The New Revolution Brewing in Software and Hardware

At this year’s CTIA and Bowen, JohnBarcelona’s Mobile World Congress conferences, the buzz was about existing and alternative mobile platforms (e.g., Netbook, MID), mobile applications, and enhanced bandwidth capabilities. I am convinced that the convergence of these three areas will have profound changes on the market place.

The M4 – A New Mobile Category. The combination of the Smartphone, Mobile Internet Device (MID), Netbook, and Laptop products (that I will coin the “M4”) represent the new “mobile computing platform” that will morph over time. Desktop PCs are being usurped by Laptop PCs – in Q3’08, PC laptop sales increased 40% YTY to 38.6 million units in contrast to desktop PCs, which according to research firm iSupply dropped 1.3% to 38.5 million units sold. Smartphones were the only growing mobile phone category in 2008 at 14%, with RIM and Apple achieving 97% and 246% growth respectively according to Gartner. Netbooks came out of nowhere in 2008 to grow to 11 million units from 182,000 in 2007, according to IDC, which further predicts growth to 21 million units in 2009. The MID Computing platform received much fanfare in Barcelona, but it is still early days.

I don’t expect laptops to disappear, however, the remaining M4 provide interesting alternatives, and their rapid adoption suggests they are here to stay. That said, it only seems logical that since many users will have two or more of these devices, there should be a certain unity across these device types to enhance the user experience. I myself use a Blackberry and Laptop, and would buy a Netbook in a heartbeat for travel if it would sync with Outlook and other data with the ease and elegance of a Blackberry.

Bottom-up Technology Wins. What is interesting about this topic is the potential opportunity for a platform shift that the IT industry has not witnessed since Windows and Intel became dominant. Like all technology trends, bottom-up trends tend to trump top-down infrastructures. Why? Because top-down typically becomes bloated as new features are demanded, with Moore’s Law supporting the added overhead. On the other hand, bottom-up technologies are forced to be ultra efficient due to size, processing and battery (the weakest link) constraints. As the underlying technology advances, bottom-up technologies become powerful and challenge top-down products in both price and function (80% of the function for 10-20% of the price). Mainframes, minicomputers, CAD, electronic publishing, and video and audio non-linear editing have all suffered this fate.

In this case, the bottom-up technology is the ARM-based processors (which dominate the cell phone market), open-source operating systems (e.g., Android, Symbian, LiMoFoundation), alternative browsers (e.g., Opera, Mozilla), Java, and perhaps most importantly, the mobile applications that sit on top. Apple started the mobile application trend with its App Store, and has been replicated by RIM, Nokia, and Microsoft. I expect to see more announcements on this front.

Intel has made several runs at the mobile market (coming from the top, down), but exited the mobile business in June of 2006, selling its assets to Marvell Technology Group. While Intel made a splash on the Netbook and MID platform with its Atom processor at Mobile World Congress, this leaves an opening for ARM/open source to rise up from the mobile phone platform to dominate all M4 platforms. This may extend into gaming, set-top box, alternative television devices, and TVs where Intel is pushing hard.

It is Open Season. If these four platforms are viewed as a single mobile paradigm, it’s conceivable that a new single architecture could prevail, and spill over into the Windows and Intel dominated Laptop platform. Since Mobile World Congress, there have been many announcements made. Laptop manufactures are getting into the Smartphone game (e.g., Acer, Asustek) and vice versa (e.g., Nokia). Android is being tested or adopted by HP and Dell for their Netbooks, and Vodafone and T-Mobile have committed on HTC devices. LG is still committed to Windows but will also begin supporting Android later this year. With Windows 7 not expected to be released until the fall of 2009, anecdotal evidence points to a potential shift toward open source platforms.

The New M4 Channel Entrant. Service providers such as Verizon and AT&T have begun offering Netbook computers for a subsidized price of $100 with the purchase of a broadband service contract. This is an important distribution channel for Netbook proliferation, just as it has been for mobile and Smartphone expansion. Service providers are not beholden to the Wintel platform, as IT departments have been, and with a desire to have more control over their own application services (vs. outside vendors such as Apple and Google with over-the-top offerings), these operators may be a very important factor in platform direction and the success of various up and coming products and services. The Dell model, where a less expensive device equates into more users, can be leveraged in this subsidized model.

The Cloud vs. Microsoft Office. If I had to choose today, I would select a Netbook with Windows and Office because I live in Outlook, Word, Excel and PowerPoint. However, the world is not me (e.g., large corporate employees that utilize corporate SaaS and Unified Communications applications, consumers on Yahoo! Mail, Gmail, Skype etc.), and it seems that several trends are challenging this mantra. First, the Smartphone application development is on a tear (40,000 applications in Apple’s App store, and more than 1 billion app downloads to date), and these applications will trend upward over time to the Laptop PC. Second, the “Cloud” is the new Web 2.0, with Amazon’s EC2 growing success, Cisco’s Unified Computing announcement and SaaS models achieving success. IBM is heavily committed to Linux and cloud-based initiatives. From a document and rich media perspective, Adobe is all over this trend. Lastly, there are plenty of Microsoft Office alternatives and translators that work very well and offer cloud advantages such as document sharing.

The next generation of users that expects free or low-cost applications and content may begin adopting these tools to avoid shelling out a few hundred dollars for Office. Perhaps most importantly, these browser-based applications require fewer resources and better fit the M4 model (with exception to video-based applications, but companies such as Skype are figuring this out). The game is clearly not over and Microsoft is a force to be reckoned with, however, it is getting easier to see the support behind a platform shift, and the logic is not out of left field.

Bandwidth performance enhancements provided by LTE (Long Term Evolution), a fourth generation mobile broadband standard, and other core networking enhancements that support service provider infrastructures are critical in supporting Cloud and more data intensive video applications.

Application Platforms are Key. One of my favorite business models is that of Autodesk’s Autocad business. The Autocad application provided a platform for hundreds of sprouting development companies to create an ecosystem around. This relationship became symbiotic, in that everyone (except for its competitors) won. The same can be said of Macromedia’s (now Adobe’s) application platforms and Flash technology, which continues to be a mighty force. Apple’s mobile platforms have spawned a new breed of application developers and mark the beginning of a classic technology product cycle. One and two man shops have a new platform to go it alone and compete with larger organizations. These entrepreneurs join forces with other smart developers and grow into larger, more profitable organizations through consolidation.

Existing software companies need to get in front of this trend by providing tools and platforms upon which these developers can build and keep a watchful eye on which companies to acquire. With 6.5 million Java developers, perhaps this is Larry Ellison’s lens for Oracle’s announced acquisition of Sun Microsystems.

I am excited about working with these new leaders and watching how the M4 revolution unfolds.

John Bowen is a Director at Covington Associates. He can be reached at 617-314-3950 or jbowen at covllc.com.