Intel

And so we come to the question of Chrome and H.264. First off, it should be clear that video codecs are infrastructural technology[1]. They are commodity algorithms which are generally invisible to users. They are ubiquitous and are "shared" in the sense that they are available for licensing often without much in terms of cost.

So they don't really offer strategic advantage to the adopter. Some may end up adding slightly more to a cost structure than others, but not in a way that determines strategy.

Flash on the other hand is not infrastructural. It is not shared, it is not invisible to users, it is a brand, it has a significant business model and market value. It is sustaining to Adobe.

So the argument I've heard against Google's decision is that they are using an infrastructural technology decision (a new video codec) to placate or sustain Adobe Flash, at the expense of Apple, a potential or perceived rival.

If this was the plan, it would be a strategic mistake.

The reason is that Flash will live or die on the basis of whether the business model is sustainable. That is decided by whether an integrated, proprietary technology is over-shooting and unable to adapt to a mobile computing future that demands modularity from components. If Flash is doomed, then its fate is inevitable.

In other words, you cannot use an infrastructural technology to defend a sustaining, possibly over-serving technology.

Which is why I don't think this was the motivation.

I rather think that Google's decision is a misguided emphasis on technical details in lieu of engaging in a deep strategic re-evaluation.

A RISCY BET

To illustrate the way technology companies fail by placing their strategy burden on technology decisions, here is how John Sculley made a decision to go with PowerPC and how he lived to regret it.

[Our best technologists] came back and they said it doesn’t make any difference which  RISC architecture you pick, just pick the one that you think you can get the best business deal with. But don’t use CISC. CISC is complex instructions set. RISC is reduced instruction set.

So Intel lobbied heavily to get us to stay with them… (but) we went with IBM and Motorola with the PowerPC. And that was a terrible decision in hindsight.

...

we totally missed the boat. Intel would spend 11 billion dollars and evolve the Intel processor to do graphics… and it was a terrible technical decision. I wasn’t technically qualified, unfortunately, so I went along with the recommendation.

I would argue it wasn't a failure of technical knowledge--the technicians were right about the architectural advantages. It was a failure of strategy and understanding of innovation dynamics[2]. Sculley asked the wrong question. The question to be asked is not "CISC vs. RISC". Rather, it should have been: Is the architecture the relevant decision point or is it the choice of partner? The technologists put the architecture choice above the more strategically important question of whether Intel had the fuel to continue getting better even if saddled with sub-optimal architecture.

That decision sounds very similar to what is being done today at Google. Increasingly, technology decisions are leading strategy. The question should not be "H.264 vs. WebM" or "HTML5 vs. Flash". Google should be asking itself if mobile computing will allow browsing to remain the predominant interface for internet consumption. If, as I suspect, it won't then no amount of browser tweaking will help. The browser is already infrastructural. It can't be the object of strategic focus.

To get an idea of how this would work consider Flipboard. Flipboard turns the entire browsing paradigm inside-out. Instead of consuming social media inside a browser, the app presents it in a more natural magazine-like format.

What will happen when that media becomes predominantly video? Flipboard will be far more influential to content producers and their decision on which codecs to support will lead adoption.

By focusing on threats and byzantine standards machinations, rather than on broad, experiential learning, Google missed (yet another) next big thing.

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Notes:

1. In  IT does not matter. Nicholas Carr introduced the concept of infrastructural technologies. Becoming Infrastructural is what happens after a technology overshoots the market and stabilizes into a commoditized ubiquity. It ends up being "shared" in the sense of being openly and sometimes freely licensed.
2. To be fair to Sculley, the research on innovation theory that would have helped him had not yet been published.

The recently announced move by Microsoft to support the ARM architecture with their Windows product, indicates something profound is happening in the market for microprocessors.

Dr. Hermann Hauser puts in bluntly:

“The reason why ARM is going to kill the microprocessor is not because Intel will not eventually produce an Atom [Intel's low-power microprocessor] that might be as good as an ARM, but because Intel has the wrong business model,” said Dr. Hauser. “People in the mobile phone architecture do not buy microprocessors. So if you sell microprocessors you have the wrong model. They license them. So it’s not Intel vs. ARM, it is Intel vs. every single semiconductor company in the world.”

via Intel Microprocessor Business ‘Doomed,’ Claims ARM Co-Founder - Tech Europe - WSJ.

To make sense of that you have to step back and look at what's been happening in microprocessors and how mobile computing is affecting the whole processor value chain.

The first observation to be made is that, as Dr. Hauser points out, ARM licensees use a different model than Intel. The development of an ARM-based microprocessor is done in a modular way; in contrast to the integrated way that Intel builds their products. ARM supplies a license, and designers build the chip adding various other circuits like Bluetooth or music decoding on the same silicon as the processor creating so-called SOC (system on a chip). Nokia has been doing this for years and Apple began doing it recently with their A4 SOC.

The design is then sent to a fabricator who actually manufactures the chip (TI and Samsung are some of the bigger ones), often in smaller batches than what an integrated vendor produces.  SOC fabs need to be much more flexible in their production and are much more sensitive to the needs of their customers, the designers.

In contrast, Intel has a proprietary microprocessor architecture that is not available for licensing and they have their own designers and their own fabs to build chips that they sell from a catalog to device builders. PC or device vendors only get to use what Intel offers and there is little in the way of customization (In a rare exception Apple famously forced Intel to modify the packaging of the first CPU fitted to a MacBook Air.)

Because of the differences in business models, the markets for SOC and microprocessors are diverging rapidly with subsequent business model priorities becoming completely asymmetric.

To illustrate, I draw upon an observation[1] that due to Moore’s Law, every year, through the equipment they deploy (e.g. from Applied Materials) fabs make 60% more transistors available on an area of silicon than were available the prior year. Intel almost always takes advantage of this by making more cores or adding more cache.

But if you look at the ability of SOC designers to utilize transistors, they are only able to utilize 20% more transistors than they were the year before. The reason is that they have constrained design budgets; they don’t have enough money or time to design circuits that are complex enough to utilize all the transistors that Moore’s Law makes available. Plus, when it comes to devices, they don't need the power.

What that means is, for most of the volume applications in the world, circuit designers are actually awash in transistors.  They are being over-served by the advances in fabrication equipment. However, Intel designers aren't. Being at the very high end they still need even finer line widths and demand that Moore’s Law take the next step to that next leap of technology.

What value chain evolution theory would then predict is that circuits which had to be proprietary and interdependent in their architecture are following an over-service path. In contrast, to serve the needs of SOC designers, fabs, as suppliers, will have to change their pitch for winning new business to being fast and flexible and responsive and to being able to deliver systems on chips that offer every device exactly the functionality that they need and none of the functionality that they don’t need.

Now in the world of mobile computing (and almost any situation where logic gets embedded in a system) it’s the device itself that is not yet good enough and, therefore, you cannot back off from pushing all the components to conform to your device's purpose.  For a device to be competitive it has to be optimized with a proprietary, interdependent architecture.  That means that the processor inside of a BlackBerry or an N8 has to be modular and conformable to allow the system to be optimized.

This is a quirky idea so I'll repeat it: since the device is not good enough it has to be integrated, including the processor, which being good enough, has to be conformable. The processor has to bend to the will of the device market not vice versa.

This then puts Dr. Hauser's point in perspective: a modular business architecture for microprocessors is a necessary condition to being successful supplying devices. The corollary is that Intel's integrated business model is obsolete in a device world. No amount of polishing of the Atom will help.

The root cause for this obsolescence is the over-shooting of Moore's law when processing power (and hence circuit density) is superfluous while power consumption, size and flexibility of design are straining to eke out any improvement.

So this renaissance of ARM is happening now because Moore’s Law has overshot what most circuit designers can utilize. And that overshooting is happening because mobile computing products don’t need a multi-core multi-gigahertz processor, allowing designers to back away from the frontier of what's possible.

What it culminates in is that the places in the value chain where attractive profits can be earned are migrating in a very predictable way: away from Intel and toward ARM.

So in a perverse way, it was Intel founder Moore's law that killed the Intel microprocessor.

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[1] This discussion is inspired by Clayton Christensen's "Capturing the Upside" presentation at the Open Source Business Conference 2004-03-17. Although taking place nearly seven years ago, Clay's vision regarding the future of the microprocessor was astonishingly, though perhaps unsurprisingly, prescient.

At this year's CES two unthinkable things happened:

1. The abandonment of Windows exclusivity by practically all of Microsoft's OEM customers.
2. The abandonment of Intel exclusivity by Microsoft for the next generation of Windows.

Many of Microsoft's customers chose to use an OS product from Microsoft's arch enemy. Some chose to roll their own. Microsoft, in turn, chose to port its OS to an architecture from Intel's arch enemy.

These actions confirm the end of the PC era. Although most people would characterize the era as exemplified by a particular form factor or market, for me the definition of that era is the way the value chain was structured and hence how profits were captured.

That era was marked by the condensation of profits around two companies, Intel and Microsoft, with the simultaneous evaporation of profits from all other participants in the value chain.

To achieve this, Microsoft maintained a monopoly on the distribution of operating systems and Intel maintained a monopoly as the single supplier of chip architectures for that operating system.

These monopolies are both over. And they both ended at the same time. And it happened this week.

Who says CES is boring this year?

The results all but confirmed a sudden slowdown in netbook sales in the early part of the year and suggested the business may actually be on the decline. Intel didn't directly explain the shift, but an ongoing recovery from the recession and a more mature market are likely to give more buying power and greater interest in faster notebooks, especially following the addition of mobile Core i3, i5 and i7 chips.

The trend away from netbooks is likely to continue as Intel raised its profit margin estimates for the whole year from a range of 58 to 64 percent earlier to between 62 and 66 cents.

Source: Electronista

A tip of the hat to John Gruber for compiling this list:

Daring Fireball: Apple Netbook Claim Chowder.

14 October 2008, Doug Aamoth at CrunchGear: “Five Reasons Why an Apple Netbook Is a No-Brainer”:

When asked today about the possibility of an Apple netbook, Steve Jobs said something to the effect of, “The market is just getting started — we’ll see how it goes.”

Huh? Here’s how the netbook market’s going, Steve: pretty much every major computer company has a netbook but you. Apple’s a prime candidate for a netbook, too.

20 January 2009, Brian Caulfield at Forbes: “Apple’s Real Problem: Netbooks:"

The real problem is how Apple’s portfolio of expensive gear — particularly notebooks — will fare as the recession starts to bite.

21 January 2009, Brian X. Chen at Wired Gadget Lab: “Apple Still Oblivious to Netbook Opportunity”.

18 March 2009, Shane O’Neill at PC World: “Recession Breathes Life Into Windows PCs as Apple Gasps for Air”:

At this point, I’m going to stop asking when Apple will acknowledge these dark days we live in because I think the answer is never. Maybe Apple should just be a bull market company. When times are lean, it should pack up like a traveling carnival or disappear like a baseball team in winter and not come back until everybody’s rich and happy again.

24 March 2009, Scott Moritz at TheStreet.com: “Apple’s Netbook Foray Will Flop”

Nonetheless, design hubris and slumping sales will cause Apple to tap a hot segment of computer market.

19 August 2009, Charles Moore at The Apple Blog: “Lack of Netbook, Price Hurting Apple in This Year’s Back-to-School Market”.

"Getting a strong Intel backing here could be an important advantage," says MKM Partners analyst Tero Kuittinen, who sees the Nokia tablet as part of an array of mobile computers.

via Nokia Aims a Tablet at Apple: Exclusive | Technology | Financial Articles & Investing News | TheStreet.com.

No doubt Nokia's tablet plans preceded the launch of the iPad--product cycles being what they are.  And the relationship with Intel is certainly a big part of this push (vs. on the handset side where Intel has no cards to play).

However, the elephant in the room is what software will run on this Tablet.  Any discussion on competitive potential of iPad competitors must include a view on the software/platform and ecosystem that tablet will rest on.

This is not a hardware business.  In fact, the hardware is designed to get out of the way.

The hardware is so understated — it’s just a screen, really — and because you manipulate objects and interface elements so smoothly and directly on the screen, the fact that you’re using an iPad falls away. You’re using the app, whatever it may be, and while you’re doing so, the iPad is that app. Switch to another app and the iPad becomes that app. If that’s not magic, I don’t know what is.

source: http://db.tidbits.com/article/11152