Society and business in the 21st Century
Following yesterday’s posts on BlackBerry, security and the Internet of Things, HP Fortify released a report saying seventy percent of IoT devices are vulnerable to hackers.
The list of weaknesses is chilling and illustrates why IoT security is an issue that has to be resolved now.
It may well be that John Chen, BlackBerry’s CEO, has backed the right horse for his company.
ZDNet columnist Ed Bott is possibly one of Microsoft’s closest followers and among the few to defend Windows Vista, Ed though can’t be faulted for doing the hard yards including reading Microsoft’s stock market10-K filings.
In their most recent filing, Ed finds Microsoft has used the word “service” 73 times as opposed to 44 appearances last year.
A key phrase in the filing is “a growing part of our strategy involves cloud-based services used with smart client devices.”
This is consistent with the hands on previews of Windows 8 which Microsoft have been giving journalists over the last few months. Something that leaps out is the integration with online services; something that both Google and Apple have also been pushing.
What should worry investors is that moving into services isn’t easy. Service businesses are far more labour intensive and, as a consequence, far less profitable.
Despite having relatively low labour costs, cloud computing services are problematic as many sectors have been commoditised, which is the genius of Salesforce in establishing a profitable niche.
The fat margins Microsoft are used to in their core software business can’t be replicated in the cloud based markets, which is one of the reasons why customers are switching to the cloud.
Microsoft’s problem is shared by telecommunications companies who are finding their cloud offering don’t generate the same ARPUs — Annual Revenue Per User — that they’ve become accustomed to in the mobile phone market. Which means pain for executives whose KPIs are tied to historical performance.
For Microsoft, the problem is compounded by their simultaneous move into hardware with the Surface tablets. Meaning the company’s has to deal with two significantly different business models to the ones they are used to.
Again Microsoft aren’t alone in this, Google is having similar problems adjusting to the hardware market though its acquisition of Motorola Mobility.
Integrating hardware with services and manufacturing isn’t impossible, we only have to look at Apple for how a company can succeed in that space although most managements struggle with the very different demands of each sector.
During the 1980s we saw the rise of the “all business is soap” philosophy where MBAs and management consultants preached that the challenges of running a business were the same regardless of whether you sold cleaning products, soft drinks, computers or automobiles.
Those folk were wrong. Most famously the Australian media company Fairfax hired as CEO a business school professor who preached this philosophy and managed to ignore the rise of the Internet, the echoes of the failed McKinsey ideas haunt Fairfax over a decade later.
While its possible for a software company to succeed at services or hardware, the magnitude and complexity of the management challenge shouldn’t be understated. Both Google and Microsoft will be defined by how well their leaders succeed.
This morning Paypal announced its PayPal Here service, a gizmo that turns a smartphone into a credit card reader.
On reading PayPal’s media release in the pre-dawn, pre-coffee light I found myself grumpily muttering “which platforms?” as the announcement kept mentioning “smartphones” without saying whether it was for iPhone, Android or other devices.
It turns out to be both Google Android and Apple iOS. It adds an interesting twist to the Point Of Sale market we’ve looked at recently.
The omission of platforms like Windows Phone raises the question of which platforms are going to go the way of Betamax?
Sony’s Betamax and JVC’s VHS systems were the dominant competitors in the video tape market in the early 1980s. They were totally incompatible with each other and users had to make a choice if they wanted to join one camp or the other when they went to buy a video recorder.
On many measures Betamax was the better product but ultimately failed because VHS offered longer program times and Panasonic’s licensing out of their technology meant there were more cheaper models on the market.
A few days ago Bloomberg Businessweek listed the Betamax device as one of the “technology’s failed promises”
With a superficial comparison, Apple would seem to the Betamax while Google and possibly Microsoft are the VHS’s given their diverse range of manufacturers their systems run on and Apple’s refusal to license out iOS, which was one of the reasons for Sony’s failure.
But it isn’t that simple.
In the smartphone wars, it’s difficult to compare them to VCRs as the video tape companies never controlled content and advertising the way smartphone systems do – although Sony did buy Columbia Studios at the peak of the Japanese economic miracle in 1987.
This control of content is what makes the stakes so high in the smartphone and tablet operating systems war. A developer or business that dedicates their resources to one platform could find themselves stranded if that platform fails or changes their terms of services to the developer’s detriment.
Another assumption is there is only room for one or two smartphone systems; it could turn out the market is quite happy with two, three or a dozen different systems and incompatibilities can be overcome with standards like HTML5.
In a funny way, it could turn out to be Android becomes the Smartphone Betamax due to having too diverse a range of manufacturers.
One of the first questions that jumps out when someone announces a new Android app is “which version?” The range of Android versions on the market is confusing customers and not every app will run on each version.
More importantly for financial apps like PayPal Here and Google Wallet, smartphone updates include critical security patches so many of the older phones that miss out on updates pose a risk to the users.
In the financial world confidence is everything and if customers aren’t confident their money is safe or will be promptly refunded in the event of fraud they won’t use the service.
Whether this uncertainty will eventually deal Google out of the game or present an opportunity for Microsoft and other companies is going to be one of the big questions of the mobile payments market.
JT Wang, Chairman of personal computer manufacturer Acer believes the release of Windows 8, Microsoft’s next operating system, will see a resurgence of sales for Windows based computers. Market trends suggest those hopes are in vain.
Right now the Personal Computer market can be roughly split into two camps; those happily running Windows XP who have no need to upgrade and those who are delighted with Windows 7 who have no need to upgrade.
Short of their computers breaking down, neither group have any good reasons to change to the new operating system as, unlike Windows 3.1, 95 or XP, there is no new technology breakthrough or advance to warrant making the jump.
To make things worse for the PC manufacturers the rise of cloud computing services extends the life of older Windows XP systems and eliminates the biggest driver of new computer purchases in businesses – the software upgrade.
During the PC era one of the banes of business owners were enforced software upgrades where vendors would release a new version of a program every year or two and withdraw support for the older editions.
Frequently the newer software would require the latest hardware, forcing the business into an expensive and disruptive upgrade of all their IT systems.
Today, software companies following the forced upgrade model are finding customers have viable cloud alternatives which destroys the revenue stream behind those frequent releases.
When a customer moves to a cloud service, they also delay buying new desktop or server hardware which is partly driving the steady increase in the age of business computers.
For computer manufacturers the release of Windows 8 could actually be bad news as customers will probably postpone system upgrades until the first service pack of the new operating system is released.
Even if Windows 8 does deliver increased sales as JT Wang hopes, the trend of steadily falling PC prices as smartphones and tablet computers take market share is inevitable.
The PC industry in both laptops and desktops has been a commodity industry for some years and any hope of establishing premium pricing from tablet computers has been dashed by the iPad’s competitive price points.
Regardless of the hopes of the IT industry’s leaders, both the hardware and software sectors are under a lot of stress. It will be interesting to see who adapts to today’s market.
