tilt without the AT&T? Buy an unlocked HTC 8925 and slip in your SIM card from your old Alaska Wireless handset (unwise if you are not in Alaska).
Vendor lock-in was beginning to break, so the rest of the market decided to help the process along. Nokia will gladly sell their handsets to anyone as will HTC. Google wants to make one operating system to cover all cell phones (which has to keep Steve Jobs up at night) and Symbian was released into the wild as Open Source to counter Google. The networks are beginning to see the trend and not fight it.
When competition is assured and customers can collaborate on alternatives, it is better to lead the trend than to be crushed by it. Cellular customers will have the final say and it will eventually be that all devices will work on all networks (tower protocols being the current, and perhaps temporary limit).
Want to make some money? Start thinking about mobile applications. That is where the next next thing will be.
June 4, 2008
Well, that didn’t take long.
Assuming that rumors based on odd leaks are at all accurate, Microsoft may have learned that their Vistas are limited, and that certain competitive pressures cannot be ignored.
Microsoft has heard the market concerning XP’s expiration. It would be hard to ignore this considering that the market has been screaming at the top of its collective lungs. Though covering their mistakes in much the same way that cats do, Microsoft has agreed to let XP live on until 2010. Microsoft claims that only XP Home will be available on “low-cost” PCs. The definition of “low-cost” is vague and gives Microsoft both wiggle room for defining which computers are allowed to ship with XP preinstalled. It also allows for some leakage of this preferred OS into the gray markets and to force Vista onto beefy machines and protect what is left of their brand image in the PC OS market (an image that Apple has successfully trashed).
The new 2010 XP expiration date is more than coincidental. Windows 7, the next Microsoft OS, is expected to be released that same year (of course, given the delays in Vista’s arrival, we should assume 2010 is optimistic). Assuming that Microsoft is learning harsh lessons from their blunder (Vista), this timing allows them to extend XP availability and deter defections to Mac and Linux until a better Windows is available. After all, the switching cost to Mac or Linux is non-trivial.
One of the defects of Vista is its lack of modularity. The monolithic, out-sized kernel and the inbred stack keeps Microsoft from reacting quickly to market changes and providing real and valuable new features. Linux has a tiny kernel and since all functionality outside of the kernel is modular, you can add just as much extra capability to Linux as you need. That is why Linux is rapidly finding its way into embedded devices. Macs are based on UNIX and Apple took the same modular approach. We see Apple releasing updates to their OS much more frequently that Microsoft (major earthquakes come slightly more frequently than Microsoft operating system releases, which means there must be some mystic connections between all forms of disasters).
To understand the marketing downside of the non-modular Vista approach, consider two markets: minimal laptops and servers. Vista’s only claim to fame is the new GUI (which a lot of people hate). The GUI requires a lot of overhead and most of it seems to be baked into the kernel. Thus Vista is not good for minimal laptops and forces laptop buyers to purchase a much more powerful and pricey system than they would otherwise. As for server administrators, they don’t need, want, or crave a sleek and consumer focused GUI — they would gladly rip the Windows Presentation Foundation out of the box … if they could.
Contrast the recommended systems requirements between Vista Premium and Linux. 1GHz vs. 0.4GHz processor, 40GB disc vs. 7GB, 1GB vs. 0.25GB memory.
Microsoft evidently is feeling the pressure. Rumors about Windows 7 indicate they are moving toward a more modular architecture, nicknamed MinWin. Some of the rumors indicate the kernel might consume as little as 40MB of memory, which is hefty compared to some competing operating systems, but surprisingly lithe compared to Vista and well within the specification of low-end machines.
More importantly, it allows Windows 7 to swap non-kernel components to meet the specific needs of different users (imaging swapping the entire GUI without a reboot). Recall that Linux is rapidly becoming the OS of choice for embedded systems. Little wonder considering you can make a Linux footprint incredibly tiny and bolt-in only the services and applications necessary. A Vista kernel can’t compete and this forces Microsoft to offer a completely different operating system for the embedded market.
The Windows 7 kernel switch allows one Microsoft OS to be embedded, run without a GUI on servers, on low-powered micro laptops, desktops and high-end game machines … and all on commodity hardware.
But that’s not the god news for Microsoft.
Linux runs on everything. On ARM-based cell phones, x86 boxes, x64 machines, PowerPC servers, and IBM mainframes. Vista runs on WinTel chips. This dichotomy is a tribute to the Linux micro kernel approach.
Could Windows 7 run on a mainframe? On an IBM mini? On a SPARC machine? On an ARM?
May 13, 2008
One problem with Linux is that nobody really knows how big it is. Like any other virus, you have no idea exactly how many bodies it has infected.
Ignore the sales numbers from Novell and Red Hat. They tell only part of the story, namely the demand by larger institutions who must ensure success and have support. These sales figures do not even come close gauging unsupported replications of subscribed distributions, hosted Linux (which often is self maintained), departmental servers, all the OpenSuse and Fedora installs, and the occasional renegade Linux laptop.
And those are the small markets.
I’ve been watching the embedded space more and more. Silicon Strategies Marketing has clients in the mobile phone business, the Linux business, and now in the embedded Linux space. We have been mapping where embedded Linux is finding traction, and some of the issues within that market.
The question is “where is embedded Linux not being used?”
- A relative of mine who works on Defense Department and “spook” contracts notes that Linux is the favorite platform for all military and intelligence embedded applications. As he phrased it “We can’t afford to reboot a spy satellite every few hours.”
- Linux is used in routers from a lot of different manufactures. Networking is a core Linux strength and with an embedded web server, it is easy to create user friendly interfaces. And now everything needs to be network savvy.
- Phones are just starting to use Linux, but the open nature of the devices and the ability to plop new native applications on them is a strong differentiators. This is part of the reason Google went with Linux for G-phones.
Devices need to be smarter than in the past. This means they must have logic. It is far better to use an embedded operating system that has broad support. That really means Linux or Windows.
Linux wins mainly for two reasons:
- It is more stable. Google wouldn’t run their entire product on Linux if it weren’t.
- It is modular and tiny.
It is that last point that is perhaps most important. Much has been made of Window’s lack of modularity. WE (Windows Embedded) is considered by many to be a poor hack of XP, where fragility was induced by wholesale ripping apart of the operating system. I cannot comment directly, but this is the growing reputation. Some acquaintances of mine at Circuit City’s HQ said a WE deployment on cash registers was abandoned due to endless problems, which supposedly were induced by removing pieces of XP and seeing interwoven parts of the OS die.
Linux is by design module from top to tail. Much of Linux’s success has come by its ability to upgrade (or roll-back) discreet parts of the total package without disrupting other parts. This also means you can remove big chunks of unneeded functionality without much work or fear, creating custom versions of the OS.
This is why Linux will own the embedded space. When whittled down, the Linux kernel can be nearly 10oKB small, which is tiny. Total RAM requirements can be less than 4 MB. This makes putting Linux into nearly any device possible. Add the ability to customize all upper-level packages to operate well within small-device space, and you have something with which Microsoft cannot compete and simultaneously chase dreams of acquiring/integrating Yahoo.
Here’s the kicker: more smart devices are hitting the market all the time. Your dashboard (which soon will have integrated GPS navigation DVD player, Bluetooth interfaces, and more) is embedded. Your cell phone is embedded. Your home network is built on embedded devices. Your oven might require embedded logic to keep you from burning dinner … again. MP3 players need embedded OSs.
The list is endless and growing. The question then is “How do I profit from this?” That’s my secret for now.
December 11, 2007
Closed systems make money. Open systems make money. And the two dynamics are co-exists … for a while.
I’m pondering these realities as I comb through reports in the wireless market, where Silicon Strategies has a new client. The evolution of the wireless market will soon make a shift and the smarter vendors are rapidly adapting to the inevitable.
First, a musing on closed and open markets. In closed markets, the vendor has control by virtue of either a monopoly or through customer lock-in due to the high cost customers face in switching to different technologies. The IT technology industry was a closed market for a seeming eternity until the folks at Berkeley began porting and promoting their flavor of UNIX (which could be considered the original computer virus). When Sun Micro and other vendors began using open standards (like UNIX) as a wedge into the market, the closed system protected by high switching costs began to fade. Microsoft has a virtual monopoly on desktop operating systems, and we may be seeing the first cracks in that closed system as well.
Open systems work on the principle that choice creates other competitive realities and opportunities. For example, there is not a dime’s worth of technical difference between most of the Linux distributions. Linux purchasing decisions are primarily based on other issues, such as the perceived financial soundness of the vendors or their dedication to Open Source principals (or in the case of Novell, the seeming immunity from litigation by Microsoft).
TV cable operators are another case study of closed systems. Due to the dubious nature of local franchise laws and the instituted monopolies they create, cable carriers have zero incentive to innovate. It wasn’t until home satellite came into being that there was any movement by the cable companies, and even that has been lackluster due to the limited competition created between these two closed systems (like the limited innovation that existed between VMS and MPE — and if those abbreviations don’t date me, nothing can). There have been various attempts to create an standardized set-top box for cable consumers, but higher margins are created by renting gear to couch potatoes instead of letting customer buy one of many makes at Circuit City.
Now we are about to see a fissure in the wireless market. Google started the collapse by prodding the FTC to mandate some degree of open access by whomever wins the bidding war of the soon-to-be re-purposed 700Mhz spectrum. Google’s stand (and now the FTC’s as well) is that whomever wins temporary ownership of this chunk of air must make some or all of it open to allow any application, and certified device, any wireless service and any third party services provider to tap into the 700Mhz waves.
Naturally, this raised a stink from every vendor who had designs on any piece of this space. Cisco complained. Verizon cried foul. Even Satan, who current resides in Redmond, grumbled. But as soon as the FTC put their bureaucratic foot down … well, people started changing their tunes. Verizon, who had been one of the noisier detractors to Google’s open system scheme not only turned their opinion 180 degrees, they started opening the existing network, presumably as a show of philosophical acclimation to curry FTC approval.
In other words, once the inevitable opening of cellular services were going to be mandated somewhere, Verizon decided to join the new paradigm than fight to preserve the old.
Good move on their part. Sun rode the UNIX revolution, and took a great deal of market away from competitors, and opened new markets as well. Later in life they fought the Linux revolution and lost big. Both UNIX and Linux were opening previously closed systems, and Verizon learned from Sun’s mistake.
There is a truism among market strategists that notes the best way to win in a market is to change the rules. But the same applies when the rules are changed against you. If the change is inevitable, or worse still mandated by law, then the smart people will use the new rules to their advantage, create new differentiators, and leave their competition to slowly die.
November 27, 2007
Nobody — especially marketing professionals with education and experience in survey techniques — should give much credence to self-selected surveys.
In this case, I’ll make an exception.
The Linux Foundation asked the world at large if they were using Linux on the desktop. The numbers have started to trickle in, and though any top-line figure on penetration is suspect, how the numbers divide is not and provides some interesting insights.
 Of all Linux desktops in production among 20,000+ responding companies, most were in small businesses. This is primarily due to the fact that there are many more small businesses than mid-sized or large firms, so the number of Linux desktops in use among small businesses is not surprising.
What is surprising is that small businesses are adopting Linux desktops at all. Conventional wisdom has been that small businesses needed to standardize as much as possible, be able to obtain hand-holding support, would avoid any solutions requiring sophisticated IT staffs, and would follow the Microsoft herd.
Conventional wisdom fails in unconventional times.
Like life, the market finds a way. There are no insights in this survey into how conventional wisdom was broken. Linux certainly has become stupid-level-simple to install and configure. It has proven itself to be very stable, meaning there is little after-installation support required. And some studies have show that local support outfits (what we used to lovingly refer to as neighborhood hacker shops) are all Linux savvy, and may be providing what little support is necessary.
One marketing reality is that when all other needs (software, support, ease of use) are met, then price rules. What we may be seeing is that desktop Linux is now able to fulfill most/all baseline needs of even the smallest and least tech-ready companies, and that price is now the primary decision driver. This is pure speculation on my part, but the fault lines seem obvious given that the survey also found that 64% of installed Linux desktops were not being used by engineers — that normal information workers were the end users.
Does this mean Steve Balmer should be looking over his shoulder? Not yet, but Forrester thinks Microsoft’s date with Linux destiny is approaching. Forrester notes that Vista, Microsoft’s latest and fattest OS, may be driving enterprise-level inquiries about Linux as an alternative. Since large companies have to make commitments to technology on wholesale levels, and market milepost like Vista invite such decisions (which explains the anemic 2% adoption rate for Vista thus far). Vista may be its own worst enemy.
My reasoning for why Microsoft’s dominance days are drawing closer is that the traditional adoption path has been up-ended. Small companies are adopting before large ones. This puts a chink in classic Chasm theories, and indicates the beginning of another Grow Rich Slowly market model. If Linux desktop adoption follows the path of MySQL, then they will create a defensible position in the market. Once this foundation is laid, addition of new capabilities will make Linux desktops more and more acceptable to enterprises, and more of their employees with have Linux desktop experience from previous jobs or even from home use. The snowball effect will be measurable.
Steve Balmer does not need to cash in his options just yet, but I’m now watching the short-sell ratio on MSFT every day.
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