The free-fall in PC prices in the 90s "killed" the PC, except that every major PC manufacturer still sells high-end models, and retailers still make money on them.
The free-fall in automotive prices in the 20s "killed" the automobile, except that people kept buying faster, sleeker, newer models anyway.
Like so many other electronics and everyday devices, the commoditization of tablets won't "kill" the tablet. It will result in a glut of disposable, troublesome, irksome devices, but there will still be a very nice market of people willing to pay more for a better device. Go make money there, you'll be happier anyway.
Came here to say exactly that. Markets are zombies and dollars are brains. But the title is less thrilling than "Ok everyone knows how to make a tablet now, that won't be a high margin business." In this case margin being the proxy for expertise in putting together a tablet.
But there actually is a story here which VentureBeat came so close too and missed, the cost of compute.
Even in the 80's when I went to work for Intel people 'in the know' thought it was insane that Intel could capture 33% of the value of a PC with just the CPU + chipset. They worked really hard to make that the case, using every gimmick at their disposal, from patents to copyrights to support contracts to outright strong-arm tactics. Even today that survives in the $300 you pay for the CPU on the motherboard. Mostly it was about the software base though, you really couldn't do anyhing about it unless you were willing to bite off on the problem of the software and tools. Apple did that, but nobody else did.
ARM is different, the ARM folks take their tax, but you can buy out their tax if you know you are going to sell enough chips, and the cost to make chips has gone down. Even though the cost to build chip factories has gone up (remarkably so). I'm not nearly as engaged with this problem as I once was but around the turn of the century the 'sunk' costs of doing a chip was on the order of 5 - 7 million dollars. A wafer start (with anywhere from 1 to 12 300mm wafers) is like $48K [1]. Less on the older processes, so may $1 base cost per tested good packaged die. So you if you price to cost + margin there was a huge amount of room below the Intel x86 artificial cost 'floor'. ARM software has gotten better and with Linux and then Android creating volume, additional players entered the market. And some, like All Winning have very modest margin targets on their CPUs, others like BroadCom/TI/QualComm have been playing in the smartphone market where these CPUs don't carry as much margin as general purpose compute devices do. You need look no further than the Raspberry Pi to see what that means in terms of consumer cost.
Anyone can become an ARM cpu vendor, its damn difficult to become an x86 compatible processor vendor. And that is the story we're seeing play out here. From the sidelines I'm watching to see what Intel does next, they are already scrambling (see the Cedar Trail stuff) and they have a lot of smart folks who can do great stuff with manufacturing and architecture. For the first time since the Motorola 68000, they have legitimate competition.
Is it mine in the sense that it spewed out of my keyboard without much forethought? Yes. But the concept that markets are an unkillable mechanism that seek out money is universal.
What about AMD, should they copy ARM business model to compete with Intel in desktop market? Or maybe AMD is too similar to Intel and cannot adapt ARM licence model due to its internal costs structure? (Innovator's Dilemma)
AMD is a good example of how competing with Intel doesn't work well. They kicked Intel's ass with the AMD64 architecture but they didn't get commensurately rewarded.
Look at their lawsuit vis-a-vis Intel and their predetory approach to Dell. They accused Intel of threatening to cut off Dell if Dell put an AMD chip in their servers. At NetApp where I was arguing for Opteron rather than the turd Intel was pushing (Itanic) as a 64 bit solution I got to see all of it, the whole "We might not want to buy your products ..." or "We really only provide NDA roadmaps for our 'comitted' customers ..." etc. Not so with ARM vendors, there isn't anyone to cut your leg off. Don't like the TI part? Hello BroadCom! Can't get docs on their GPU, hello Exynos! It's competitive and its easier to play in.
Tangentially, because I'm finding your comments so fascinating: it looks to me like AMD doesn't really know how to compete with Intel from a technical standpoint in the desktop and server space, but their default approach works much better in the cheap and ARM space.
For example, AMD seems to have bet a lot on their bulldozer architecture, but as far as I can tell it's been almost a total flop in the space where Intel really dominates. Even aside from the OEM space, system builders like my hardware guy look at options from Intel and options from AMD and, currently, go with Intel every time (which is a shame, I personally would like to see AMD giving Intel a rough time).
So what's your take? What happened with Bulldozer? Does AMD have the technical chops to beat Intel?
As an OEM stepping away from Intel is a very risky thing to do. Intel executes really really well, AMD does not. Intel lives and breathes process technology, AMD does not. Intel has discipline to walk to the end of the road, AMD does not.
Using a software example, if you notice the guys who write the gaming engine put out technically better games than the people who license the engine? I attribute that to the ability to internalize all of the benefits and weaknesses of the engine. If you license the engine you 'kinda' know what it does but because you don't have to know your knowledge never gets deep enough to do what the originator can do.
AMD competes against Intel on architecture, and they do Ok at that, but they cannot compete on process. You will notice they gained server share on Intel when Opeteron released because Intel was caught sleeping (they had targeted Itanimum 64 bits, Pentium/Xeon 32 bits, 8051 Etc for SoC/embedded. They were resisting putting 64 bits into the Pentium because it would cut into their already weak Itanium story. As long as they stayed there, AMD gained ground. They capitulated on architecture and then retook ground using process improvements (TDP mostly), meanwhile AMD didn't cement their lead, rather their CTO left and they played dancing CEOs. Boat stalls, momentum is lost.
So no, I don't think AMD can beat Intel organizationally and that will keep them from beating them technically.
AMD put a lot of resources toward the desktop. And from all the benchmarks I've seen they achieved their goal. Bulldozer is a pretty competitive desktop processor. Bulldozer is powerful.
But not energy efficient. There can be no Bulldozer laptop.
And the world switched to laptops. Right now the split is 18% tablets, 60% notebooks/netbooks, 22% desktops.[1] And desktops are losing ground rapidly.
AMD simply has nothing to compete with Intel in the laptop space.
For the same price, Intel scores something nearly double on the benchmarks (1700 for a4-3400m vs 2900 i3-2350m). For everyday computing in the real world, that performance difference is:
AMD: "This is so slow I want to tear my hair out."
Intel: "The CPU is no longer a bottleneck.
I need a new SSD for CPU speed to even matter."
And the Intel chip does all that using SO MUCH LESS power than the AMD (a4-3420m=35TDP and i3-2350m=15TDP).
And as you move up away from the budget laptops on the price/performance curve, things rapidly get worse for AMD.
AMD's failure was strategic, not technical. Even if Bulldozer had been 50% faster, AMD would still be on the verge of irrelevance.
"The King is dead, long live the King." refers to the accession of a new monarch. It implies in the language an immediate, uninterrupted rule of the line.
It should not be used when something has died, and it's just dead and there is no implied line of succession.
A terrible but relevant example would be "the iPhone is dead, long live the iPhone.", implying that the 4s is dead and 5 now reigns.
The conclusion of the article was "Profit margins from hardware-only is dead. Long live profit margins from software bundled with hardware!" The example was the generic Android tablet vs. the iPad.
But what the phrase really means is: "X is Dead, Long Live Y"
with x being the diseased king, and y the rightful heir and new king.
As wikipedia states [1]:
The phrase is a traditional proclamation made following the accession of a new monarch
And...
"Given the memorable nature of the phrase (owing to epanalepsis), as well as its historic significance, the phrase crops up regularly as a headline for articles, editorials, or advertisements on themes of succession or replacement."
That's why bigdubs was right.
But finally... most probably the successor and new monarch could be something like what Ballmer said to The Seattle Times [2]:
I think when you look forward, our core capability will be software, (but) you'll probably think of us more as a devices-and-services company.
Devices+Services is the new king. Google, Amazon, Microsoft, Apple, are all going this route.
Yes - that's precisely what the original poster was referring to. "Hardware (The old, legacy, big manufacturer, high margin, centrally built) is dead, Long live Hardware (The new, on-demand built, small manufacturers, lower margin, distributed build).
I'm sure there will be many more generations of hardware as well - indeed, the next big generation will probably be some form of print-at-home, then perhaps biological - who knows.
There will be many iterations - but they all will consist on something physical replacing the last generation.
With that said - I appreciate your meta-point, that the concept of "Selling Hardware Alone" without the devices/services associated it, is going out of vogue with the highly-valued companies here in North America. Point made.
Except that the iPhone 4S (and iPhone 4) - are very much alive. I'm sure if we look we can come up with a relevant example - but, regardless of how we look at it, the meta point "The old reign is gone, but the new reign begins, ensuring uninterrupted persistence" - is quite likely true of hardware. Every generation or so, the themes associated with hardware will die, but they will be replaced with new ones.
Have you read the whole article? The author is not disagreeing with you. He is very specifically agreeing with your point. Apple is selling more than just "hardware", they're not just selling a piece of metal and silicon. That's what the author is saying is dead. Doing what Apple does, selling hardware + software + brand, is what's still alive.
So you and the author are not disagreeing. What he is saying is not that no one will ever build a tablet again. He's saying making money off the hardware alone is a bad idea. And that you need to sell more than that to make a good profit.
I used to work with jewelry, you could make the same argument that selling rocks is dead. But if you put the right branding, and tell the costumer a compelling story. We could literally sell a product for a 10x~20x profit margin. And yet, selling rocks is dead. Selling jewelry isn't.
Actually Intel's ultrabook rebranding was also a clever step to make laptops expensive/more profitable again, while they were in a free spiral fall due to (Taiwan's)Acer's netbooks. That said, hardware will only be dead if US companies give up on producing hardware, and it becomes commodity produced elsewhere, similar to clothing manufactured; only Apple will remain the Prada of hardware.
Add a keyboard(/trackpad?) case to one of these 7" tablets and you pretty much get the original Asus netbook concept, only faster, cheaper, and more versatile.
And if you remember the CeBIT where ASus abortively introduced an ARM based laptop you got to see the who ecosystem in action. I wish the full details of that came out but the scuttlebutt was that Microsoft threatened to cut off Asus completely if they shipped it. They were already pissed that the EeePC's had a Linux distro that was easy enough for windows users to use but couldn't really put Vista on them, their re-issue of XP to support those machines was pretty notable.
I have a NATPC009S with a $10 USB keyboard/carrying case and it works great for what it is. Not in any way an iPad (or Google Nexus) competitor of course, but at a fraction of the price it's perfect as a "won't worry if this breaks/gets lost" device thrown in my bag for casual use coupled with emergency ssh access when a server goes down.
>>The free-fall in PC prices in the 90s "killed" the PC, except that every major PC manufacturer still sells high-end models, and retailers still make money on them.
Yes, but how lucrative is the market in general compared to before? How many new players do you see, and how much innovation is happening?
I've always been of the opinion that commoditization is good for the consumer only in the short run (since prices drop). In the long run, it hurts the consumer because there is very little if any innovation in commoditized markets.
A lack of groundbreaking innovation leads to commoditization, not the other way around. A commoditized market is ripe for new innovation to set an offering apart—and if that innovation is big enough, it may just end up creating a new market.
The feature phone market was pretty commoditized, but that didn't stop people from trying to figure out ways to create a new, less-commoditized, market by making phones smarter. And touch-based smartphones, too, will become increasingly commoditized until someone comes up with another revolution.
Similarly, the basic functionality of a car has been commoditized for decades, but competition keeps innovation going.
Other than PCI, PCIe, USB, Bluetooth, discrete 2D graphics cards, 3D accelerators, multi-core x86, DDR, SSDs, High quality LCDs and hundreds of other improvements it is worth saying has you do, Reg, 'What has commoditization ever done for us?'
Incremental improvement is not innovation. Very few of what you listed made a big enough difference in the status quo that I would qualify them as innovation.
Yes, Bill Gates vision of one computer per home was wrong: now we have more than three computers for every family member (notebook, mobile, tablet, e-reader)!
The free-fall in PC prices in the 90s "killed" the PC, except that every major PC manufacturer still sells high-end models, and retailers still make money on them.
The free-fall in automotive prices in the 20s "killed" the automobile, except that people kept buying faster, sleeker, newer models anyway.
Like so many other electronics and everyday devices, the commoditization of tablets won't "kill" the tablet. It will result in a glut of disposable, troublesome, irksome devices, but there will still be a very nice market of people willing to pay more for a better device. Go make money there, you'll be happier anyway.