A WARM-Up Act

As WARM (Windows-ARM) reportedly takes the stage in Las Vegas tomorrow, some thoughts:

  • This is “big” Windows, not yet another repackaging of Windows CE.  Remember Windows NT got its start supporting multiple CPU architectures.
  • This has huge implications for Windows Phone’s future.  It makes no sense to have two separate operating systems and application ecosystems for increasingly overlapping touch devices (phones and tablets).  It sucks for customers, developers, OEMs and is terrible for Microsoft economically to have to build and support parallel operating systems.  And Windows Phone’s road is profitability is hard to imagine.  Even if you assumed a wild leap to 20% market share, at <=$10/unit, it isn’t going to pay for the 3,000+ people working on it, never mind the marketing spend and OEM “incentives”, any time soon.  Windows Phone 8 probably is a configuration of big Windows on ARM which lets that team focus on the phone experience and not have to build an operating system top to bottom.
  • This also explains the demise of Courier – a third operating system in the mix would be exponentially worse.  Presumably the Courier application experience is being implemented on big Windows as the shell for Windows tablets.
  • While iOS is Apple’s branded operating system for touch devices, it shares the same underlying kernel, tool chains, etc. with Mac OSX.  Microsoft aspires to have a single, modular operating system that can be factored appropriately for the increasing variety of form factors.  Better modularization will also help power efficiency from a software perspective.  Expect new configurations of big Windows for TVs, settop boxes, etc.
  • In theory Windows apps can be recompiled for ARM, but in reality they all need new user interfaces for the touch world.  So much for the vaunted “applications barrier to entry”.
  • Meanwhile, the modest traction Microsoft is making with application developers for Windows Phone 7 is at risk as it is not clear whether the Windows Phone application model will be supported in the future or whether something new will be introduced.  History suggests the big Windows team will have opinions on the application model.
  • The ARM support won’t show up until Windows 8 (presumed to be 2012), which is an awfully long time to wait.  The incredibly late to materialize Windows 7-based tablets look like sacrificial offerings.  Meanwhile, analysts variously estimate Apple ships between 30 and 50 million iPads this year.  And we’ll see how whether Android 3.0 is as successful with tablets as it was with smartphones, with devices hitting the shelves shortly.  There is a huge difference between being number two and number three in  market (and I guess I should mention RIMM and WebOS for completeness and the possibility Microsoft could be number five in this market).  Microsoft might consider stopping spotting multiple competitors multi-year leads in some of these markets.  But maybe the company just likes a good challenge.
  • Needless to say, Microsoft is in a tough position.  Getting to a single operating system and single application model is desirable for the long term, but the degree of difficulty to get there is incredibly high being a year or more from shipping product, having a full slate (yuck, yuck) of competitors in the market and potentially Osborning the current Windows Phone along the way.
  • But it could be worse – you could be Intel.  Microsoft porting to ARM is a serious indictment of Intel’s power efficiency roadmap.  Historically, Intel-Microsoft executive meetings have had colorful moments and I’d pay to see video of some of the recent ones.  I do expect Microsoft to take the high road and throw Intel a conciliatory bone or two, deeming the next generation of Atom chips to be “pretty good (for you guys…)”.  And while client-focused, this move also improves Microsoft’s options for supporting ARM-based servers in the future, making this a double-barreled nightmare for Intel.  But at least they control their own destiny with that MeToo, er, MeeGo operating system.

Will be fun watching to see how Redmond plays this one.

The Hole in Android and Google’s Double Pony Problem

Android is on fire and Gartner predicts it will be the number two mobile operating system worldwide this year, surpassing Apple and RIMM, but behind the seemingly immortal Symbian.  Google embraced the ubiquity strategy and it is working.  But they’re getting a free pass on whether it makes money on the assumption that Android handset volume will eventually drive material search queries, advertising revenue and pull other attached services.  Unfortunately, there is a big hole in that Android business strategy, shaped roughly like this:China

Google’s self-immolation of its China presence means they won’t see much mobile (or any) search revenue in China, the world’s largest mobile market (and home to the largest number of Internet users).  Google’s mobile search share in China dropped by 30% in the second quarter and they’ve already fallen to third place (bonus points: who is second?).  Android stalwart Motorola is using Baidu and Bing on its phones in China plus there are a variety of efforts by Chinese operators and handset vendors that fork Android.  Forking sidesteps the remaining Android constraints altogether and of course provides complete discretion for what services are integrated.  So you can cut Android’s expected revenue per unit by roughly 20% just based on China.

And where China goes, others may follow in decoupling Android from Google search.  In countries with strong domestic search engines like Russia and South Korea, it may be a simple matter of consumer preference.  The more dirigisme (I’ll just note it is a French word) may not be able to resist the opportunity to play with search defaults.  And in the US, Microsoft is persuading Verizon to use Bing for Android phones with what looks like just cash.  There is a real risk of further decoupling of Google search from Android.

Now Google may be content with not monetizing Android due to its other strategic benefits.  Android pressures Apple and Microsoft, significantly disrupts the traditional operating system business model (which we may soon see extended to tablets and netbooks, which will be really interesting to watch) and raises the capabilities bar for the mobile web.  But settling for non-monetary strategic benefits when the guys you’re outselling are making billions is a little embarrassing (admittedly they’re making it from hardware).  I know Google is monetizing Android on the sly around the edges (it turns out Android is not so open and free if you want the latest version and the Skyhook lawsuit suggests some other tying shenanigans) but it is a rounding error from the standpoint of a $25 billion company.

Google is stuck between two Pony problems.  The One Trick Pony problem and their need to find another material revenue stream beyond search looks more pressing as both their search share and their revenue growth flatten out.  Their heyday window to make hay by building additional businesses while on top of the world seems to be coming to a close (life at the top is getting shorter and shorter – we’ll see how long Facebook lasts in that position.  They could peak even before they become a $10 billion revenue company.  Deferring the IPO for as long as possible makes a lot of sense for them to maximize their window).  Android is one of Google’s better candidates for a revenue stream with lots of zeroes after it, but we are already seeing multiple examples where Google’s revenue link to Android is being severed.  This could be described as the My Little Pony problem (a Sun Microsystems reference for those too lazy to click through and parse the obscure video), wherein your free software doesn’t drive significant revenue directly or indirectly, even as others go to the bank on top of your efforts.  As Google’s core business matures, they’ll have less and less ability to make grand philanthropic efforts.  I suspect we’ll see free become less free and Google dare phone manufacturers to shift platforms once they have started down the Android path.

The good news is neither of these problems are mine to solve.