Just at the moment we look for the mobile market to consolidate, it fractures along new fault lines as old allies become enemies and new business models appear in order to spur the ecosystem giants forward. It was not long ago that Android was let loose in an attempt to prove that the Mobile World is Flat. Ah but Samsung decided that it had the hardware pieces in place to leverage Android into a semi-monopoly threatening all including Apple and to some extent Google. As always, adjustments are made and a new round of counterattacks are launched to outflank leaders. This time Microsoft and Intel join Google and Apple in attempting to sway the market their way. Interestingly, Intel’s new Bay Trail Processor may play a significant role in the plans of what I call the Four Horseman of the Software World (Microsoft, Android, Apple Mac OS/iOS and Chrome). Each software platform or ecosystem seeks to gain share at the expense of the other three and yet its time to review what is in store the next 12-18 months. If Intel executes across all platforms then it can be considered to have returned to its dominant position.
The announcement that Samsung will use Intel’s 32nm Clovertrail Atom processor came as a surprise to many. It shouldn’t. Despite all the mobile hype of iOS and Android, the business world still relies on Microsoft O/S and Office and this requires x86. Thus Samsung, HP, Dell, Lenovo and others are tied to Wintel for that piece of the market that will stay put. Although Clovertrail is rather mediocre, the power constraints in tablets are not like those of the smartphone as the LCD still takes the majority of the power consumption. With the 22nm Bay trail though look for Intel to slam the door on ARM based windows for corporate and to extend its presence into the lower cost Android market as OEMs leverage what is essentially a common platform. Intel just needs to offer a range of price points to satisfy the complete market window.
Apple’s dilemma over the next year will not be, as many predict, with their iPhone product line. With the introduction of a cheaper iPhone, the launch of a middling iPhone 5S and a larger screened iPhone 6 in the span of the next 9-12 months it is likely that Apple will be able to address the profitable top half of the market, which is over twice as large as their current TAM. Instead, the challenge for Apple will appear in the $500-$1200 mobile price band that is occupied by the larger iPAD and the Mac Air. The number of new entrants from the Windows camp is going to be staggering and Apple will need to respond with something new.
For the past few years, Apple has been able to set a careful delineation between the capabilities of the larger iPAD and the MAC Air. In essence the iPAD with its touch capability and lower cost of materials outflanked the PC market while the MAC Air ran the full set of MAC OS and Office apps. Now with Windows 8 and Haswell, the PC OEMs are counterattacking with platforms that combine the best of both the iPAD and the Mac Air, hoping to reach price points that are more in the iPAD space. I believe Apple will take a two-step approach to staying ahead in this market. First, they will introduce a slimmed down iPAD at lower price points due to a significantly reduced battery combined with a lower power and lower cost panel.
Secondly, Apple will create a new platform that can task switch between MAC O/S and iOS. I have described this before and expected it to arrive earlier, however software development seems to charge ahead at glacial speeds. Such a device would be welcome across many markets, especially corporations who have tasks that could use lightweight iOS applications and then convert over to Office and standard email apps when needed. A product such as this could be built with both a Bay Trail processor for Office Apps and an A6 to handle the iOS apps. Qualcomm 4G LTE would be an option and if Apple priced this product between $799-$1199, it would cause significant headaches in the PC marketplace. Intel’s Bay Trail would be the right performance, power and cost to enable this device. Image a $30 Bay Trail swapping out a $200 Ivy Bridge and you see how the price point moves dramatically. And yes Tim Cook, it is possible to combine the Refrigerator with the Toaster.
The demise of Google’s Android for the World strategy seems to not get much attention by analysts. Nor does the money losing Motorola hardware group. For all intents the ecosystem seems to continue to expand, but there are threats and opportunities that must be dealt with. The fact that Android now will roam Free forever in the universe allows China Inc. to build hundreds of millions of smartphones and tablets to those who just want a cheap internet and phone connection. Because Intel is late to the market, they have to make a run for it with low cost Atoms that in time will shrink to 14nm and then 10nm at which time they can make it up (profitability) with huge volumes. Eventually Intel will answer the market in a prepackaged SOC that includes lowest MHz Atom + 1-2GB of DRAM+8GB NAND+Wifi. It will be the back end fab filler when all the equipment has been written off.
Google’s strategy of setting Android adrift was strategic and necessary as they saw mighty Samsung consolidating the market around their vertically oriented component model. Also, who in the long term wants to carry Google’s water when it comes to search, maps, YouTube and office? Certainly it is not the folks in China who have country favorite Baidu or carriers around the world looking for their share of a revenue stream. It is interesting to see Google diving into the sand box of Apple one day and then Amazon, then Microsoft and finally Samsung (maybe I shouldn’t say finally). The Chrome based Mobiles serve as a 2[SUP]nd[/SUP] chance at redemption where hardware can be under their control and the O/S remains secure and tightly controlled. It is a chance to invade the business world where Microsoft and Apple gather a good deal of their profits and it is the highway entrance to the Cloud. Google, I believe will rely on Intel in order to be on an equal footing with all the Windows PCs and Tablets that will also utilize Intel.
Microsoft finally tipped its hat to the inevitable when they recently announced price discounts on their O/S in small mobiles and in addition now offers Free Office on <11” tablets. Microsoft needs Dell, HP, Lenovo and the rest of its customers to be successful if they are to thwart Google and slow Apple’s corporate drive. By the way, without intervention from the Justice Department, you can bet Apple will not be seeing a Free Microsoft Office for iOS anytime soon. See and you thought all along it was a hardware war.
What we are witnessing is a more aggressive and meaningful software ecosystem war. In the first stage Google thought it could win by offering Android as a level playing field O/S (repeating the Microsoft PC DOS/Windows model). Samsung, however, blew apart Google’s plans. If Marc Andreessen is correct in his article on Why Software is Eating the World and this appears to be recognized in the huge market caps of Google, Amazon, Microsoft and Apple, then it is only logical that the hardware be offered as free razors (in the razor/razorblade model) on as many mobile devices that can possibly litter the world.
We are not quite at the free hardware stage yet only in the transition where Apple makes money upfront on cool devices and Amazon still charges a fair amount for its Kindles. Mobile trend lines though will be overlaid onto the Moore’s Law curve as OEMs race to the Asymptotic line that approaches $0. This is why Mobile SOCs will need to become more economical on a die size basis and be near the front of the line pushing the envelop on process technology.
Intel appears to be entering the market with Bay Trail in a position as “ARMs Merchant to the World” (no pun intended). Software Ecosystems demand compatibility first and foremost but then invariably seek to push for greater performance in their endeavor to add new features. This is where I think the market with favor Intel as the Mobile Giants of Google, Microsoft, Apple and Amazon fight for Ecosystem Supremacy. Relative to the massive upsides in valuation that increases of ecosystem population have shown to provide, the cost to be beholden to Intel are now relatively small.
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