Le défi posé par les Netbooks et Nokia à Microsoft
Par Bernard Golden, Navica Software (en anglais)

Publié le 17 juillet 2008

20080716_06Schumpter and Christensen: Unwelcome Visitors to Redmond
Last month I wrote about the nascent netbook phenomenon: small form-factor computers with little onboard storage, aimed at a secondary machine, on-the-go user.
I went on to discuss how this phenomenon neatly fits the theories of Joseph Schumpeter and Clayton Christensen. Schumpeter posits a dynamic economy, ceaselessly churning, bringing new developments to the fore that supercede older players. Christensen, for his part, describes a cycle of technology innovation - new technology, unsatisfactory to users of established products, finds other markets willing to accept the new offering. The upstart technology continues to improve, and at some point delivers satisfactory performance to users of the old technology, albeit at a much lower price point. And then, the market moves en masse to the new technology, abandoning the previous technology and its supplier(s) overnight.


Finally, I noted that netbooks pose an unprecedented challenge to Microsoft. It has benefited by being the dominant desktop/notebook operating system, with Linux being perceived as functionally deficient by comparison. However, those deficiencies are not present in the netbook category, negating Microsoft's advantage. In fact, for netbooks, Microsoft is the functionally deficient product, not Linux. Windows's bloated size and significant licensing fee render it unsuitable for netbooks, which emphasize software compactness and low cost.


Well, this month sees another blow against the Windows hegemony, this one struck by a Finnish company: Nokia. On June 24th, Nokia announced plans to make the Symbian operating system open source software.


This blow may turn out to be a bigger - and more damaging - blow than the development of netbooks.



"This month sees another blow against the Windows hegemony, struck by a Finnish company: Nokia. This blow may turn out to be a bigger - and more damaging - blow than the development of netbooks."


First of all, it's important to recognize just how revolutionary Nokia's announcement is. For the first time that I am aware of, a category leader has announced the intention to turn a leading product into open source. Most other proprietary-to-open source conversions have been old, obsolete, torpid products whose owners turn to open source as a last resort after several desperate attempts to revive the lifeless corpse have failed (viz, Ingres). In this case, however, Nokia, by far the leader in the smartphone category with 65% market share, has decided that further business advantage can be derived by making the software free and modifiable. So, make no mistake about it. This announcement is unprecedented - and it heralds a market upheaval.


So, why have they done this? Two factors have driven this decision.


First, the smartphone market segment is, at long last, poised for enormous growth. It's no exaggeration to say that the future mobile phone market will fall into two segments: dirt-cheap throwaway phones, and increasingly rich-featured smartphones, with the latter absorbing the portion of the market now occupied by "feature phones". And, thankfully (from a consumer perspective), smartphones will follow the same curve of plummeting price and Moore's Law-led exponential capacity growth just like computers, mp3 players, and digital cameras did before them.


And the price-competitive, feature rich market is a market share business, where profits lie with the volume leader and second-tier players eventually disappear (viz Kaypro, AST, Packard Bell, et al).


Nokia needs an offering that has no barriers to volume adoption, and its current offering, while dominant today, might not be in a future market that is much larger yet more price-sensitive. Essentially, Nokia is in an analogous position to Microsoft's situation regarding netbooks, with the key difference that Nokia is primarily a hardware company, and sacrificing software revenues is merely problematic rather than life-threatening.


"Essentially, Nokia is in an analogous position to Microsoft's situation regarding netbooks, with the key difference that Nokia is primarily a hardware company, and sacrificing software revenues is merely problematic rather than life-threatening."


Second, the entire mobile ecosystem is undergoing earth-shattering change. Less than two years ago I spoke at the inaugural "Open Source in Mobile" conference and found an audience somnolent with self-satisfaction. The carriers forecast a comfortable oligopoly in which they would continue to dictate features to the handset manufacturers and services to customers, secure in the ability to tightly control device access to their networks. In short, traditional telecommunication attitudes and economics, only without a wire connected to the wall.


Today, though, that comfortable world has been turned upside down. How about the iPhone? Not only does it set new standards for usability and cool design, for the first time a handset manufacturer got the upper hand against a service provider (AT&T, in this case).


And what about Google's Android? Just the potential of Google bidding for wireless spectrum was enough to get Verizon to announce it would open its network to third-party devices. Believe me, in the cozy, closed world of telecom, that announcement was Nixon going to China: it broke all the rules. Now Google is proposing to sponsor an open handset software consortium, and that's got to scare everyone.


And finally, there's the LiMo (Linux Mobile, geddit?) Foundation. At the aforementioned conference, LiMo was announced, and it had the unmistakable flavor of upstart meets traditionalist, or, from the point of view of the Foundation members, older, wiser heads housebreak youngster. LiMo was going to bring open source forward, but in a way that supported, not supplanted, the traditions of the mobile ecosystem. Recently, in the face of Android, LiMo has been making noises more like a real open source-based initiative, although it remains to be seen whether it will break free of its paternalistic attitude. This latter issue is a key point - open source works when there is a robust community with members participating for their own interests and, crucially, where they feel their efforts are not being usurped for the private benefit of someone else. If the LiMo Foundation is unable to shake off its "father knows best, and wants everyone to contribute to his initiative" it may find the greater Linux community eventually gives it the cold shoulder.


So, if you're a handset manufacture like Nokia with a strong operating system offering but facing a market that will be very different in the future and one in which your dominant position might very well be undercut - well, if you're smart, you're going to recognize that possibility and preemptively take actions that will hurt in the short-term, but might keep you in the pole position long-term.


You announce you're going to open source your market-leading mobile operating system.


Well, who's really hurt in all of this? I hate to pick on it again for the second month in a row, but Microsoft is the (probably) unintended victim in Nokia's initiative. With Nokia turning to open source to gird itself for conflict with Android, as well as Apple and the LiMo Foundation, Microsoft faces the unpalatable position of turning into an also-ran (i.e., becoming one of the low-volume players described earlier that eventually fall out of the market).


And make no mistake about it. The Symbian announcement is important and dangerous for Microsoft. Before, it was competing (although losing) with another operating system that operated on the same assumptions - proprietary IP sold on a per-copy license arrangement. Microsoft may have been second, but it harbored hopes that if it pulled its traditional levers it could come out on top.


Microsoft hoped to leverage its famed network effects to bend the smartphone market to its will. By delivering technical integration with its product portfolio (in a way that prevented other players from participating in the integration), spending hundreds of millions relentlessly marketing the resulting software agglomeration, and, of course, outlasting its competitors by cushioning itself from normal capital return expectations based on its desktop monopoly, it expected that the smartphone story would conclude with a (for Microsoft) happy ending.


Now, however, its main competitor in this market has changed the terms of battle.


"So Microsoft stands alone trying to make a business from selling its software."


Microsoft now stands alone as the only general purpose (i.e., not tied to specific hardware) license fee-based product in the market. Apple sells software, but bundles it with its own hardware. RIM sells the Blackberry, but focuses on the enterprise market.


And now the network effects are working against, not for, Microsoft. It dominates thick client platforms. But netbooks stand outside its network. And mobile devices are outside, too. This is particularly important because the mobile market dwarfs the PC market. Mobile is the way the next billion people will access the Internet, and now that market is stepping outside the Windows bloc.


Increasingly, it will be Microsoft that is out of step with the other players, isolated in its island of desktop dominance. To break out of its solitary confinement, Microsoft will have to work with other products, integrating via standards-based mechanisms -- always distasteful for a monopolist. In short, the mobile market is another place Microsoft is under siege. Stated more piquantly, mobile is another nail in Microsoft's coffin.


The charm of it all is how this is playing out. Analyzing the situation from the perspectives of Joseph Schumpeter and Clayton Christensen provides a script that can be easily predicted. Microsoft is like any monopoly that grows rich by meeting a critical need and then milking it, eventually - and inevitably - putting its interests before those of its customers (Vista, anyone?), offering the opportunity for more nimble competitors to pick away at vulnerable parts of its product portfolio, ultimately razing the monolith of monopoly. This shift represents an enormous trend, akin to the shift PC computing imposed on the IBM monopoly of early computing. At the time PCs arose, IBM appeared invulnerable - the sole brake on its increasing dominance the US Department of Justice. Yet a decade later, it appeared to be on the ropes, helpless against the onslaught of Microsoft and PC computing. Now the champion that dethroned IBM is itself older, slow of reflex, hoping to coast on reputation and past glory.


Within the mobile market specifically, and the technology industry generally, I predict a near-term future of turmoil, as the once-stable market dominated by Microsoft generates confusion and competition and users nervously attempt to sort out what choices to make, uncomfortable with the responsibility after the benevolent (?) dictatorship of the Giant of Redmond. It's inevitable, though, because the industry conditions are so different from those from which Microsoft's monopoly grew. Any time the conditions change so much, so too must the solutions.

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